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In the Court of Appeal of Alberta
Date: 20101117
Docket: 1003-0018-AC
Registry: Edmonton
Between:
Syed Joe Ahmad
Appellant (Plaintiff)
- and Athabasca Tribal Council Ltd., Jim Boucher and Phil Lachambre
Respondents (Defendants)
_______________________________________________________
The Court:
The Honourable Madam Justice Marina Paperny
The Honourable Mr. Justice Jack Watson
The Honourable Mr. Justice J. D. Bruce McDonald
_______________________________________________________
Memorandum of Judgment
Appeal from the Judgment by
The Honourable Mr. Justice R.P. Belzil
Dated the 20th day of October, 2008
Filed on the 29th day of December, 2009
(2008 ABQB 699, Docket: 0303-21779)
2010 ABCA 341 (CanLII)
Citation: Ahmad v. Athabasca Tribal Council Ltd., 2010 ABCA 341
_______________________________________________________
The Court:
[1]
The appellant Syed Joe Ahmad appeals the granting of the respondent Jim Boucher’s
nonsuit application, and judgment against the respondent, Athabasca Tribal Council Ltd. (ATC) in
an amount equivalent to three weeks of the appellant’s salary plus prejudgment interest. Judgment
was also given granting the respondent Phil Lachambre’s nonsuit application, and an earlier appeal
from that judgment was dismissed by this court at 2010 ABCA 142.
Background Facts
[2]
The appellant brought an action against his former employer, ATC, for wrongful dismissal.
He also sued Boucher and Lachambre for tortiously inducing ATC to terminate his employment as
Chief Executive Officer of ATC. The appellant claimed against all defendants for the unexpired
portion of his employment contract, and claimed damages and punitive damages against Boucher
and Lachambre.
[3]
ATC is a corporation formed by five First Nations Bands in northern Alberta to ensure that
they benefit from industrial development in the area. In 1999 and 2002, the five First Nations,
numerous energy companies, and three levels of government entered into All Party Core Agreements
to control development. These Agreements created an executive group to oversee working groups
dealing with the various parties. ATC's Chief Executive Officer is a member of the executive group.
The respondent Boucher is Chairman of ATC’s Board of Directors. The respondent Lachambre is
Vice-President of Syncrude, a major energy producer in the area, and an industry representative on
the executive group.
[4]
The appellant’s written contract of employment provided for an expiration date of June 30,
2004, being one year after a three-month probation period.
[5]
The appellant commenced employment April 1, 2003. Following that date, the appellant
attended meetings of ATC’s Board of Directors, meetings of the executive group, and meetings of
the management committee of which he was also a member. Concerns arose about the appellant’s
views expressed in various meetings, specifically, that he did not understand the spirit or intent of
the All Party Core Agreements, “particularly in regard to responsibility for overhead expenses
associated with industry funded programs designed to assist the First Nations to benefit from
industrial development”: Ahmad v Athabasca Tribal Council Ltd, 2008 ABQB 699, 459 AR 366 at
para 11.
[6]
On September 5, 2003, Boucher met with the appellant and advised him that the energy
companies were concerned about the positions he was adopting on behalf of ATC. The appellant
testified that at this meeting, he was told by Boucher that he was to do whatever Lachambre
Memorandum of Judgment
_______________________________________________________
suggested. Following that meeting, the appellant sent an e-mail dated September 10, 2003 to a
number of people, including respondents Boucher and Lachambre, summarizing his view of the
September 5, 2003 meeting. As described in this court’s decision on the related appeal at 2010
ABCA 142 at para 3:
There were some complaints about the appellant, and he also put forward a proposal
for the employer companies to pay more operating costs, which those companies did
not like. Then there was a dispute about whether minutes of a meeting were accurate.
A number of people, inside and outside the employer corporation, had misgivings
about the appellant’s actions.
[7]
On September 16, 2003, ATC’s Board of Directors met and told the appellant they had
decided to sever the employment relationship.
[8]
The appellant commenced an action against ATC for wrongful dismissal and against Boucher
and Lachambre for tortious interference with his employment contract.
Trial Decision
[9]
After the appellant closed his case, Boucher and Lachambre each applied for a nonsuit.
[10] The trial judge reviewed the test for tortious interference with contractual relations as set out
in 369413 Alberta Ltd v Peter H. Pocklington, 2000 ABCA 307, 271 AR 280, and the law governing
nonsuit applications. For the purposes of the nonsuit applications, the trial judge assumed that the
elements necessary to establish intentional inducement of breach of contract were proven, i.e., the
existence of the contract; knowledge or awareness by the respondents of the contract; breach of the
contract by a contracting party; and the appellant suffered damages.
[11] The trial judge found no direct evidence that Boucher did anything to induce ATC to breach
the employment contract, nor that he did anything in his dealings with the appellant outside his
duties as a director, nor that he did anything to further his own interest over that of ATC. The trial
judge reviewed the case law on claims against directors for personal liability, and found the claims
could not succeed against Boucher for damages or punitive damages for breach of contract and
tortious interference with contractual relations. He granted his nonsuit application.
[12] For the appellant’s claim for breach of contract by ATC, the trial judge found the contract
of employment was not a fixed-term contract. The trial judge found the provision at paragraph 5.1
of the contract which stated “unless terminated earlier pursuant to the terms of the agreement”
clearly and unambiguously stipulated that the contract was not a fixed-term contract. And further
found at para 66, “It was open to the [appellant] to bargain for a fixed term of employment, but he
failed to do so.” The trial judge held that since the agreement provides at paragraph 5.3.3 that the
employer may terminate the agreement “at its sole discretion for any reason, without cause”, ATC
Page: 2
had not breached the agreement but had exercised its rights to terminate the agreement as it was
entitled to do.
[13] The trial judge accepted ATC’s argument that under para. 5.3.3, the appellant, having been
employed for five and one half months, was entitled to two weeks’ notice, being one-half of one
month’s notice of termination, together with one week’s salary under the Employment Standards
Code, for a total of three weeks salary.
[14] The trial judge dismissed the appellant’s claims for damages relating to the manner in which
he was terminated as he found there was no evidence that it was anything but proper and
professional.
Grounds of Appeal
[15]
The appellant submits that the trial judge erred:
1. by applying the wrong legal test in granting Boucher’s nonsuit application;
2. by holding there was no direct evidence that Boucher induced ATC to terminate the
appellant’s employment;
3. by applying the wrong legal test in determining Boucher was not personally liable as a
result of being a director of ATC;
4. in determining the employment agreement terms were unambiguous and the appellant
was only entitled to receive payment of three weeks salary; and
5. in determining ATC had complied with the terms of the agreement when no severance
payment was made to the appellant.
Standards of Review
[16] Contractual interpretation involving questions of law are reviewed on the correctness
standard: Meyer v Partec Inc, 2001 ABCA 145, 281 AR 339 at para 11. However, where the court
has to make fact findings in order to determine the essential terms of a contract, those findings
warrant deference absent palpable and overriding error: Double N Earthmovers v Edmonton, 2005
ABCA 104, 363 AR 201 at para 16, aff'd 2007 SCC 3, [2007] 1 SCR 116.
[17] Findings of fact will only be interfered with if there was palpable and overriding error:
Housen v Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235 at paras 10 and 25.
Analysis
Nonsuit application
[18]
The appellant submits that the trial judge applied the wrong legal test in granting the nonsuit.
Page: 3
[19] The trial judge set out the law to be applied for both Boucher and Lachambre’s nonsuit
applications. In dismissing the appeal of the grant of a nonsuit against Lachambre, this court found
no error in the legal test for a nonsuit used by the trial judge: 2010 ABCA 142 at para 7. In this
appeal against the grant of nonsuit against Boucher, we agree with the earlier decision of this court
that the trial judge did not err in the legal test he applied to the nonsuit application.
[20] The appellant also submits that the trial judge erred in holding there was no direct evidence
to support the appellant’s claim that Boucher induced ATC to terminate his contract. He submits that
he need not produce direct evidence, and that instead courts can infer that a party induced a breach
of contract when it is reasonably foreseeable that a breach would result from that party’s conduct.
[21] The appellant points to evidence that Boucher discussed his concerns about the appellant
with Lachambre and others and that there was no complaint on record of the appellant’s
performance. He submits this is sufficient to permit the inference that there is some evidence that
Boucher induced the breach.
[22] The trial judge recognized that the burden of proof can be met by the drawing of inferences
from the evidence before the court. However, the trial judge found he could not draw any inference
from those actions to support the allegation that Boucher induced the breach of contract. As this
court earlier held at 2010 ABCA 142 at para 8:
Mere criticism of someone is not sufficient to constitute the tort of inducing breach
of contract. If it were, it would never be legally safe for a customer to complain to
a manager of poor service in a retail business.
[23] Other than the concerns voiced by Boucher, the appellant cannot point to any evidence that
Boucher may have induced the breach of contract, assuming there was a breach and assuming
(contrary to what is below) that Boucher was acting separately from ATC. Given the standard of
review on findings of fact, we cannot interfere with the trial judge’s conclusion that there was no
evidence to support that Boucher induced the breach of contract.
Director’s liability
[24] The appellant also claimed against Boucher as a director of ATC and submits the trial judge
erred in finding that the appellant could not maintain an action on that basis.
[25] The trial judge held that personal claims against a director for actions ostensibly carried out
under a corporate name can only succeed if the director was acting outside his or her duties as a
director or to further personal interests over that of the corporation; but he found no evidence
“whatsoever” that Boucher conducted himself in such a manner that the appellant could claim
against Boucher personally as a director of ATC.
Page: 4
[26] The appellant submits that the trial judge ignored Boucher’s conduct that showed that he
acted contrary to ATC’s best interest. The appellant points to Boucher’s position as the chairman
of the Board of Directors of ATC and as co-chair of the executive group under the All Party Core
Agreement, Boucher’s discussion and concerns about the appellant, the financial situation of ATC
which was under budget, and the appellant’s plans for his department budget.
[27] The evidence which the appellant points to does not support the conclusion that Boucher
acted contrary to the interests of ATC, or that he pursued a separate interest from that of ATC. Both
ATC and Boucher, as a member of ATC’s Board of Directors, had every right to manage and
address performance issues with the appellant as an employee. The dealings between the appellant
and Boucher as employee and director cannot, based on the evidence before the trial judge, be
characterized as acting outside their respective roles. As a result, the appellant has not shown any
error in the trial judge’s conclusion that the appellant could not maintain an action against Boucher
personally for his conduct as a director of ATC. This has been clear law since the decision in Said
v. Butt [1923] K.B. 497.
Wrongful dismissal
[28] Moreover, as the trial judge correctly found no breach of contract by ATC by firing the
appellant, there could be no personal liability on the part of Boucher acting as a director of ATC for
being involved in the firing.
[29] The appellant submits that the trial judge misinterpreted the employment contract when he
concluded it was not a fixed-term contract. The appellant points to paragraph 5.1 of the contract
which provides in full:
The parties understand and agree that employment pursuant to this agreement is for
a set term of one year and expires June 30, 2004, unless terminated earlier pursuant
to the terms of this agreement, and may be renewed for successive terms of three
years at the discretion of the Employer by giving notice in writing of the renewal at
least 30 days prior to the expiry of the agreement.
[30]
He also points to paragraph 5.3.3 which provides:
5.3 Subject to paragraph 5.2.2, the parties understand and agree that employment
pursuant to this agreement may be terminated in the following manner in the
specified circumstances:
...
5.3.3 by the Employer at its sole discretion for any reason, without cause, upon
providing the Employee one month’s notice of termination for each completed year
of service (or at the Employer’s option pay in lieu of notice) plus all payments or
entitlements to which the Employee is entitled pursuant to the Alberta Employment
Page: 5
Standards Code, including notice of termination (or at the Employer’s option, pay
in lieu of notice) and employee benefits.
[31] The appellant submits the contract provided that the appellant could not be terminated within
the first year following the successful completion of his probation other than for cause.
[32] Alternatively, he submits that the contra proferentem rule of construction should apply in
favour of the appellant.
[33] He further submits that the trial judge erred in providing two weeks’ severance as the
appellant had completed five and one half months of service. The appellant submits the contract is
silent with regard to the notice to be provided in circumstances where employment is terminated
after less than one year of service, and that by providing two weeks’ severance the trial judge erred
by rewriting the contract.
[34] The contract, as found by the trial judge, is clear and unambiguous. The contra proferentem
rule does not apply where there is no ambiguity. See E.G. Progressive Homes Ltd. v. Lombard
General Insurance, 2010 SCC 33 at paras. 22-24. Paragraph 5.1 of the contract clearly provides that
employment can be terminated earlier than one year provided it is according to the terms of the
agreement. Paragraph 5.3.3 provides for termination before one year as long as the appellant is given
1. one months’ notice of termination for each completed year of service (or at ATC’s
option pay in lieu of notice), and
2. all payments or entitlements pursuant to the Alberta Employment Standards Code,
including notice of termination (or at ATC’s option, pay in lieu of notice) and employee
benefits.
[35]
The Employment Standards Code provides at section 56(a):
56
To terminate employment an employer must give an employee written
termination notice of at least
(a) one week, if the employee has been employed by the employer for more
than 3 months but less than 2 years
[36] Based on the words of the agreement, the trial judge found that ATC did not breach the
agreement but exercised its rights under paragraph 5.3.3 to terminate the appellant’s employment
by offering to pay the appellant five weeks’ severance pay if the appellant signed a release. He
refused.
[37] The trial judge found that under the agreement the appellant, having been employed for five
and one half months, was entitled to two weeks’ notice, i.e., one-half of one month notice of
Page: 6
termination, together with one week’s salary pursuant to the Employment Standards Code, for a total
of three weeks’ salary. He also awarded prejudgment interest pursuant to the Judgment Interest Act,
RSA 2000, c J-1, for all amounts owing but not paid.
[38] The trial judge erred in his interpretation of paragraph 5.3.3 of the agreement (see paragraph
30 above) in awarding to the appellant anything more than the 1 week he was entitled to pursuant
to Alberta Employment Standards Code. However, that portion of his judgment has not been
appealed and therefore stands.
[39] The trial judge did not err in allowing ATC to rely on the terms of the agreement. ATC
offered the appellant more than was required under the agreement on condition that he sign a release,
but the appellant refused to accept the offer. There was no breach of the terms of the agreement
because the appellant refused to accept the pay in lieu which ATC offered. ATC did nothing to
repudiate the agreement, but was acting on its rights under the contract.
Conclusion
[40]
For the reasons above, the appeal against Boucher and ATC must be dismissed.
Appeal heard on November 2, 2010
Memorandum filed at Edmonton, Alberta
this 17th day of November, 2010
Paperny J.A.
Watson J.A.
McDonald J.A.
Page: 7
Page: 8
W. J. Pavlic, Q.C.
for the Appellant
J. T. Kondro
for the Respondents
Appearances:
Clearwater Seafoods Limited Partnership,
a Nova Scotia Limited Partnership
Respondent
Judge:
The Honourable Justice Fichaud
Appeal Heard:
January 25, 2010
Subject:
Wrongful dismissal - damages - mitigation
Summary: Clearwater dismissed Captains Boutcher and Knickle, scallop vessel
captains, without cause. The Supreme Court judge awarded Captain
Knickle damages for wrongful dismissal but dismissed Captain
Boutcher’s claim because he ruled Captain Boutcher failed to mitigate
his loss. Both Captains and Clearwater appealed.
Issue:
Did the trial judge err in his calculation of damages, in his rulings on
mitigation, or in his failure to award compensation for mitigation
expenses?
Result:
The trial judge did not err in his calculation of damages. He erred by
ruling that Captain Boutcher’s damages should be eliminated by
failure to mitigate. The Court of Appeal ruled that Captain Boutcher
did not fail to mitigate. Captain Boutcher’s claim for recovery of
mitigation expenses was outside the principle that allows recovery,
and should be dismissed. The Court of Appeal partly allowed Captain
2010 NSCA 12 (CanLII)
NOVA SCOTIA COURT OF APPEAL
Citation: Boutcher v. Clearwater Seafoods Limited Partnership,
2010 NSCA 12
Date: 20100223
Docket: CA 311111
Registry: Halifax
Between:
Cecil Boutcher and Clyde Knickle
Appellant
v.
Page: 2
This information sheet does not form part of the court’s judgment. Quotes
must be from the judgment, not this cover sheet. The full court judgment
consists of 27 pages.
NOVA SCOTIA COURT OF APPEAL
Citation: Boutcher v. Clearwater Seafoods Limited Partnership,
2010 NSCA 12
Date: 20100223
Docket: CA 311111
Registry: Halifax
Between:
Cecil Boutcher and Clyde Knickle
Appellant
v.
Clearwater Seafoods Limited Partnership,
a Nova Scotia Limited Partnership
Respondent
Judges:
Hamilton, Fichaud, Beveridge, JJ.A.
Appeal Heard:
January 25, 2010, in Halifax, Nova Scotia
Boutcher’s appeal and dismissed the appeals of Captain Knickle and
Clearwater.
Held:
Allowed in part, per reasons for judgment of Fichaud, J.A.;
Hamilton and Beveridge, JJ.A. concurring.
Counsel:
Mark Tector, for the appellant
Nancy Barteaux and Isabelle French, for the respondent
Reasons for judgment:
[1] Cecil Boutcher and Clyde Knickle captained scallop vessels for Clearwater
Seafoods. Their employment with Clearwater ended in January 2005, and they
sued for wrongful dismissal. The trial judge decided Clearwater dismissed them
without cause, and Captain Knickle was entitled to $55,498 damages plus interest,
but Captain Boutcher's failure to mitigate disentitled him to damages. Captains
Boutcher and Knickle and Clearwater all appealed. The issues turn on how the
agreements and practices that governed Clearwater's fishing operations affect the
principles of wrongful dismissal, particularly those respecting notice of
termination, damages and mitigation.
Background
[2] Captain Boutcher was age 59 at trial. At 15 he went to sea. In 1971 he
captained his first scallop vessel for Pierce Fisheries. In 1987 Clearwater Seafoods
Limited Partnership ("Clearwater") acquired Pierce Fisheries, and Captain
Boutcher moved to Clearwater. Clearwater harvests scallops, lobster, crab, shrimp
and other species for sale on the Canadian and international markets. With
Clearwater, Captain Boucher captained two scallop vessels, the A.E. Pierce until
2002, then the Ocean Lady until December 2004. The Ocean Lady was 130 feet
with a crew of 19, and its normal trip lasted eight to ten days. It was a wetfish
vessel which ices bags of scallops at sea. This differs from a frozen at sea (FAS)
factory trawler which shucks the scallops then freezes them individually in a blast
freezer.
[3]
The trial judge found:
Page: 3
Page: 4
[4] Clyde Knickle was 61 at trial. He went to sea in 1969, worked for C.W.
Macleod Fishery when Clearwater took it over in 1982, and captained scallop
vessels for Clearwater since 1988.
[5] The trial judge said (¶ 163) that both captains “served the company well”,
and “did good work for many years, and the company benefited from their skill at
locating and catching scallops.” There is no suggestion of just cause for dismissal.
[6] Until 1998, Clearwater had no written contract of employment with its
captains. By late 1996, Peter Matthews, vice president of Clearwater's fleet,
decided to formalize the terms of employment. On December 4, 1996, Mr.
Matthews met the captains and delivered a scripted statement that was adduced in
evidence:
6.
NOW I HAVE GOT TO ADDRESS HOW WE CONDUCT
OURSELVES IN THE FUTURE AND OUR RELATIONSHIP WITH YOU, TO
RECOGNIZE WHERE WE STAND LEGALLY. YOU ARE ALL AWARE
THAT THE CURRENT TREND IS FOR DIS-SATISFIED EMPLOYEES TO
GO TO THE NEAREST LAWYER, WHO WILL PROMISE THE EARTH AND
PROCEED TO SUE THE COMPANY, WITH SOME WINNERS AND SOME
LOSERS.
NOT ONLY IS THERE A FINANCIAL CONSIDERATION BUT THIS IS A
DISTRACTION AND A DRAIN ON THE COMPANY’S TIME IN RUNNING
ITS BUSINESS.
7.
WE HAVE TAKEN THE BEST LEGAL ADVICE AVAILABLE ON
THIS ISSUE AND THEREFORE WE ARE ISSUING YOU LETTERS OF
TERMINATION, EFFECTIVE APRIL 1998, AFTER WHICH TIME WE WILL
REVIEW OUR REQUIREMENTS AND YOU MAY SUBMIT YOUR
APPLICATION TO FILL THESE.
8.
PLEASE UNDERSTAND THAT AS OF APRIL 1998 YOUR
EMPLOYMENT AT DST IS TERMINATED, AND ANYTHING THAT
HAPPENS AFTER THAT DATE WITH THOSE CAPTAINS AND MATES
THAT WORK FOR US WILL BE ON A CONTRACTUAL BASIS.
6.
All the evidence before me is that Captain Boutcher was a good scallop
vessel captain. He did his job well and knew where to find scallops. He did that
based on his long experience catching scallops.
Page: 5
-
DOES NOT WANT ANY AMBIGUITY WHEN PEOPLE LEAVE THE
ROOM. TERMINATION IS ON APRIL 30TH 1998.
-
CAPTAINS/MATES MAY RE-APPLY AFTER THAT DATE. WE
WILL FILL OUR REQUIREMENTS ACCORDING TO OUR NEEDS
AT THAT TIME. FUTURE EMPLOYMENT WILL BE UNDER
CONTRACT.
[7] At the meeting of December 4, 1996, Captains Boutcher and Knickle each
received from Clearwater a letter stating that their employment would cease by
April 30, 1998:
“Dear ... :
The current state of the fishing industry requires that our company become more
efficient. Accordingly, during the next eighteen (18) months we expect to
undertake a reorganization of our fleet which will involve the retirement from
service of certain vessels. This reduction in our fleet will in turn reduce the
number of vessel captains.
In order to permit you the opportunity to plan and organize your personal affairs,
it is appropriate that we give to you as much notice as possible of our plans.
Accordingly, we hereby give you formal notice that your engagement as a captain
(and in all other positions as well) with our company shall terminate and be at an
end effective April 30, 1998, (unless otherwise sooner terminated)”
[8] Captains Boutcher and Knickle each then discussed his employment
situation with Clearwater's fleet manager, Captain Mike Pittman. Captains
Boutcher and Knickle knew that Captain Pittman was subordinate in the company
to Mr. Matthews, who had delivered the stern message of December 4,1996.
Captain Pittman gave Captains Boutcher and Knickle verbal assurances that
Clearwater would still employ them after April 1998. The nature of these
assurances was an issue in the litigation and will be discussed later.
[9] On April 28, 1998, Clearwater gave Captains Boutcher and Knickle each a
letter confirming the termination of employment on April 30, 1998. The Captains
were called to a meeting with Clearwater's Mr. Matthews, who told them they
...
Page: 6
You cannot sail with us again unless you have accepted the terms and conditions
of this new Agreement.
[10] This Multi Trip Agreement continued the historical calculation of the
captain's compensation and provided for benefits. The captain's compensation was
four percent of the gross stock and the equivalent of one crew share per trip. A
crew share is based on total catch less expenses. The Multi Trip Agreement
discussed termination of employment in article 19:
“This Agreement shall continue in effect until terminated by either party in
accordance herewith. Either party may terminate this Agreement at any time
upon the giving of thirty (30) days written notice to the other party, such
termination to be effective on the later of the thirtieth (30th) day after the giving of
such notice and the date specified in such notice; provided that:
(a) in lieu of giving such notice the Captain may pay to the Owner the sum
of Five Thousand Dollars ($5,000.00) in full and final settlement of all of
the Captain’s obligations to the Owner hereunder excepting only the
obligations of the Captain pursuant to Sections 11 and 16 hereof; and
(b) in lieu of giving such notice the Owner may pay to the Captain the sum
of Twenty-Five Thousand Dollars ($25,000.00) in full and final settlement
of all of the Owner’s obligations to the Captain under this Agreement.”
[11] Captains Boutcher and Knickle each signed this Multi Trip Agreement.
[12] In December 1999, the 1998 Multi Trip Agreements were amended by
agreement to comply with federal income tax requirements, but article 19
respecting termination of employment remained. In January 2002, when Captain
Boutcher began his captaincy of the Ocean Lady, he signed a new Multi Trip
Agreement, which retained the wording of article 19 from his 1998 Multi Trip
Agreement.
[13] By the late 1990's Clearwater moved to modernize its fleet by the eventual
replacement of its wetfish vessels with FAS vessels. Clearwater's first FAS vessel,
the Atlantic Leader, entered service in June 2002. By June 2005 Clearwater had
could continue with Clearwater only if they signed a written Multi Trip
Agreement. Mr. Matthews' script for the meeting said:
Page: 7
[14] In January 2003 Clearwater presented Captains Boutcher and Knickle with a
new document, a Single Trip Agreement. Clearwater did this without the prior
notice or $25,000 payment that was prescribed in article 19 of the Multi Trip
Agreement. The Single Trip Agreement provided for similar job functions and
compensation as the earlier Multi Trip Agreement, except that the captain would
not participate in Clearwater's medical benefits. Unlike the former Multi Trip
Agreement, the Single Trip Agreement applied to only one fishing trip and had to
be re-signed before each embarkation. Captains Boutcher and Knickle understood
that, if they did not sign, they could not leave port for Clearwater.
[15] The Single Trip Agreement had no provision, equivalent to article 19 of the
former Multi Trip Agreement, providing for notice of termination or payment in
lieu. The Single Trip Agreement said in article 24:
“This Agreement constitutes the entire understanding, contract and agreement
between the parties and supersedes all other oral or written understandings,
agreements or contracts, formal or informal, between the parties or their
representatives with respect to the subject matter of this Agreement. Without
limiting the generality of the foregoing, the Captain hereby releases and forever
discharges Clearwater Fine Foods Incorporated and all subsidiaries and affiliates
thereof and its and their shareholders, directors, officers and employees, and its
and their successors and assigns from any and all manner of actions, causes of
action, debts, accounts, covenants, contracts, claims and demands whatsoever
which the Captain has had, now has or which the Captain or his heirs, executors,
administrators, successors or assigns or any of them hereafter can, shall or may
have for or by reason of any cause, matter or thing existing up to the date hereof
under any legislation, or contract, or in tort or otherwise, or for any other reason
whatsoever with regard to the relationship at any time heretofore existing with
respect to the Captain being the captain of or otherwise in any capacity
whatsoever being an officer or member of the crew of the Vessel or of any other
vessel owned or operated by Clearwater Fine Foods Incorporated.”
[16] Captains Boutcher and Knickle signed Single Trip Agreements for each trip
from January 2003 through December 2004.
[17] On December 16, 2004 Captain Boutcher received a letter from Clearwater
saying that Clearwater would no longer fish wetfish vessels, such as the Ocean
added three more FAS vessels. This changed modality involved a reconsideration
of Clearwater's employment of its wetfish vessel captains.
Page: 8
Lady. On January 17, 2005, Clearwater's Fleet Manager Captain Lohnes called
Captain Boutcher to a meeting. At the meeting he gave Captain Boutcher a letter
stating:
Page: 9
Dear Cecil:
As discussed with you throughout 2004, the vessel that you had been assigned to
command will not be fishing with the offshore scallop fishing fleet operating from
Lunenburg as of her last landing in December 2004. As announced, Clearwater is
adding two FAS vessels to the offshore scallop fleet and is not planning to operate
any Wetfish vessels in the fishing effort of the future. As of the end of your last
fishing trip in 2004, your employment relationship with Clearwater was
terminated as per the Agreement signed at the beginning of the trip. We are
unable to offer any further Single Trips with the offshore scallop Wetfish fleet.
We are offering you the position of Captain of the Cape Keltic a fishing vessel
that will be used for Research and Development, as well as Scientific Scallop
Surveys for part of each year.
In retaining your services as a Captain on this vessel we are prepared to guarantee
an annual salary (to be discussed) each year research is carried out.
We appreciate the need for you to consider the offer, and would like to receive a
response by Wednesday, January 19th at 1600 hrs. at latest.
We are hopeful you will continue to work with Clearwater in this new role, and
look forward to hearing from you.
Kind regards,
Capt. Keith Lohnes
Fleet Manager Scallop Operations
[18] Captain Boutcher was surprised by this offer for the Cape Keltic survey
vessel. He had expected to be offered a captaincy on one of Clearwater's new FAS
vessels. He consulted a lawyer and wrote to Clearwater for clarification. He
received Clearwater's reply of January 27, 2005:
Capt. Cecil Boutcher
Page: 10
This letter is in response to your letter of Jan 19, 2005 concerning the offer of
employment as Captain of the Survey Vessel, Cape Keltic. I will respond to each
of your inquiries individually below.
Annual Income:
•
This would be dependant upon the number of survey trips during the year
and the number of fishing trips that may be required.
•
The pay rate for the survey trips as captain would be $450.00 per sea day,
with an allowance of one additional day of pay for each survey.
•
The pay rate for the fishing trips would be on a share basis as it has been
in the past. An estimate would be between $3000 and $5500 per trip, but
as you are aware, this will be dependent on the pounds landed.
•
At the end of the first year we would review your employment and if all
results where positive we would then be in a position to consider
negotiating a salary for the following year for the survey work.
We anticipate,
•
Three scallop surveys totalling 30 days at sea.
•
One fishing gear survey totalling 15 days at sea.
•
One clam survey totalling 30 days at sea.
We anticipate the starting time of the surveys to be in early May and to be
completed in September of 2005. Any fishing trips that may be required can be
expected to start in September of 2005 and could possibly continue until
December of 2005.
[19] Captain Boutcher declined Clearwater's Cape Keltic offer. He estimated the
Cape Keltic position would pay only $33,000 annually compared to his 2004
income of $135,000 with the Ocean Lady. In April 2005, Captain Boutcher sued
Clearwater for wrongful dismissal.
Dear Capt. Boutcher
[20] In January 2005, Captain Knickle was off work on workers' compensation.
He also was called to a meeting on January 17, with Clearwater's Captain Lohnes,
who told Captain Knickle that Clearwater would not offer him further employment.
Clearwater paid him nothing for severance. In April 2005, Captain Knickle joined
Captain Boutcher as a co-plaintiff in this wrongful dismissal action.
[21] Justice Douglas MacLellan of the Supreme Court of Nova Scotia heard the
trial in November 2008. He issued a written decision on April 3, 2009 (2009 NSSC
107). The judge ruled that Captains Boutcher and Knickle were wrongfully
dismissed and, subject to mitigation, would be entitled to damages. He analyzed
the claims sequentially:
(a) He concluded that the Captains’ terminations of employment on April
30, 1998 did not attract damages because each had received working notice
from December 4, 1996 of the termination on April 30, 1998. The judge held
that 16 months 26 days sufficed as reasonable notice.
(b) The judge said that Clearwater breached the Captains’ employment
contracts in January 2003, by terminating the Multi Trip Agreement without
the 30 days notice required by article19. This breach entitled each captain,
subject to mitigation, to the $25,000 prescribed by article 19.
(c) The judge ruled that the Single Trip Agreements from 2003 through
2004 were void because they changed the terms of the Multi Trip Agreement
without consideration from the Captains. He said that, from January 2003,
the Captains were employed for an indefinite term without written contract.
There being no just cause, Clearwater wrongfully dismissed them in January
2005. The judge ruled that, subject to mitigation, they were entitled to
reasonable notice from January 2005, quantified as three months for these
two years of service. This was in addition to the $25,000 mentioned above
for the January 2003 breach.
[22] The judge ruled that Captain Boutcher's refusal to accept Clearwater's
offered position with the Cape Keltic in January 2005 was failure to mitigate and
disentitled Captain Boutcher both to the $25,000 damages for Clearwater’s January
Page: 11
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[23] The judge ruled that Captain Knickle did not fail to mitigate. He noted that
Captain Knickle was on workers' compensation until April 2005, and that he could
not find work in early 2005. He awarded Captain Knickle damages of $25,000, for
Clearwater’s breach of the Multi Trip Agreement in January 2003, plus three
months’ income (calculated as an average of his earnings for 2003 and 2004) in
lieu of notice for his wrongful dismissal in January 2005.
[24] Captains Boutcher and Knickle appealed by separate notices of appeal and
cross appeal. Clearwater filed a notice of contention and cross appeal.
Issues
[25] Captains Boutcher and Knickle say that Clearwater's notice of termination in
December 1996 was modified by Captain Pittman's later verbal assurances that the
Captains would still be employed after April 1998. So there was no clear and
unequivocal notice of termination, and the Captains' employment was not
terminated in April 1998 by working notice. They contend that Clearwater's
conduct in January 2003 disentitled Clearwater from relying on article19 of the
Multi Trip Agreement, and that their wrongful dismissals in January 2005 should
attract reasonable notice based on their decades of service with Clearwater. They
submit that up to 24 months is reasonable. They say there should be no reduction
in their awards based on principles of mitigation. Captain Boucher claims
approximately $190,000 to reimburse what he terms as mitigation expenses.
[26] Clearwater, on the other hand, submits that the judge correctly concluded
that the Captains were given sufficient working notice from December 1996
through April 1998, that the Multi Trip Agreements' article 19 capped the
compensation for the period up to January 2003 at $25,000, subject to mitigation,
and that the reasonable notice for 2003-2004 would be no more than two or three
months. Clearwater says that the Captains' actual earnings after January 2003 fully
mitigated the $25,000 entitlement under article 19, that Captain Boutcher's
damages for three months’ reasonable notice from January 2005 are eliminated by
his failure to mitigate by refusing the Cape Keltic captaincy, and that Captain
2003 breach and to the three months’ damages for his wrongful dismissal in
January 2005. The judge dismissed Captain Boutcher's action.
Page: 13
[27] I will address the issues from all parties topically:
1.
Did the judge err by ruling the Captains' employment terminated by
sufficient working notice in April 1998?
2.
Did the judge err by ruling that the Captains’ award for wrongful
dismissal included both $25,000 under article 19 of the Multi Trip
Agreement plus compensation for the period of reasonable notice based on
service in 2003 and 2004?
3.
Did the judge err by deciding that Captain Knickle was entitled to
three months’ reasonable notice, based on average earnings for 2003 and
2004, for his wrongful dismissal in January 2005?
4.
Did the judge err by not ruling that the Captains’ employment
earnings from January 2003 through December 2004 mitigated their
entitlement to $25,000 under the Multi Trip Agreement?
5.
Did the judge err by ruling that Captain Boutcher failed to mitigate by
declining the Cape Keltic captaincy in January 2005?
6.
Did the judge err by failing to compensate Captain Boutcher for his
claimed mitigation expenses?
Standard of Review
[28] The appeal court's assessment of error at trial filters through the applicable
standard of review.
[29] The judge must be correct on legal issues. The standard for facts and
questions of mixed fact and law with no extractable legal error is palpable and
overriding error. This means a plainly identified error that is shown to have
affected the result. H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401, at ¶ 65
Knickle's award after January 2005 should be reduced from three to two months
and should be calculated from his 2004 income.
Page: 14
72 I have not overlooked that, according to the majority in Housen, the test to
be applied in reviewing inferences of fact is "not to verify that the inference can
be reasonably supported by the findings of fact of the trial judge, but whether the
trial judge made a palpable and overriding error in coming to a factual conclusion
based on accepted facts" which, in its view, implied a stricter standard (para. 21
(emphasis in original)). The apparent concern of the majority was that, in drawing
an analytical distinction between factual findings and factual inferences, the
minority position might lead appellate courts to involve themselves in reweighing
the evidence (para. 22). As well, the majority stated:
If there is no palpable and overriding error with respect to the underlying
facts that the trial judge relies on to draw the inference, then it is only
where the inference-drawing process itself is palpably in error that an
appellate court can interfere with the factual conclusion. [Emphasis in
original; para. 23.]
73 These passages from the majority reasons in Housen should not be taken to
have decided that inferences of fact drawn by a trial judge are impervious to
review though unsupported by the evidence. Nor should they be taken to have
restricted appellate scrutiny of the judge's inferences to an examination of the
primary findings upon which they are founded and the process of reasoning by
which they were reached.
74 I would explain the matter this way. Not infrequently, different inferences
may reasonably be drawn from facts found by the trial judge to have been directly
proven. Appellate scrutiny determines whether inferences drawn by the judge are
"reasonably supported by the evidence". If they are, the reviewing court cannot
reweigh the evidence by substituting, for the reasonable inference preferred by the
trial judge, an equally -- or even more -- persuasive inference of its own. This
fundamental rule is, once again, entirely consistent with both the majority and the
minority reasons in Housen.
[ Justice Fish's emphasis]
More recently, in F.H. v. McDougall, [2008] 3 S.C.R. 41, at ¶ 55, Justice Rothstein
for the Court said:
55.
An appellate court is only permitted to interfere with factual findings
when "the trial judge [has] shown to have committed a palpable and overriding
error or made findings of fact that are clearly wrong, unreasonable or unsupported
and 69; Housen v. Nikolaisen, [2002] 2 S.C.R. 235, at ¶ 8, 10, 19-25, 31-36. In
H.L., Justice Fish for the majority elaborated:
by the evidence" (H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401, 2005
SCC 25, at para. 4 (emphasis deleted), per Fish J.). Rowles J.A. correctly
acknowledged as much (para. 27). She also recognized that where there is some
evidence to support an inference drawn by the trial judge, an appellate court will
be hard pressed to find a palpable and overriding error. Indeed, she quoted the
now well-known words to this effect in the judgment of Iacobucci and Major JJ.
in Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33, at para. 27 of her
reasons (para. 22 of Housen).
First IssueEffect of Notice of Termination in December 1996
[30] Captains Boutcher and Knickle acknowledge receiving the notice from
Clearwater in December 1996, that their employment would terminate in April
1998. But, after this, they each spoke to their direct superior, Captain Pittman.
They say Captain Pittman assured them they would have jobs with Clearwater after
April 1998. These assurances, they contend, diluted Clearwater's message to
something less than the clear and unequivocal notice of termination that is required
for working notice. It follows that they would not be terminated by notice in April
1998, and their employment before April 1998 would count in any calculation of
reasonable notice for their later wrongful dismissal.
[31] Sufficient and effective working notice terminates an employment contract:
Evans v. Teamsters Local Union No. 31, [2008] 1 S.C.R. 661, ¶ 28-29. England,
Wood and Christie, Employment Law in Canada (LexisNexis Butterworths 4th edlooseleaf), ¶ 14.75 states the requirements of effective working notice:
The courts require that, in order to be effective in starting the notice period
countdown, the notice itself must be “specific, unequivocal...and clearly
communicate[d] to the employee that his employment will end on a certain date”.
The use of precise or formal language is not required provided that the employer's
intention to end the relationship is objectively manifest.
[32] The trial judge found:
[129] While I conclude that Captain Pittman did give to both plaintiffs some
assurances about them having a job with the company after April 1998 I cannot
conclude that such comments on his part can be construed as an alternative to the
clear message being delivered by the written correspondence from the company.
Page: 15
Page: 16
8. PLEASE UNDERSTAND THAT AS OF APRIL 1998 YOUR
EMPLOYMENT AT DST IS TERMINATED, AND ANYTHING THAT
HAPPENS AFTER THAT DATE WITH THOSE CAPTAINS AND MATES
THAT WORK FOR US WILL BE ON A CONTRACTUAL BASIS.
...
-
DOES NOT WANT ANY AMBIGUITY WHEN PEOPLE LEAVE THE
ROOM. TERMINATION IS ON APRIL 30th 1998.
-
CAPTAINS/MATES MAY RE-APPLY AFTER THAT DATE. WE
WILL FILL OUR REQUIREMENTS ACCORDING TO OUR NEEDS
AT THAT TIME.
FUTURE EMPLOYMENT WILL BE UNDER
CONTRACT.
Clearwater's letter of December 4, 1996 to Captains Boucher and Knickle said:
In order to permit you the opportunity to plan and organize your personal affairs,
it is appropriate that we give to you as much notice as possible of our plans.
Accordingly, we hereby give you formal notice that your engagement as a captain
(and in all other positions as well) with our company shall terminate and be at an
end effective April 30, 1998, (unless otherwise sooner terminated).
[34] Mr. Matthews, who delivered these statements, was vice president of
Clearwater's fleet and, to the knowledge of Captains Boutcher and Knickle,
superior to Captain Pittman in Clearwater's organization. Mr. Matthews’ message
was that, after the current employment terminated on April 30, 1998, Clearwater
would receive applications for new employment under a new contract of
employment. The trial judge was of the view (¶ 136) that Captain Pittman's
comments to Captains Boutcher and Knickle referred to the prospect of new
employment under such a "new arrangement". This did not diminish Mr. Matthews'
unequivocal notice in 1996 that the Captains’ existing terms of employment would
cease on April 30, 1998.
[35] Clearwater never suggested it would abandon the scallop fishery on April
30, 1998. It was always obvious that Clearwater would need scallop captains after
[33] There was significant evidence to support the trial judge's finding that
Clearwater's termination notice was an undiluted "clear message". Mr. Matthews
scripted statement at the December 4, 1996 meeting was:
that date. But it was also obvious from December 1996 that, as of April 30, 1998,
the prior terms of employment would end. That Clearwater might accept an
application by Captains Boutcher or Knickle for re-employment, on substantially
different terms, after April 30, 1998 did not negate the clear notice that their
existing employment contracts would terminate on that date.
[36] The trial judge considered whether the notice of termination was "clear"
(¶ 129), applying the correct legal standard. He made no palpable error in his
assessment of the evidence, taken as a whole, respecting the clarity of Clearwater’s
communicated intention to end the employment on April 30, 1998.
[37]
The trial judge held that the working notice of 16 months 26 days from
December 4, 1996 to April 30, 1998 was reasonable and sufficient given the
Captains' employment history at the time. There is no error in that conclusion.
[38] I would dismiss the Captains' ground of appeal that challenges the validity of
the notice of termination from December 1996 to April 1998.
Second IssueCalculation of Award for Wrongful Dismissal
[39] The judge’s ruling that the Captains were dismissed by proper working
notice on April 30, 1998 meant that, when the Captains were dismissed in January
2005, the period of their employment that the trial judge considered to calculate
damages excluded their service before May 1998. In my view, for the reasons I
have given, the trial judge did not err by excluding the Captains' employment
before May 1998.
[40] This case is unlike Braiden v. La-Z-Boy Canada Ltd., 2008 ONCA 464,
cited by Captains Boucher and Knickle. In Braiden, at ¶ 46-61, Justice Gillese said
that an employer may not substantially change an employment contract, for
instance by altering the provision for notice of termination, without new
consideration moving from the employer, and that mere continuation of the
employee’s service may not suffice as the new consideration. See also England,
Wood and Christie, Employment Law in Canada ¶ 14.86 and authorities there
cited. Had the employment of Captains Boutcher and Knickle not been validly
terminated by working notice on April 30, 1998, I would agree that: (1) the new
Page: 17
notice provision in clause 19 of the Multi Trip Agreement, i.e. 30 days notice or
$25,000 in lieu, would be without consideration and therefore inapplicable, and (2)
the period of employment to be considered for the Captains' later dismissals
without cause would include their employment before May 1998.
[41] But, as discussed, the Captains' employment was validly terminated on April
30, 1998. The Captains and Clearwater then signed new contracts of employment,
the Multi Trip Agreements, with mutual rights and obligations that constituted an
exchange of consideration. The trial judge considered Braiden and (¶ 159)
correctly ruled that, starting in May 1998, the Captains' terms of employment were
governed by the Multi Trip Agreements, including clause 19.
[42] Starting in January 2003, Clearwater had the Captains sign the Single Trip
Agreements which, in article 24, stated that the Captains released Clearwater from
existing claims (see above ¶ 15). At the trial Clearwater submitted that article 24
released any claims the Captains might have for Clearwater's failure in January
2003, to give notice or payment of $25,000 under article 19 of the Multi Trip
Agreement. The trial judge rejected Clearwater's submission. Before terminating
the Captains' Multi Trip employment in January 2003, Clearwater had given
neither reasonable working notice, as had been done in December 1996, nor the
prescribed 30 day notice or $25,000 under article 19 of the Multi Trip Agreement.
So Clearwater had not validly terminated the Multi Trip Agreement. The trial judge
(¶ 160-61) ruled that, following Braiden, clause 24 of the Single Trip Agreements
was without consideration to the Captains, and the Single Trip Agreements were
void. Clearwater has not appealed that ruling, and the Captains do not challenge it
in the Court of Appeal. So I take the Single Trip Agreements as void, and clause 24
of those Agreements does not release the Captains’ claims in this proceeding.
[43] Clearwater submitted at trial that, if the Single Trip Agreements were void,
then the Captains' Multi Trip Agreements continued, and article 19 of the Multi
Trip Agreements capped any compensation for wrongful dismissal at $25,000.
[44] The Captains take the opposite view. In the Court of Appeal, they contend
that Clearwater's legally deficient attempt to implement Single Trip employment in
January 2003 jettisoned the Multi Trip Agreements, including article 19. So the
$25,000 cap would be irrelevant. This, they submit, leaves the Captains with
indefinite employment and a right to reasonable notice after their wrongful
Page: 18
dismissal in January 2005. They say that, in calculating reasonable notice, the court
may consider the Captains' full period of employment with Clearwater, including
their employment during the Multi Trip regime before January 2003. They request
up to 24 months’ reasonable notice.
[45] The judge steered between these two positions. He ruled that article 19 of
the Multi Trip Agreement governed the period up to January 2003 when
Clearwater attempted to impose the new Single Trip regime. So, subject to
mitigation, the Captains were entitled to $25,000 under article 19 for Clearwater's
breach of the Multi Trip Agreements. The judge added that, from January 2003
until the Captains' dismissal in January 2005, they were employed for an indefinite
term without a written contract of employment. This meant the Captains were also
entitled to reasonable notice (based on their 2003-2004 employment) for their
wrongful dismissals in January 2005.
[46] In Machtinger v. HOJ Industries Ltd, [1992] 1 S.C.R. 986, at pp. 997-98,
Justice Iacobucci noted the complex relationship between contractual intention and
the implication of terms to govern the termination of employment, then
summarized:
...I would characterize the common law principle of termination only on
reasonable notice as a presumption, rebuttable if the contract of employment
clearly specifies some other period of notice, whether expressly or impliedly.
[47] During the currency of the Multi Trip Agreements article 19 rebutted the
presumption of reasonable notice. After January 2003, when Clearwater terminated
the Multi Trip regime, the presumption was not rebutted. In my view, the judge
skilfully alloyed the contractually expressed standard in article19 and the legally
implied term of reasonable notice. He considered that the parties had signed and
acted under enforceable Multi Trip contracts, with mutual consideration, up to
January 2003. He considered Clearwater's attempt, beginning in January 2003, to
alter that employment relationship in a manner that Clearwater does not now
dispute was legally unsupportable. The judge (¶ 174) said that he wanted "to
achieve some form of fairness to the plaintiffs ... [who] had no control or input
over what was placed before them as far as employment contracts were
concerned".
Page: 19
[48] The judge made no error in his conclusion that the Captains were entitled to
both $25,000 as of January 2003 plus compensation for the period of reasonable
notice respecting their employment from January 2003 to their dismissal without
cause in January 2005.
Third IssueCaptain Knickle’s Award for
Reasonable Notice from January 2005
[49] Clearwater's cross appeal submits that Captain Knickle’s reasonable notice,
based on his 2003-2004 employment, should be two months instead of the three
months awarded by the judge. Clearwater says that it had informed its workforce
before January 2005 that Clearwater would replace the wetfish vessels with FAS
vessels, and Captain Knickle should have known his captaincy prospects on an
FAS vessel were uncertain. Clearwater submits that the judge erred by giving
insufficient weight to that fact.
[50] There is no merit to Clearwater's submission. Essentially, the submission
asks the court to treat Captain Knickle as under quasi working notice well before
January 2005. If there was proper working notice Captain Knickle would not be
entitled to even the two months’ notice suggested by Clearwater. The judge found
that the January 2005 dismissals were without notice. There is no basis for the
Court of Appeal to conclude that the trial judge made a palpable and overriding
error by his failure to find, in the period leading to January 2005, the clear and
unequivocal message that is required for working notice.
[51] An employer's ambivalent message respecting an employee’s prospects of
termination, without the clarity needed for working notice, does not re-access the
legal analysis camouflaged as a factor governing the length of reasonable notice. In
Dowling v. Halifax (City), [1998] 1 S.C.R. 22, the Court rejected the "near cause"
doctrine that had operated in Nova Scotia's courts. Clearwater's submission
propounds a "near notice" principle. I reject the submission. If Clearwater's
message to Captain Knickle was not sufficiently clear and unequivocal to
constitute working notice before January 2005, then speculative inferences from
the message should not abridge Captain Knickle's period of reasonable notice. I
note that I am not discussing a case where impermanence is a term of employment,
for instance probationary service. I confine my comments to the effect of an
Page: 20
Page: 21
[52] Clearwater raises a second issue concerning Captain Knickle's award. The
judge calculated Captain Knickle's base income for the three months' reasonable
notice as the average of Captain Knickle's income for 2003 and 2004. He earned
$11,333 per month in 2003 and $9,000 per month in 2004. So the judge awarded
$10,166 monthly for three months. Clearwater's cross appeal submits that the judge
erred with the base income and that the three months' award should derive from
Captain Knickle's 2004 income only, i.e. $9,000 per month.
[53] Clearwater's factum says that the purpose of wrongful dismissal damages "is
to put the dismissed employee in the same position he would have been in had he
received reasonable notice of termination". Clearwater's factum then submits that,
"given the significant fluctuations in annual earnings in the fishing industry, this
[Captain Knickle's projected income in early 2005] would have been best achieved
by looking only to Captain Knickle's earnings in the year immediately prior to his
termination, i.e. 2004".
[54] I agree that the purpose is to compensate the dismissed employee as he
would have been compensated had he received the reasonable notice. Red Deer
College v. Michaels, [1976] 2 S.C.R. 324 at pp. 330-331. But I disagree that the
significant fluctuations of earnings in the fishing industry exclude the use of a two
year average. To the contrary, income fluctuations may be better addressed by a
multi year average than by taking the employee's income snapshot at his dismissal
date. In any case, the judge's prediction of Captain Knickle's hypothetical income
for early 2005 was a question of fact, and there is no palpable and overriding error
in the judge's use of a two year average.
[55] I would dismiss Clearwater's grounds of cross appeal respecting Captain
Knickle's award for the period of reasonable notice after his dismissal without
cause in January 2005.
Fourth IssueMitigation of the $25,000 by 2003-2004 Earnings
employer's vague and equivocal message about the employee's prospects of
dismissal at some indefinite future time.
[56] Clearwater's cross appeal submits that in 2003 and 2004 each Captain's
earnings far exceeded $25,000, and this actual mitigation eliminates their
entitlement to the $25,000 award from Clearwater's January 2003 breach of article
19.
[57] The question is whether the $25,000 prescribed by article19 is even subject
to mitigation. In my view, it is not. The $25,000 was fixed by contract, and is not
diminishable by the employee’s later earnings.
[58] Article 19 says that either party may terminate the agreement by giving 30
days notice or "in lieu of giving such notice the Owner may pay to the Captain the
sum of Twenty-Five Thousand Dollars ($25,000) in full and final settlement of all
the Owner's obligations to the Captain under this Agreement".
[59] Various authorities have considered the effect on the mitigation principles of
a provision in an employment contract that fixes an amount payable to the
employee as full settlement for dismissal without cause. In Rossi v. York
Condominium Corp. No. 123, [1991] O.J. No. 3174 (C.A.) ¶ 1, affirming [1989]
O.J. No. 1424 (H.Ct.J.) the Ontario Court of Appeal said mitigation was irrelevant
to a reasonable "contractual pre-estimate of the damages" in an employment
contract. A Western line of cases applies a debt analysis. If the provision may be
interpreted to create a fixed debt from the employer to employee, then the amount
is not reduced by any amount the employee earned or could have earned after the
debt became due. See: Mills v. Alberta, [1986] A.J. No. 605 (C.A.) (QL); Paquin
v. Gainer's Inc, [1991] A.J. No. 464 (C.A.) (QL); Philip v. Expo 86 Corp., [1987]
B.C.J. No. 2127 (C.A.) (QL) per Lambert, J.A. for the majority. Recent Ontario
authorities analyze the contractual wording to determine whether the parties have
waived the employee's duty to mitigate: Graham v. Marleau, Lemire Securities
Inc., [2000] O.J. No. 383 (Ont. S.C.J.), ¶ 50-53; Eady v. TrekLogic Technologies
Inc., [2008] O.J. No. 1693 (Ont. S.C.J.), ¶ 130-134, affirmed 2009 ONCA 710, ¶ 7;
Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, addendum 2008
ONCA 479 (point discussed in addendum).
[60] Under any approach, the court must enlist the first principle of mitigation
stated by Chief Justice Laskin in Red Deer College, page 330:
. . . The parameters of loss are governed by legal principle. The primary rule in
breach of contract cases, that a wronged plaintiff is entitled to be put in as good a
Page: 22
position as he would have been in if there had been proper performance by the
defendant, is subject to the qualification that the defendant cannot be called upon
to pay for avoidable losses which would result in an increase in the quantum of
damages payable to the plaintiff. The reference in the case law to a "duty" to
mitigate should be understood in this sense.
The court should determine, from the words of the employment contract
objectively interpreted, whether the contractually stipulated sum for dismissal was
intended to be paid regardless of any income the employee either earned or
reasonably could have earned after his dismissal. If that was the contractual intent,
then payment of the full contractual sum puts the dismissed employee "in as good a
position as he would have been in if there had been proper performance" by the
employer. On the same premise, payment of the full contractual sum would not
"result in an increase in the quantum of damages payable" to the employee beyond
that contemplated by the employment contract. So the full contractual sum would
not be diminishable by principles of mitigation.
[61] In this case, article 19 prescribed a fixed $25,000 to fully and finally settle
Clearwater's obligations under the employment contract. Nothing in the contract
varied that sum based on any factors, such as those summarized in Bardal v. Globe
& Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.), that affect the calculation of
reasonable notice. As "reasonable notice" is irrelevant, it would be incongruous to
deduct the employee's actual earnings during a period of hypothetical reasonable
notice. Nothing in article 19 varied the $25,000 based on actual or potential
earnings of the employee after his dismissal by Clearwater. Rather article 19 shows
an intent that a fixed $25,000 buys closure. Opening a dispute over the employee’s
actual or potential earnings for an ongoing indeterminate period is the opposite of
closure.
[62] Article 19, objectively interpreted, exhibits a contractual intent that
Clearwater's payment of $25,000 for its January 2003 breach of the Multi Trip
Agreement be undiminished by any earnings that the Captains afterward either
earned or reasonably could have been earned.
[63] Clearwater's cross appeal asks that the entitlement of both Captains
Boutcher and Knickle to the $25,000 under article 19 be eliminated, under
principles of mitigation, because of the Captains' actual earnings from Clearwater
after January 2003. I would dismiss that ground of cross appeal.
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Page: 24
[64] The judge held that Captain Boutcher's refusal of the Cape Keltic captaincy
in early 2005 was an unreasonable failure to mitigate, and eliminated Captain
Boutcher's entitlement to both the $25,000 from article 19 of the Multi Trip
Agreement and the award for three months' reasonable notice from his dismissal in
January 2005. Captain Boutcher appeals that ruling.
[65] I have explained my view that the $25,000 from article 19 was not
diminishable by principles of mitigation. The $25,000 was contractually fixed, and
not subject to reduction either by Captain Boutcher's actual earnings in 2003 and
2004, as discussed above, or by his failure to accept alternate employment in 2005.
In my view the judge erred in law by misinterpreting article 19. I would allow
Captain Boutcher's appeal respecting the $25,000.
[66] I turn to mitigation respecting the three months' reasonable notice for
Captain Boutcher's two years' employment that preceded January 2005.
[67] In Evans, Justice Bastarache for the majority set out the principles that
govern the "multi-factored and contextual analysis" to determine when a dismissed
employee's failure to accept re-employment from his former employer will be an
unreasonable failure to mitigate. Justice Bastarache said (¶ 30):
The critical element is that an employee “not [be] obliged to mitigate by working
in an atmosphere of hostility, embarrassment or humiliation” (Farquar, at p. 94),
and it is that factor which must be at the forefront of the inquiry into what is
reasonable. Thus, although an objective standard must be used to evaluate
whether a reasonable person in the employee's position would have accepted the
employer's offer (Reibl v. Hughes, [1980] 2 S.C.R. 880), it is extremely important
that the non-tangible elements of the situation – including work atmosphere,
stigma and loss of dignity, as well as nature and conditions of employment, the
tangible elements – be included in the evaluation.
[68] The judge's reasoning, that Captain Boutcher failed to mitigate, was:
185. I conclude the decision to not take the job as captain of the Cape Keltic
should be considered a failure to mitigate on the part of Captain Boutcher. While
Fifth IssueDid Captain Boutcher Fail to Mitigate in 2005?
Page: 25
186. He was being offered a job with a certain amount of certainty as far as the
scientific side was concerned and while the number of actual fishing trips was
uncertain it did have potential to produce significant income. The fact that the
Cape Keltic had about 99 days fishing in 2005 in addition to the scientific work
does confirm that potential. Captain Boutcher of course would not necessarily
foresee that amount of fishing. If he had he probably would have taken the job as
captain of the Cape Keltic.
187. I conclude that Captain Boutcher’s failure to mitigate should disentitle
him to any pay in lieu of notice based on the single trip agreements entered into
from 2003 to the end of 2004.
[69] In my respectful view, the judge erred. Though the judge did not refer to
Evans or its tests, the error does not involve a misapplication of Justice
Bastarache's analytical framework concerning work atmosphere, stigma and
dignity. Rather the error relates to timing.
[70] Clearwater dismissed Captain Boutcher on January 17, 2005. The judge said
Captain Boutcher was entitled to three months' reasonable notice, from January 17
to April 17, 2005. Clearwater's letter of January 27, 2005 (above ¶ 18), giving
particulars of the Cape Keltic offer, told Captain Boutcher: "We estimate the
starting time of the surveys to be in early May". There was nothing from
Clearwater to Captain Boutcher, at the date Captain Boutcher rejected the Cape
Keltic captaincy, offering employment before the expiry of his period of reasonable
notice on April 17, 2005.
[71] In Evans ¶ 28, Justice Bastarache said:
...damages are meant to compensate for lack of notice, and not to penalize the
employer for the dismissal itself. The notice period is meant to provide employees
with sufficient opportunity to seek new employment and arrange their personal
affairs, and employers who provide sufficient working notice are not required to
pay an employee just because they have chosen to terminate the contract. Where
notice is not given, the employer is required to pay damages in lieu of notice, but
that requirement is subject to the employee making a reasonable effort to mitigate
the damages by seeking an alternative source of income.
his concerns about what he would make were well founded he had operated for
many years working as a captain in circumstances where the amount of income he
got depended on many factors such as weather conditions, the availability of
scallops and the availability of quota for the company.
[72] The employee mitigates his loss that generates the damages award that
compensates the employee for the employer's lack of reasonable notice. There is a
continuum from the period of reasonable notice to mitigation. The employee's
responsibility to mitigate applies during the period of reasonable notice, for which
the employer pays damages in lieu of notice. The employee's career choices after
the expiry of the period of reasonable notice, here after April 17, 2005, do not
impact his damages award, and are not the employer's affair.
[73] Under Chief Justice Laskin's formulation from Red Deer College (above ¶
60), "if there had been proper performance by the defendant", then Clearwater
would have given Captain Boutcher working notice on January 17, 2005 that his
employment would end April 17, 2005. Then Captain Boutcher could not have
earned employment income from a source other than the Ocean Lady captaincy
between those two dates. To award him the full three months’ income from
Clearwater, in lieu of the notice, in addition to employment income from another
source between those dates would be a windfall, or, in Chief Justice Laskin's
words, "an increase in the quantum of damages payable to the plaintiff". This
windfall is what the mitigation principle seeks to avoid.
[74] Had Clearwater given Captain Boutcher working notice on January 17 that
his employment would have ended on April 17, Captain Boutcher could have
worked on the Ocean Lady from January 17 through April 17, earned his three
months’ income for that period, then decided for his own reasons whether to work
in May. His decision in May would have no impact on his availability for the
Ocean Lady in January through April during Clearwater’s working notice. If he
decided to work in May, he would still have earned, and could keep, his income
from Clearwater for January 17 through April 17. His May income would be for
May work and would give him no windfall.
[75] Similarly, given Clearwater’s failure to provide three months’ working
notice, Captain Boutcher’s “loss” was his unpaid earnings for January 17 through
April 17. His “avoidable loss”, in Chief Justice Laskin’s words, was a subset of his
“loss” – i.e. that portion of those three months’ income which Captain Boutcher
could reasonably have replaced by alternative employment income.
Page: 26
Page: 27
[77] I would allow Captain Boutcher's ground of appeal from the judge's rulings
that Captain Boutcher's refusal of the Cape Keltic captaincy was a failure to
mitigate, respecting both the $25,000 and the payment in lieu of three months'
reasonable notice.
Sixth IssueCaptain Boutcher's Claim for Mitigation Expenses
[78] Captain Boutcher claimed from Clearwater approximately $189,000, being
the cost of a lobster vessel, license and his outlay to establish a lobster fishing
business. He purchased the vessel and license in late March 2005 and paid the
other costs later in 2005. He says these were reasonable mitigation expenses.
[79] The judge’s decision did not comment on this claim.
[80] A wrongfully dismissed employee may recover reasonable expenses of
mitigation. England, Wood Chrisite, Employment Law In Canada ¶ 16.79 says:
. . . First, and most widely endorsed, is the well-established principle that a
plaintiff can offset reasonable costs incurred in mitigating his or her losses. The
rationale is that since the employer obtains a benefit from the duty of mitigation
in that earnings obtained during the notice period are deducted from the
employee's damages, it is only fair that the employer should finance the
employee's costs in finding such a job.
[81] Captain Boutcher's costs to acquire a lobster vessel, license and fishing
business lie outside this principle and its rationale. Captain Boutcher's
compensable loss was three months’ income from January 17 to April 17, 2005. A
reasonable mitigation expense should attempt to mitigate that loss. The cost of
Captain Boutcher's vessel, licence and lobster fishing business was not an expense
to mitigate his lost income before April 17, 2005. It was an investment to generate
long term income apparently commencing after the expiry of Clearwater's three
months’ notice period. When asked when he started lobster fishing in 2005,
Captain Boucher said, “It would be April or May or whenever.” There was no
[76] The judge did not consider this timing issue. In my view, the judge erred in
law by treating the employee's duty to mitigate as applying to the employee's
hypothetical income after the expiry of the period of reasonable notice.
evidence that he fished lobster before April 17, 2005. Captain Boutcher does not
claim expenses for job search, relocation, retraining, counselling, and the like, that
normally constitute a claim for mitigation reimbursement. The claimed $189,000
was outlay to purchase capital assets that Captain Boutcher would keep and use
long after Clearwater, if this claim succeeded, pays him for his acquisition costs.
Yet there was no attempt, in evidence or argument, to amortize or apportion these
capital costs to the period of reasonable notice ending April 17, 2005.
[82] It may be colloquially reasonable that Captain Boutcher fish lobster. But the
$189,000 he claims from Clearwater is not, in the legal sense, reasonably related to
the mitigation of his lost income between January 17 and April 17, 2005.
[83] I would dismiss Captain Boutcher's ground of appeal on this matter.
Conclusion
[84] I would allow Captain Boutcher's appeal from the judge's ruling that Captain
Boutcher failed to mitigate by rejecting the Cape Keltic captaincy. I would order
Clearwater to pay Captain Boutcher $25,000 plus three months’ income for
January 17 to April 17, 2005, based on an average of Captain Boutcher's annual
income for 2003 and 2004, similar to the method the judge used for Captain
Knickle. Captain Boutcher's factum in the Court of Appeal did not address
quantum. So I will not attempt an exact calculation. I would order that, if the
parties cannot agree on the calculation, then that matter be remitted to the trial
judge.
[85] I would order that Clearwater pay Captain Boutcher prejudgment interest on
this award. The judge's order reserved the calculation of prejudgment interest on
Captain Knickle's award. The calculation of prejudgment interest on Captain
Boutcher's award in this decision similarly would be remitted to the trial judge, if
the parties cannot agree.
[86] Subject to ¶ 84 and 85, I would dismiss Captain Boutcher's other grounds of
appeal. I would dismiss Captain Knickle's appeal and Clearwater's cross appeal.
[87] The trial judge reserved the issues of costs at trial, and I would not disturb
that disposition. I understand from counsel that those trial costs have not yet been
Page: 28
Page: 29
[88] For the appeal, I would order Clearwater to pay Captain Boutcher costs of
$3,000 plus disbursements.
Fichaud, J.A.
Concurred in:
Hamilton, J.A.
Beveridge, J.A.
determined. I would assume that the judge would take note that, after this appeal,
Captain Boutcher has succeeded in the recovery of substantial damages.
Federal Court
Cour fédérale
Docket: T-1295-10
Docket: T-1315-10
Citation: 2011 FC 762
Ottawa, Ontario, June 24, 2011
PRESENT:
The Honourable Mr. Justice Zinn
BETWEEN:
ATTORNEY GENERAL OF CANADA
Applicant
and
DOUGLAS TIPPLE
Respondent
AND BETWEEN:
DOUGLAS TIPPLE
Applicant
and
ATTORNEY GENERAL OF CANADA
Respondent
2011 FC 762 (CanLII)
Date: 20110624
Page: 2
[1]
These are two separate applications for judicial review, both of which relate to the same
decision of a member of the Public Service Labour Relations Board (PSLRB), D. R. Quigley, (the
Adjudicator) who was assigned to hear and determine the grievance of Douglas Tipple relating to
his dismissal from Public Works and Government Services Canada (PWGSC). The two
applications, T-1295-10 filed by the Attorney General of Canada and T-1315-10 filed by Mr.
Tipple, were not consolidated under Rule 105 of the Federal Courts Rules, SOR/98-106; however,
as they challenge different aspects of the same decision, they were heard together. Accordingly,
these reasons will address both applications and a copy shall be placed in each of the Court’s files.
[2]
Both parties submit that the Adjudicator made errors or unreasonable findings with respect
to the remedies that he awarded or failed to award as a consequence of his primary finding that Mr.
Tipple was dismissed from his employment contrary to the Public Service Labour Relations Act, SC
2003, c 22 (PSLRA). Although this primary finding is not at issue, the analysis of the issues that are
in dispute requires an understanding of the facts underpinning the primary finding of dismissal
contrary to the PSLRA.
Background
[3]
Mr. Tipple is an executive with a specialty in real property. In 2004, PWGSC undertook a
new strategy known as “The Way Forward,” which was implemented to reduce costs relating to
accommodation for the federal public service. I. David Marshall, the Deputy Minister of PWGSC
REASONS FOR JUDGMENT AND JUDGMENT
Page: 3
at the time, decided to recruit executives from the private sector to act as “special advisors” to
accomplish this goal. PWGSC hired Mr. Tipple to be responsible for real property, and David
2005 to October 6, 2008) at an annual salary of $360,000.00 and with a performance bonus of 15%
if certain benchmarks were met. His letter of offer also provided that “Your services may be
required for a shorter period depending upon the availability of work and continuance of the duties
to be performed …”
[4]
Mr. Tipple began working in his new position in October 2005 and ultimately relocated his
family from Toronto to Ottawa. In his first year, he met the target objectives and saved PWGSC
$150 million.
[5]
During his time at PWGSC Mr. Tipple advocated for the transformation of PWGSC into a
Crown corporation. However, the government did not envision PWGSC as a Crown corporation or
anticipate any major outsourcing of jobs, and PWGSC employees were preparing a campaign to
challenge any such outsourcing. From April to June 2006, Deputy Minister Marshall had
discussions with Yvette D. Aloïse, Acting Associate Deputy Minister, during which she expressed
her view that Mr. Tipple’s role as special advisor was “not working out.”
[6]
Nonetheless, in June 2006, Mr. Tipple received a performance review which rated his
performance at the highest possible rating (“surpassed”) and he was paid his negotiated 15% bonus.
The comments attached to the review were highly complimentary. Furthermore, Mr. Marshall
Rotor to be responsible for procurement. Mr. Tipple signed a three-year contract (from October 11,
Page: 4
approved the payment of Mr. Tipple’s upcoming membership fee for the National Club in Toronto
[7]
Then, from June 25 to 30, 2006, Mr. Tipple and Mr. Rotor traveled to the United Kingdom
to meet with officials regarding that country’s approach to business transformation. Mr. Tipple was
accompanied by his wife and he added some vacation days to the business trip, all at his own
expense and with the approval of Mr. Marshall.
[8]
PWGSC made the plans for the trip and arranged meetings with UK officials. Catherine
Dickson, an employee of the Canadian High Commission in the UK, was responsible for arranging
the meetings. There were problems with the planning of Mr. Tipple’s schedule resulting, it appears,
from miscommunication between PWGSC and the Canadian High Commission. During his time in
the UK Mr. Tipple was invited to attend procurement-related meetings, but given that procurement
was Mr. Rotor’s responsibility, Mr. Tipple decided to attend only the real estate-related meetings
within his area of expertise.
[9]
Subsequent to the trip it was suggested that Mr. Tipple had missed meetings. Mr. Tipple
maintained that the trip was a success, that he attended all meetings relating to real estate, and that
the procurement meetings he did not attend were not the focus of his trip or part of his mandate.
Notwithstanding Mr. Tipple’s contention that he had not missed meetings, the Government of
Canada sent letters of apology to the Government of the UK on July 12, 2006. The letters suggested
the missed meetings were the fault of Mr. Tipple and Mr. Rotor. One letter, for example, which
was sent by the Acting High Commissioner of Canada to the UK, stated that “I would like to
in June 2006.
Page: 5
apologize most sincerely for the behaviour of Messrs. David Rotor and Douglas Tipple …” Letters
of apology were also sent by Yvette D. Aloïse, Acting Associate Deputy Minister, on behalf of Mr.
[10]
On July 12, 2006, Mr. Marshall and Mr. Tipple met to discuss the trip; however, at that time
Mr. Tipple was not informed about the letters of apology and it was not until August 9, 2006, that
he became aware of them. On the same day he learned that the trip report he had prepared had been
leaked to Daniel Leblanc, a reporter at The Globe and Mail. Mr. Leblanc made allegations that
parts of the report had been plagiarized; they had not been. The version of the report leaked to Mr.
Leblanc was a preliminary version which had not included the references contained in Mr. Tipple’s
final report. The letters of apology and a number of emails were also leaked to The Globe and Mail.
[11]
From August 15 to 18, 2006, The Globe and Mail published a series of articles suggesting
that Mr. Tipple and Mr. Rotor had “left a trail of cancelled meetings” and raised allegations of
plagiarism and unethical behaviour. Mr. Tipple felt that the articles contained “a number of false,
disparaging and defamatory statements and imputations” which caused emotional distress and were
damaging to his personal well-being and reputation.
[12]
Throughout the ensuing media storm, Mr. Tipple repeatedly requested that PWGSC defend
him against the allegations in the media and that he be allowed to respond personally to them. Mr.
Tipple insisted that he had not missed any meetings, but PWGSC representatives told the media that
the meetings were “cancelled because of logistical problems.” PWGSC refused to allow Mr. Tipple
to speak to the media and assured him it would develop a media plan. Mr. Tipple wanted PWGSC
Marshall.
Page: 6
to take a more proactive approach, and repeatedly expressed dissatisfaction with its actions vis-à-vis
the media. Mr. Tipple claims PWGSC never developed a media plan but instead sacrificed his
[13]
In response to the media attention, PWGSC launched an internal investigation into the UK
trip. The investigation (the Minto Report) exonerated Mr. Tipple. The Minto Report found, among
other things, that despite the administrative confusion, “… both advisors appear to have used their
time in a responsible and productive manner … [and] that all expenses claimed and approved will
be reasonable and approved in accordance with prescribed rules.” The report was not made public.
[14]
On Friday, August 25, 2006, Mr. Marshall met with the Minister of PWGSC. They
discussed Mr. Tipple’s work and whether the hiring of the private sector executives was working
effectively. Mr. Marshall reflected on their conversation over the weekend and by Monday, August
28, 2006 had decided to terminate Mr. Tipple’s employment, allegedly because Mr. Tipple had
delivered his key commitments, The Way Forward was ahead of schedule, PWGSC could not
absorb further changes, no major initiatives were left for Mr. Tipple, and because Mr. Tim
McGrath, Acting Assistant Deputy Minister for Real Property at PWGSC, was sufficiently up to
speed to assume any further work required for The Way Forward.
[15]
At the hearing before the PSLRB Mr. Marshall testified that no integration or organizational
structure analysis was done prior to Mr. Tipple’s dismissal. Mr. Tipple testified that prior to his
dismissal, he was never told that his performance was unsatisfactory, that The Way Forward had
reached its saturation point, or that there was a possibility he could be laid off.
reputation in the interest of “damage control.”
Page: 7
[16]
On August 31, 2006, Mr. Marshall terminated Mr. Tipple’s employment. Mr. Rotor was
not given any reasons for the termination other than that Mr. Marshall had accepted a
recommendation from his staff that the special advisors’ responsibilities be transferred to and
merged with those of the respective Assistant Deputy Ministers. Mr. Tipple testified that his
termination was highly unusual given that there was no transition plan for transferring
responsibilities from him to Mr. McGrath, no analysis of the work plan, and no briefing of his staff,
and that he was asked to leave the premises immediately. Mr. Tipple also testified that he had been
hired to complete the implementation as well as the planning of The Way Forward, and that the
implementation phase was not yet complete. Mr. Tipple testified that if he had been hired as an
“idea person” and only for planning and not implementation, he would not have relocated his family
to Ottawa.
[17]
The next day The Globe and Mail reported on the dismissal and suggested it was caused by
Mr. Tipple’s misconduct during the UK trip.
[18]
Mr. Tipple filed Statements of Claim in the Ontario Superior Court commencing actions
against both PWGSC and The Globe and Mail. The wrongful dismissal action against PWGSC was
stayed; the defamation action against The Globe and Mail continues. He also filed a grievance with
PWGSC regarding his dismissal which he subsequently referred to adjudication under the PSLRA.
The Adjudicator upheld Mr. Tipple’s grievance, in part. It is that decision that is under review in
these applications.
dismissed on the same day. Mr. Tipple was given compensation equal to one month’s pay. He was
Page: 8
[19]
Mr. Tipple was unable to secure permanent employment after his termination. He had no
part as he contacted 15 executive recruiters and 37 consulting firms attempting to obtain work. He
was told by recruiters that until he was vindicated, he was “basically off limits,” and that a search of
his name on the internet brought up unflattering and damaging articles that questioned his integrity.
Mr. Tipple did attempt to obtain a position with a private firm to pursue real-property assets that
might be offered for sale by the Government of Canada, but PWGSC refused to grant him
permission to pursue the opportunity due to its post-employment policy that imposed a 12-month
waiting period on accepting employment in the private sector of the sort he considered.
[20]
Mr. Tipple testified that as a result of his termination he suffered “bouts of low self esteem,
lack of confidence, stress, anxiety, feelings of betrayal, humiliation and hurt feelings” and that the
ordeal had been “very emotional and traumatic and my mental and physical health have been
affected.”
[21]
The Adjudicator upheld Mr. Tipple’s grievance and awarded him a total of $1,358,454.58 in
damages. The largest portion of this sum was damages for lost wages ($688,751.08), damages for
lost performance bonus ($109,038.46), and damages for lost employee benefits ($109,038.46).
None of those damage awards is challenged or under review.
income in 2007 and only $38,172.00 of income in 2008. This was not due to a lack of effort on his
Page: 9
[22]
The Adjudicator also awarded Mr. Tipple an amount of $125,000.00 in damages for
psychological injury and $250,000.00 in damages for loss of reputation. The Attorney General has
[23]
Mr. Tipple requested the Adjudicator to order PWGSC to pay the full costs of his legal
representation. The Adjudicator determined that he did not have authority to award costs under the
PSLRA but that he did have jurisdiction to compensate a loss incurred by one party where the loss
occurs as a result of the other party’s actions. The Adjudicator found that PWGSC’s continued
failure to fully disclose relevant documentation in a timely manner and in compliance with the
disclosure orders made by the PSLRB “considerably and unduly” lengthened the hearing and led to
numerous letters from Mr. Tipple’s counsel seeking compliance with the orders as well as numerous
case management conferences. The Adjudicator found that Mr. Tipple had incurred additional legal
costs as a result of the PWGSC’s failure to comply with the disclosure orders. Accordingly, while
no costs were awarded to Mr. Tipple, the Adjudicator ordered PWGSC to pay Mr. Tipple damages
for obstruction of process equal to the additional legal costs incurred, an amount the parties agreed
was $45,322.03. Mr. Tipple asks the Court to set aside the Adjudicator’s holding that the PSLRB
has no jurisdiction to award costs. The Attorney General asks the Court to set aside the award of
damages for the obstruction of process.
[24]
The Adjudicator awarded Mr. Tipple interest on the damage awards, noting that it was
justified by s. 226 of the PSLRA as well as the decisions in Nantel v Canada, 2008 FCA 351 and
Canada (Attorney General) v Morgan, [1992] 2 F.C. 401 (CA). The Adjudicator found that it was
appropriate to adopt the Canada Savings Bonds rate to calculate the interest owed to Mr. Tipple. In
challenged those damage awards and asks the Court to set them aside.
Page: 10
his reasons for decision the Adjudicator specifically stated that Mr. Tipple was not claiming interest
up until the date of the decision, but had limited his claim for the period from October 1, 2006 to
that the Adjudicator erred, and maintains that he did not so limit his claim. He asks this Court to set
aside and remit back to the Adjudicator this part of the decision.
Issues
[25]
The parties have identified several issues. The first three issues are advanced by the
Attorney General of Canada; the remaining two are advanced by Mr. Tipple:
a.
Did the Adjudicator err in awarding damages of $125,000.00 for
psychological injury?
b.
Did the Adjudicator err in awarding damages of $250,000.00 for loss of
reputation either because he erred in finding that PWGSC had a duty to
protect Mr. Tipple’s reputation or because the amount awarded was not
supported by the evidence?
c.
Did the Adjudicator err in awarding damages of $48,322.03 for obstruction
of process either because he did not have jurisdiction to award such
damages or because he erred in finding that the conduct amounted to an
obstruction of process?
d.
Did the Adjudicator err in finding that he has no jurisdiction to award costs
to a successful party?
e.
Did the Adjudicator err in limiting interest on the awards to the period from
October 1, 2006 to October 6, 2008?
October 6, 2008 and, accordingly, interest was awarded only for that period. Mr. Tipple submits
Page: 11
[26]
All of these issues relate to the remedial jurisdiction of an adjudicator hearing a grievance
228. (2) After considering the
grievance, the adjudicator must
render a decision and make the
order that he or she considers
appropriate in the
circumstances. …
228. (2) Après étude du grief, il
tranche celui-ci par
l’ordonnance qu’il juge
indiquée. …
Standard of Review
[27]
The standard of review for most of the issues in dispute is reasonableness as they involve
questions of mixed fact and law warranting deference to the view of the Adjudicator. However,
despite the parties’ agreement that the standard of review for the costs issue is correctness, a
fulsome analysis is required before accepting their joint submission, given that there appears to be
conflicting jurisprudence.
[28]
In Canada (Attorney General) v Mowat, 2009 FCA 309, from which an appeal to the
Supreme Court was heard and is currently under reserve, the Federal Court of Appeal determined
that the appropriate standard of review for the Canadian Human Rights Tribunal’s decision on
whether it had the authority to award costs was correctness. In conducting the standard of review
analysis the Federal Court of Appeal, relying on the Ontario Court of Appeal’s decisions in Taub v
Investment Dealers Association of Canada, 2009 ONCA 628, at para. 65 and Abdoulrab v Ontario
(Labour Relations Board), 2009 ONCA 491, at para. 48, supported the proposition that where there
are two conflicting but reasonable lines of authority interpreting the same statutory provision, it is
not reasonable for a court to uphold both: see Mowat at para. 45. The Court of Appeal in Mowat
under s. 228(2) of the PSLRA which provides as follows:
Page: 12
agreed with the Ontario Court of Appeal that accepting contradictory interpretations of a statute as
reasonable would potentially conflict with the rule of law and the need for consistency to enable
[29]
Some subsequent cases of this Court have followed Mowat and imposed the correctness
standard where a question of statutory interpretation requires certainty and consistency: see, as
examples, Canada Post v Canadian Union of Postal Workers, 2010 FC 154; Bonamy v Canada
(Attorney General), 2010 FC 153; and Office of the Superintendent of Bankruptcy v MacLeod, 2010
FC 97.
[30]
Concerns regarding consistent interpretation are significant here because the PSLRB has
come to differing conclusions regarding its authority to award costs. In Matthews and Canadian
Security Intelligence Service, [1999] CPSSRB No 31, the Public Service Staff Relations Board, the
predecessor to the PSLRB, determined that it did have jurisdiction to award costs. However, since
the Court of Appeal’s decision in Mowat, the Board has determined that it does not have authority
to award costs; in addition to the decision under review, see Ménard v Public Service Alliance of
Canada, 2010 PSLRB 124.
[31]
It might be suggested that the Court of Appeal’s finding in Mowat that conflicting decisions
on statutory interpretation are to be reviewed on the correctness standard is inconsistent with the
Supreme Court’s recent decision in Smith v Alliance Pipeline Ltd, 2011 SCC 7, where the Court
applied the reasonableness standard to the decision of the National Energy Board regarding the
parameters of its authority to award costs. At paras. 38-39, the Court wrote:
parties appearing before the Tribunal to know how to conduct their affairs.
Finally, on this branch of the matter, Alliance argues that adoption of
the reasonableness standard would offend the rule of law by
insulating from review contradictory decisions by Arbitration
Committees as to the proper interpretation of s. 99(1) of the NEBA. I
am unable to share the respondent's concern. In Dunsmuir, the Court
stated that questions of law that are not of central importance to the
legal system "may be compatible with a reasonableness standard"
(para. 55), and added that "[t]here is nothing unprincipled in the fact
that some questions of law will be decided on [this] basis" (para. 56;
see also Toronto (City) v. C.U.P.E., at para. 71).
Indeed, the standard of reasonableness, even prior to Dunsmuir, has
always been "based on the idea that there might be multiple valid
interpretations of a statutory provision or answers to a legal dispute"
such that "courts ought not to interfere where the tribunal's decision
is rationally supported" (Dunsmuir, at para. 41).
I also note that in Nolan v Kerry (Canada) Inc, 2009 SCC 39, at para. 35, the Supreme Court had
previously applied the reasonableness standard to the Ontario Financial Services Tribunal’s finding
regarding the scope of its costs-granting authority.
[32]
Alliance Pipeline Ltd involved s. 99(1) of the National Energy Board Act, RSC 1985, c N-7,
which gives the National Energy Board jurisdiction to determine compensation including “all legal,
appraisal and other costs” that had been reasonably incurred by the expropriated party. The order
under review in Alliance Pipeline was an order that the legal costs to be paid were to include the
legal costs incurred in a court action commenced by the pipeline company against the expropriated
owner. Section 24 of the Financial Services Commission of Ontario Act, 1997, SO 1997, c 28, gave
the Financial Services Tribunal jurisdiction to “order that a party to a proceeding before it pay the
costs of another party or the Tribunal’s costs of the proceeding.” In Nolan the order under review
was an order that the costs were to be paid from the Trust Fund, in light of it not being a party to the
proceeding.
Page: 13
Page: 14
[33]
The apparent inconsistency between Mowat and these decisions can be resolved by
the scope of the authority to award costs, which was considered in Alliance Pipeline and Nolan.
The first is a true question of jurisdiction, the second is not. As was stated by the Supreme Court in
Nolan, at para. 34:
The inference to be drawn from paras. 54 and 59 of Dunsmuir is that
courts should usually defer when the tribunal is interpreting its own
statute and will only exceptionally apply a correctness standard when
interpretation of that statute raises a broad question of the tribunal's
authority. [emphasis added]
[34]
In this case, the jurisdiction of the Adjudicator to award costs is at issue; it is a broad
question of the Board’s authority and this points to using the correctness standard. However, two of
the other elements of the standard of review analysis point to the reasonableness standard: the
existence of a privative clause in s. 51 of the PSLRA and the purpose of the statutory scheme, which
includes the efficient settlement of disputes; see Canada (Attorney General) v Amos, 2009 FC 1181,
at para. 26.
[35]
Notwithstanding that these two considerations point to a reasonableness standard, the final
factor in the standard of review analysis, the expertise of the decision maker, points to a correctness
standard of review given that, as suggested by Mr. Tipple, the Adjudicator was not relying on his
expertise in labour law but rather was applying an appellate-court decision regarding the jurisdiction
of human rights tribunals to award costs. Accordingly, I agree with the parties that when one
distinguishing between the jurisdiction to award costs at all, which was considered in Mowat, and
Page: 15
conducts the required standard of review analysis it indicates that correctness is the appropriate
Analysis of Issues
1. Damages for Psychological Injury
[36]
In his grievance, Mr. Tipple sought damages in the amount of $250,000.00 "arising from
PWGSC's unfair, disingenuous, reckless, capricious, arbitrary, and high-handed conduct." The
Adjudicator quoted from and relied on the Supreme Court’s decisions in Wallace v United Grain
Growers Limited, [1997] 3 SCR 701 and Honda Canada v Keays, 2008 SCC 39, in awarding him
$125,000.00 as damages for “psychological injury.”
[37]
Prior to Wallace, there had been an ongoing debate as to whether an employee in a wrongful
dismissal action could be awarded damages for more than his or her lost wages and benefits during
the period of reasonable notice. In Wallace, the Court considered a wrongful dismissal action of a
59-year old employee with 14 years of exemplary service. By any standard, the conduct of the
employer in the manner of the dismissal was objectionable. After being the company’s top
salesperson for each year he worked for the company, Mr. Wallace was summarily dismissed with
no explanation when only a few days earlier he had been complimented by senior managers on his
work performance. In a letter provided after the dismissal, the former employer stated that the main
reason for the termination of Mr. Wallace’s employment was his inability to satisfactorily perform
his duties. The company defended the wrongful dismissal suit alleging that it had cause to terminate
Mr. Wallace’s employment and it maintained that defence for two years until just before trial when
it was dropped. Mr. Wallace provided evidence that the allegation of cause created emotional
standard for dealing with the Board’s jurisdiction to award costs.
Page: 16
difficulties for him and he was required to seek psychiatric help. Mr. Wallace was unable to find
alternative employment following the dismissal and the trial judge determined that his inability to
subsequent actions which made employment in his field “virtually impossible.”
[38]
The trial judge awarded Mr. Wallace wrongful dismissal damages based on a 24-month
period of notice. The Court of Appeal reduced that award to 15 months, concluding that the trial
judge had improperly let an element of aggravated damages creep into the assessment of the notice
period.
[39]
In restoring the 24-month award, the Supreme Court held that “to ensure that employees
receive adequate protection, employers ought to be held to an obligation of good faith and fair
dealing in the manner of dismissal, the breach of which will be compensated for by adding to the
length of the notice period.” Subsequently, increased damages for the breach of this obligation
became known as “Wallace damages.”
[40]
Some ten years later the Supreme Court reconsidered its approach in Wallace in the Honda
decision. Two difficulties had been created by the Wallace decision. First, it was unclear what
employer conduct would result in Wallace damages being awarded. Second, there were no
principles set out in Wallace to guide one in determining the measure of the Wallace damages.
[41]
In Honda, the Supreme Court moved away from the concept that aggravated damages
awarded in wrongful dismissal actions extended the notice period that had been the norm under
secure employment was largely as a result of his peremptory dismissal and the employer’s
Page: 17
Wallace; rather, it held that they are to be calculated based on established principles: the dismissed
employee is entitled to those damages that are the reasonably foreseeable losses arising from the
faith and that where the manner of dismissal results in harm to the employee, damages within the
contemplation of the parties are compensable. Justice Bastarache, writing for the majority,
explained, at paras. 59-60, that:
To be perfectly clear, I will conclude this analysis of our
jurisprudence by saying that there is no reason to retain the
distinction between "true aggravated damages" resulting from a
separate cause of action and moral damages resulting from conduct
in the manner of termination. Damages attributable to conduct in the
manner of dismissal are always to be awarded under the Hadley
principle. Moreover, in cases where damages are awarded, no
extension of the notice period is to be used to determine the proper
amount to be paid. The amount is to be fixed according to the same
principles and in the same way as in all other cases dealing with
moral damages. Thus, if the employee can prove that the manner of
dismissal caused mental distress that was in the contemplation of the
parties, those damages will be awarded not through an arbitrary
extension of the notice period, but through an award that reflects the
actual damages. Examples of conduct in dismissal resulting in
compensable damages are attacking the employee's reputation by
declarations made at the time of dismissal, misrepresentation
regarding the reason for the decision, or dismissal meant to deprive
the employee of a pension benefit or other right, permanent status for
instance (see also the examples in Wallace, at paras. 99-100).
In light of the above discussion, the confusion between damages for
conduct in dismissal and punitive damages is unsurprising, given that
both have to do with conduct at the time of dismissal. It is important
to emphasize here that the fundamental nature of damages for
conduct in dismissal must be retained. This means that the award of
damages for psychological injury in this context is still intended to be
compensatory. The Court must avoid the pitfall of doublecompensation or double-punishment that has been exemplified by
this case. [emphasis added]
breach. The Court affirmed that there is an obligation on an employer to effect a dismissal in good
Page: 18
[42]
The Supreme Court thus reaffirmed that it was appropriate to make an award of moral
damages to compensate a former employee for injury suffered as a result of the conduct of the
time the contract was made that injury would be caused by such conduct. Situations where moral
damages could be awarded were stated by the Court to include the following:
i.
Where the manner of dismissal caused mental distress;
ii.
Where the employee's reputation is attacked by false declarations made at the time
of dismissal;
iii.
Where the employer misrepresents the reason for the decision to terminate the
employment;
iv.
Where the termination is effected to deprive the employee of a pension benefit or
other employment right, such as permanent status;
v.
Where the employer communicates a wrongful accusation of misconduct to potential
employers of the dismissed employee;
vi.
Where the employer refuses to provide a letter of reference after the termination;
vii.
Where the employer makes statements that reassure the employee about his future
while at the same time contemplating the termination of his employment;
viii.
Where the employer fails to communicate to the employee a decision it has made to
terminate the employment despite knowing that the employee was in the process of
making costly decisions (such as selling his home) in anticipation of continued
employment;
employer in the manner of termination where it was within the contemplation of the parties at the
Page: 19
ix.
Where the employer made the decision to terminate the employment of an employee
when he was on disability leave, but failed to so inform the employee until he had
x.
Where changes that will affect the continuation of employee’s employment, such as
salary adjustments, are not disclosed to the employee but he learns of the changes
and his termination through newspaper advertisements placed by the employer.
[43]
In light of Honda, moral damages for such conduct are compensatory in nature; as the
Supreme Court stated, the award is to reflect “the actual damages” suffered.
[44]
In this case, the Adjudicator concluded that “Mr. Tipple has met the test found in [Honda]
and that the respondent’s failure of its obligation of good faith and fair dealing in the manner of
termination caused him psychological injury that was in the contemplation of the parties.”
[45]
The Adjudicator found that PWGSC breached its obligation of good faith and fair dealing in
the manner of dismissal because of the following:
i.
PWGSC had misrepresented its reason for terminating Mr. Tipple’s
employment. It was found that the evidence showed that Mr. Tipple was not laid off
“because of a lack of work or the discontinuance of a function but that his termination
was disguised by a contrived reliance on the [Public Service Employment Act] and that
it was a sham or a camouflage.”
ii.
Mr. Tipple had relocated his family to Ottawa because he was told that his
appointment would be for three years and possibly longer.
returned to work following the leave causing him to suffer major depression; and
Page: 20
iii.
Mr. Marshall approved the UK trip, approved payment of the National Club fees, and
awarded Mr. Tipple a “surpassed” rating and a 15% bonus. As a result, Mr. Tipple
was already contemplating ending the employment.
iv.
Mr. Marshall told Mr. Tipple not to worry about the press coverage regarding the UK
trip, and despite meeting with him regularly did not indicate that he was considering
terminating his employment or that letters of apology had been sent regarding the UK
trip.
v.
Mr. Marshall did not share the Minto report with Mr. Tipple.
vi.
Mr. Marshall terminated Mr. Tipple with no warning and told him there was nothing
to discuss and that he was to leave the premises immediately.
[46]
In sum, the Adjudicator found that “Mr. Marshall acted in a disingenuous and callous
manner in terminating Mr. Tipple’s employment … [he] lulled Mr. Tipple into a false sense of
security … such conduct was unfair or was in bad faith by being untruthful, misleading and unduly
insensitive to Mr. Tipple.”
[47]
The Attorney General does not dispute the jurisdiction of the Adjudicator to award damages
based on the principles set out by the Supreme Court in Honda; however, it submits that the award
of $125,000.00 in this case was excessive, unreasonable, not in accord with previous cases where
such damages were awarded, and unsupported by the evidence. Further, it is submitted that the
Adjudicator failed to provide any reasons to support the quantum of damages awarded other than
reducing by half the $250,000.00 Mr. Tipple had claimed due to a lack of medical evidence.
had no indication of the upcoming termination although Mr. Marshall testified that he
Page: 21
[48]
The Attorney General cites a number of “leading” cases involving damages for mental
awarded to Mr. Tipple: Lumsden v Manitoba, 2009 MBCA 18 ($25,000.00); Brien v Niagara
Motors Ltd, 2009 ONCA 887 ($0.00); Cooke v HTS Engineering Ltd, [2009] OJ No 5650 (ONSC)
($3,500.00); Bru v AGM Enterprises, 2008 BCSC 1680 ($12,000.00); Wallace, supra ($15,000.00),
Beggs v Westport Foods Ltd, 2010 BCSC 833 ($20,000.00); Chapell v Canadian Pacific Railway,
2010 ABQB 441 ($20,000.00); Pagliaroli v Rite-Pak Produce Co Ltd, 2010 ONSC 3729
($25,000.00); and Piresferreira v Ayotte, 2010 ONCA 384 ($45,000.00). These decisions are
enumerated in a table at para. 39 of the Attorney General’s memorandum in T-1295-10, and the
Attorney General submits that the table illustrates that the maximum award for damages for mental
distress resulting from the manner of termination is $45,000.00, with an average award of
$17,500.00.
[49]
Although Mr. Tipple did not dispute the assertion of the Attorney General that “This table
illustrates that the maximum award for mental distress from the manner of termination is $45,000”
that statement requires some clarification. It may be that the Attorney General is correct in stating
that the most awarded by a court for damages for what it has termed to be “damages for mental
distress” is $45,000.00; however, courts have made greater awards for moral damages which,
although not solely for mental distress, contain a component compensating the terminated
employee’s psychological injury. For example, in Zesta Engineering Ltd v Cloutier, 2010 ONSC
5810, Justice Stinson awarded $75,000.00 for the “moral damages” resulting from the manner of
distress following dismissal from employment. Each decision awarded much less than the amount
Page: 22
termination and its effect on Mr. Durante. At paras 335 and 336 the trial judge outlined the basis of
In my view, Zesta's actions surrounding the termination of Durante's
employment amply demonstrate bad faith on its part. Its conduct
included the following:
(a) Durante was subjected to a series of intimidating interrogations
by Bernard Eastman, who on several occasions essentially
threatened Durante's livelihood.
(b) Durante was dismissed over the telephone, on his first day of
vacation, five days before Christmas, for confirming the "sting"
on Marcel Jones. In effect, he was fired for telling the truth or, to
put in another way, for choosing the wrong side in a vicious
dispute rooted in family issues.
(c) Durante was provided with no severance (not even his
Employment Standards Act minimums) and his benefits were
immediately discontinued.
(d) Zesta pursued an extended, cavalier and single-minded approach
in fighting Durante's employment insurance application for two
years, and then failed to attend the ultimate hearing.
(e) Zesta commenced a companion action for fraudulent conveyance
against Durante and his wife, many years after having knowledge
of the conveyance, and maintained it despite the reconveyance to
Durante of his interest in the matrimonial home. This was a
source of additional stress, worry and expense for both him and
his wife.
(f) Zesta and the Eastmans pursued the foregoing course of conduct,
notwithstanding Durante had been a highly loyal career
employee with an otherwise unblemished work record, who had
been treated and considered as an extended family member,
while fully aware of the significant impact such conduct would
have on Durante and his family.
The evidence of Durante and his wife was that Durante was
devastated, stressed and sad. His upset and angst at this treatment
was evident while he testified before me, almost a decade after his
dismissal. The toll on him and his family has been significant, and
long lasting, and is ongoing. In the circumstances, I award Durante
this award as follows:
Page: 23
$75,000 in moral damages in keeping with the principles described
by Bastarache J. in Honda, supra (at para. 59).
In addition to the submission that the award in Mr. Tipple’s case was not in keeping with
other awards, the Attorney General submits that damages for non-pecuniary injuries, such as
psychological damage, are to be generally fixed at a modest rate subject to variation depending on
the degree of suffering in a particular case: Vancouver (City) v Ward, 2010 SCC 27.
[51]
The Supreme Court awarded Mr. Ward $5,000.00, a modest amount; however, it is noted
that the context there was significantly different than that before the Adjudicator in this case. The
Supreme Court explained at para. 71:
Mr. Ward was never touched during the search and there is no
indication that he suffered any resulting physical or psychological
injury. While Mr. Ward's injury was serious, it cannot be said to be at
the high end of the spectrum. This suggests a moderate damages
award. [emphasis added]
[52]
The Attorney General lastly submits that the Adjudicator relied solely on Mr. Tipple’s
“limited” testimony which was unsupported by medical evidence and therefore submits that Mr.
Tipple was entitled, at best, to a nominal amount of damages for psychological injury. Cited in
support is the following passage from Martin v Goldfarb et al (1998), 41 OR (3d) 161 (CA):
I have concluded that it is a well established principle that where
damages in a particular case are by their inherent nature difficult to
assess, the court must do the best it can in the circumstances. That is
not to say, however, that a litigant is relieved of his or her duty to
prove the facts upon which the damages are estimated. The
distinction drawn in the various authorities, as I see it, is that where
the assessment is difficult because of the nature of the damage
proved, the difficulty of assessment is no ground for refusing
substantial damages even to the point of resorting to guess work.
[50]
Page: 24
However, where the absence of evidence makes it impossible to
assess damages, the litigant is entitled to nominal damages at best.
I agree with the Attorney General that $125,000.00 is not a “nominal amount”; however,
there was evidence supporting some award. This was a case where Mr. Tipple’s testimony about
the impact of his former employer’s actions on his psychological state was the only evidence of
psychological injury.
[54]
The Adjudicator found, at para. 327 of the decision, that on the evidence adduced “the
respondent’s failure of its obligation of good faith and fair dealing in the manner of termination
caused [Mr. Tipple] psychological injury that was within the contemplation of the parties” and that
accordingly Mr. Tipple was entitled to damages for psychological injury. It is clear that the
Adjudicator accepted Mr. Tipple’s own testimony that he “suffered from a lack of confidence, hurt
feelings, low self esteem, humiliation, stress, anxiety and a feeling of betrayal” as a result of the
actions of his former employer.
[55]
The Adjudicator’s discussion and analysis of the quantum of damages for psychological
injury is set out in the following passage at para. 328 of his decision:
In determining the amount of compensation to award, I must take
into account Mr. Tipple's position within the executive community.
It is true that Mr. Tipple did not adduce medical evidence of a
specific condition or treatment administered as the result of his
termination. However, I accept that, had Mr. Tipple adduced such
evidence, it would likely have affected his ability to successfully
market his senior executive skills with potential employers and
business relations. In such circumstances, and without specific
evidence justifying a larger award, I find that an amount of
$125,000.00 reasonably compensates Mr. Tipple for loss of dignity,
hurt feelings and humiliation resulting from the manner of his
[53]
Page: 25
termination. Therefore, I find that Mr. Tipple is entitled to damages
for psychological injury in the amount of $125,000.00.
It is evident from this passage that the Adjudicator was not making an award of moral
damages for the conduct of the employer that may have been seen objectionable but that did not
cause any psychological injury; rather it was an award specifically given to compensate Mr. Tipple
for his “loss of dignity, hurt feelings and humiliation.”
[57]
The award of the Adjudicator is a significant amount; it appears to be almost three times as
much as has previously been awarded by a court for the specific loss which it is said to compensate.
I do not accept the submission of Mr. Tipple that the Adjudicator is not bound to mimic the
common law, if by that it is meant that the Adjudicator may make whatever award he chooses.
Damages must be awarded and the amounts determined on a principled basis, even when the
calculation is difficult. In this case, the Adjudicator referenced the two leading authorities, Wallace
and Honda, and in so doing made it clear that he was following the law as it has developed in
Canada.
[58]
When assessing damages each case must be decided on the basis of its unique facts and no
court has asserted that there is any upper limit to an award of psychological damages for injury
caused by an employer’s failure to conduct itself in good faith and to deal fairly with a terminated
employee. The more egregious the conduct the greater the likelihood of significant injury being
done to the employee. It is fair to say that in this case the Adjudicator found the conduct of
PWGSC to be egregious. However, damages are awarded not for likelihood of injury but for actual
injury.
[56]
Page: 26
[59]
The Court does not have the benefit of the record of the testimony before the Adjudicator as
the Adjudicator for his award. Mr. Tipple submits that the Court is being invited to review the
damage award as if this were a hearing de novo, not a judicial review. He correctly points out that
the test is not whether the reviewing court would have awarded damages of $125,000.00; the test is
whether that award is reasonable, as described by the Supreme Court in Dunsmuir v New
Brunswick, 2008 SCC 9, at para. 47:
Reasonableness is a deferential standard animated by the principle
that underlies the development of the two previous standards of
reasonableness: certain questions that come before administrative
tribunals do not lend themselves to one specific, particular result.
Instead, they may give rise to a number of possible, reasonable
conclusions. Tribunals have a margin of appreciation within the
range of acceptable and rational solutions. A court conducting a
review for reasonableness inquires into the qualities that make a
decision reasonable, referring both to the process of articulating the
reasons and to outcomes. In judicial review, reasonableness is
concerned mostly with the existence of justification, transparency
and intelligibility within the decision-making process. But it is also
concerned with whether the decision falls within a range of
possible, acceptable outcomes which are defensible in respect of
the facts and law.
[60]
Although the Adjudicator is entitled to considerable deference, I cannot find on the facts
before the Adjudicator and the Court that the award of $125,000.00 as damages for psychological
injury “falls within a range of possible, acceptable outcomes which are defensible in respect of
the facts and law” for the following reasons. First, there is no explanation given by the
Adjudicator as to the basis for determining that the appropriate award was $125,000.00 rather
than any other amount, other than, as the Attorney General notes, it is one-half the amount that
neither party filed it. All that is before the Court from the PSLRB is the decision and the reasons of
Page: 27
was claimed. Second, there was no evidence offered by Mr. Tipple other than his own evidence
that he experienced a lack of confidence, hurt feelings, low self esteem, humiliation, stress, anxiety
medical treatment or was provided with a psychological diagnosis that was premised on the
employer’s conduct in the manner of termination, other than the mere fact of the termination of his
employment. Third, unlike the facts in Zesta Engineering, there is nothing in the decision to
suggest that the psychological injury to Mr. Tipple was “significant, long lasting, and ongoing.”
Fourth and finally, the size of the award is significantly disproportionate to previous awards, in
circumstances where the effect on the terminated employee’s psychological condition appears to
have been less significant than in those cases. Here, Mr. Tipple described the effect on him to be a
“loss of dignity, hurt feelings and humiliation.”
[61]
Accordingly, although the Adjudicator is to be accorded considerable deference, I find that
the award of $125,000.00 is not “within a range of possible, acceptable outcomes which are
defensible in respect of the facts and law” and it must be set aside. However, the PWGSC
admitted that some amount was appropriate based on the evidence before the adjudicator.
Accordingly, this matter must be sent back to the PSLRB to determine an appropriate award for
the damages for psychological injury, based on the evidence presented at the hearing and in
keeping with previous awards.
2. Did the Employer have a duty to protect Mr. Tipple’s reputation?
[62]
The Adjudicator awarded Mr. Tipple damages of $250,000.00 for “loss of reputation.”
and a feeling of betrayal. Specifically, there was no evidence that Mr. Tipple was required to obtain
Page: 28
The basis of that determination is set out at paras. 348 and 349 of the decision:
The most troubling aspect of the respondent's conduct is that, despite
Mr. Tipple's requests that PWGSC protect his reputation, it failed
both when the first article was published by The Globe and Mail and
subsequently. PWGSC did nothing to minimize the damage caused
to Mr. Tipple's reputation. In fact, Mr. Marshall worsened the
situation by unlawfully terminating Mr. Tipple's employment in an
atmosphere of scandal. Therefore, I find that the respondent failed in
its obligation to protect Mr. Tipple's reputation.
Damages can be awarded where a party incurs a loss as a result of
the actions of another. In assessing the amount of damages to which
Mr. Tipple is entitled for loss of reputation, I must, once again, take
into account his position within the executive community and
recognize the impact of his damaged reputation on his ability to
successfully market his senior executive skills with potential
employers and business relations. In the circumstances of this case, I
have no reservations in accepting that Mr. Tipple is entitled to his
claim of $250,000.00. [emphasis added]
[64]
Mr. Tipple notes that despite making extensive submissions on other issues before the
Adjudicator, the Attorney General made no objection to his claim for damages for loss of reputation
and instead is making these arguments for the first time in this application. He submits that it is
“settled law” that an applicant cannot raise a new issue on judicial review, unless the new issue is a
jurisdictional issue: 334156 Alberta Ltd v Canada (Minister of National Revenue), 2006 FC 1133, at
para. 16.
[65]
This preliminary submission that the Attorney General is impermissibly attempting to raise
a new issue at the judicial review stage must be rejected. The rule that a decision cannot be
impugned based on an issue not before the decision-maker does not assist Mr. Tipple because this
issue was before the decision-maker. The principle relied upon by Mr. Tipple in support of his
submission looks to the issues before the decision-maker, not the arguments made by the parties.
[63]
Page: 29
[66]
The passage in 334156 from Justice Dawson, as she then was, cited by Mr. Tipple is as
This argument was not put before the decision-maker on either the
initial or the second level request. The jurisprudence of the Court is
well-established that on judicial review a decision cannot be
impugned on the basis of an issue not raised before the decisionmaker, unless the new issue is a jurisdictional issue (which, in the
present case, it is not). See, for example, Toussaint v. Canada
(Labour Relations Board), [1993] F.C.J. No. 616 (C.A.) at paragraph
5; Chen v. Canada (Minister of Citizenship and Immigration), [2000]
F.C.J. No. 1954 (T.D.) at paragraphs 9 through 12; Nametco
Holdings Ltd. v. Canada (Minister of National Revenue-M.N.R.),
[2002] F.C.J. No. 592, 2002 FCA 149 at paragraph 2; and Armstrong
v. Canada (Attorney General), [2006] F.C.J. No. 625, 2006 FC 505
(F.C.) at paragraph 26.
The “issue” Justice Dawson refers to is a question to be decided, not a particular submission made
by a party. The “argument” Justice Dawson refers to is an argument which raises an issue, not an
argument advanced about how a particular issue should be decided. All of the cases cited by Justice
Dawson support the proposition that the Court cannot decide a question not raised before the
decision-maker. Once again, here the issue of damages for loss of reputation was raised by Mr.
Tipple and was squarely before the decision-maker.
[67]
The Attorney General submits that the parameters of the “new duty” to protect an
employee’s reputation are “impossible to define” and a number of hypothetical questions are posed
at para. 55 of its memorandum in T-1295-10 in support of this point. In the alternative, the Attorney
General says that if a duty does exist to protect an employee’s reputation, PWGSC “more than met”
its duty given that it provided a statement to the media defending the London trip and explaining
that meetings were cancelled because of logistical problems.
follows:
Page: 30
[68]
Mr. Tipple disputes that the Adjudicator created a new duty to take positive steps to protect
Adjudicator’s decision and has taken it out of context. That sentence, para. 342 of the decision, is
the following:
In the circumstances of this case, I find that, once PWGSC told Mr.
Tipple that it was handling external communications, and especially
after Mr. Tipple had expressed concerns about his reputation being
tarnished and had been directed not to speak to the media, the
respondent had an obligation to protect Mr. Tipple's reputation.
Mr. Tipple submits that the Adjudicator simply concluded that PWGSC acted in bad faith and, in
the circumstances of this case, that bad faith conduct harmed Mr. Tipple’s reputation and following
Wallace, he was entitled to an award of damages for that loss.
[69]
I am unable to accept the submission of Mr. Tipple. He suggests that the duty to protect his
reputation was subsumed by the Adjudicator within the general duty to act in good faith in the
manner of termination, and no more. However, even the corrective action Mr. Tipple sought from
the Adjudicator did not merge these concepts but distinguished them. He claimed: “damages for
PWGSC’s breach of its duty of good faith owed to Mr. Tipple and PWGSC’s obligation to protect
and to not damage Mr. Tipple’s reputation …” [emphasis added]. Further, the decision itself
contains many references to the duty of the employer to protect an employee’s reputation that on a
plain reading supports the position of the Attorney General. In addition to the sentence reproduced
above from para. 342, these include:
•
“However, it was incumbent on PWGSC not only to protect its own interests and reputation
but also to protect those of Mr. Tipple.” (para. 343).
the reputation of employees. He says that the Attorney General has focused on one sentence of the
Page: 31
•
“Mr. Tipple was entitled to have his reputation protected by the respondent. He was not
afforded that right.” (para. 345)
“I believe that PWGSC knew that not providing relevant and accurate information to the
media would result in a failure to protect Mr. Tipple's reputation.” (para. 346)
•
“The communications strategy used by the respondent was self-serving and had only one
specific goal: to protect its own interests by ensuring there would be no scandal that would
embarrass either itself or the Government of Canada. Unfortunately, this was done at the
expense of Mr. Tipple's reputation. … He now can find some solace in this decision that
recognizes that his reputation was sacrificed to salvage that of PWGSC.” (para 347)
•
“The most troubling aspect of the respondent's conduct is that, despite Mr. Tipple's requests
that PWGSC protect his reputation, it failed both when the first article was published by The
Globe and Mail and subsequently. PWGSC did nothing to minimize the damage caused to
Mr. Tipple's reputation. In fact, Mr. Marshall worsened the situation by unlawfully
terminating Mr. Tipple's employment in an atmosphere of scandal. Therefore, I find that the
respondent failed in its obligation to protect Mr. Tipple's reputation.” (para. 348)
[70]
It is clear from these statements and the wording of the remedial order awarding “damages
for loss of reputation $250,000.00” that the focus of the Adjudicator’s analysis was not the general
bad faith conduct of PWGSC but rather the damage done to Mr. Tipple’s reputation specifically as a
consequence of the actions noted by the Adjudicator at para. 348 of his decision: (1) its failure to
protect Mr. Tipple’s reputation “both when the first article was published by The Globe and Mail
and subsequently” and (2) its worsening of the situation “by unlawfully terminating Mr. Tipple’s
employment in an atmosphere of scandal.”
•
Page: 32
[71]
There can be little doubt that if an employer informs an employee that it will handle external
what occurred here. Here Mr. Tipple asked for but did not receive permission to address the news
reports. He was advised that all communications would be handled by PWGSC. No assurances
were provided to him that his reputation would be protected by PWGSC. In order to find PWGSC
liable for damage to Mr. Tipple’s reputation the Adjudicator must have found that it had a duty to
protect his reputation in the absence of any such assurances.
[72]
In his memorandum of argument in T-1295-10, Mr. Tipple states, at para. 38, that “Both
courts and adjudicators under the Canada Labour Code have accepted that they have the ability – in
the appropriate circumstances – to award damages to an employee for loss of reputation.” He cites
as authority for that proposition Lockwood v B & D Walter Trucking Ltd, [2010] CLAD No 172, at
para 86; Marcil et Autocar Connaisseur, [1995] DATC No 1032, at para. 148, aff’d [1996] FCJ No
1439 (TD) at para 7; Ribeiro v Canadian Imperial Bank of Commerce (1989), 67 OR (2d) 385
(HCJ), varied on appeal (1992), 13 OR (3d) 278 (CA); and Wygant v Regional Cablesystems,
[2001] CLAD No 427, at para. 152. He further cites the finding of the Supreme Court at para. 59 of
Honda that “attacking the employee’s reputation by declarations made at the time of dismissal” is
an example of conduct in dismissal resulting in compensable damages.
[73]
I find these authorities of little assistance. The adjudicator in Lockwood said that he had
authority under s. 242(4)(c) of the Canada Labour Code to require the employer to “do any other
thing that is equitable to require the employer to do in order to remedy or counteract any
communications and protect the employee’s reputation, it then has a duty to so do. But that is not
Page: 33
consequence of the dismissal” and that this includes compensation for “loss of professional
reputation.” However, no such award was made and he provides no analysis as to whether such
employer, and where the employer’s only alleged fault was its failure to take steps to prevent the
damage to reputation.
[74]
In Marcil, the adjudicator and the Federal Court considered a situation where the damage to
reputation was caused by the employer falsely accusing the former employee of dishonesty.
Similarly, in Ribeiro the employer dismissed the employee after accusing him of fraud, which
allegations were not proven and were not supported by the evidence. Wygant as well was a
situation where the employer made false allegations of cause alleging that Mr. Wygant falsified
surveys and persisted in maintaining that defence after it was evident that the allegation could not be
established.
[75]
There is no question that false statements made about an employee by an employer during
termination that damage the former employee’s reputation may be compensable. The most
common scenario is that illustrated in the decisions above, where the employer asserts cause for
dismissal alleging misconduct on the part of the employee where that defence is not established at
trial or has been abandoned prior to trial. Here there is simply no evidence that PGWSC “attacked”
Mr. Tipple’s reputation. It never asserted that his employment was terminated as a consequence of
any alleged misconduct, nor, with the possible exception of its characterization of the supposed
missed meetings in the UK, did it make any statement that could be characterized as an attack on his
reputation or conduct. The statement of PWGSC that the missed meetings were “cancelled because
damages may be awarded where the damage was caused by comments of a third party, not the
Page: 34
of logistical problems” may not have been an accurate description of reality, but it can hardly be
[76]
I agree with the Attorney General that the Adjudicator expanded the duty of good faith
beyond the parameters set out in Wallace. He created a new duty according to which an employer
has a positive obligation to protect an employee’s reputation. Such a positive duty does not exist at
common law, and no authority was provided by the Adjudicator in support of it. Requiring an
employer to take certain positive actions in response to reports in the press which are alleged to
damage the reputation of one of its employees does not fall within the Supreme Court’s
determination in Wallace that an employer has an obligation “to be candid, reasonable, honest and
forthright with their employees.”
[77]
I further agree with the submission of the Attorney General that every employer, and
especially the Government of Canada, has responsibilities beyond that of its relationship with an
individual employee. The Crown’s actions reflect the public interest, and it is reasonable that the
public interest is represented by a single voice to the media coordinated through a media strategy.
Issuing a letter of apology to foreign officials when it may not have been warranted is most likely a
matter of protocol and courtesy. It is similar to saying “sorry” when someone else bumps into you.
I have no doubt that some such letters are insincere; however, the Crown has an ongoing
relationship with foreign governments and has many other considerations to balance, in addition to
the particular interests of the public servant who takes exception to the action.
said to be an attack on Mr. Tipple.
Page: 35
[78]
Mr. Tipple was not at liberty to “correct the record” while an employee of the Crown in light
of PWGSC’s direction not to do so; however, once his employment was terminated that restriction
and Mail and its reporter, to get his story out. His failure to do so was not considered by the
Adjudicator. In my view, when assessing responsibility for any damage to reputation it was
unreasonable for the Adjudicator to consider only the failure of PWGSC to take action and not to
consider the failure of Mr. Tipple, when he was able to take action, to do so. Further, it was
unreasonable to fail to consider that the true source of any damage was The Globe and Mail and its
reporter, both of whom may be held liable to compensate Mr. Tipple in his defamation action.
[79]
In short, I find that there was no legal or factual basis for the award of damages for loss of
reputation. Had there been any legal basis, I would have found the amount of the award
unreasonable. Even if one assumes that Mr. Tipple’s reputation was damaged, the damage was
caused directly by the actions and conduct of the reporter and The Globe and Mail. The
Adjudicator gave no weight to that fact but rather appears to have laid all of the responsibility at the
feet of PWGSC. Further, if PWGSC was liable at all, it was a liability founded in contract law and
Mr. Tipple had a duty to mitigate the loss. In failing to do anything after the termination of his
employment to correct the record and make his situation better, he failed to mitigate and thus if he
had been entitled to any award of damages, he would only have been entitled to a much reduced
award.
3. Damages for Obstruction of Process
was removed. Nonetheless, he took no steps, other than a suit for defamation against The Globe
Page: 36
[80]
The Attorney General says that the Adjudicator had no jurisdiction to award damages for the
alleged obstruction of process because the PSLRA does not allow the Adjudicator to make an award
incurred by the party in the pursuance of a grievance as a result of the other party’s action would
grant the PSLRB a power Parliament did not intend it to have.
[81]
Mr. Tipple submits that the award for obstruction of process is not akin to an award of costs.
He notes that costs are a matter of “loser pays” whereas the award for obstruction of process is an
award of actual losses incurred as a result of breach of the disclosure orders. Mr. Tipple notes that
the Adjudicator recognized his lack of jurisdiction to award costs and addressed the issue of
obstruction outside the normal costs regime. He submits that there is no right without a remedy, and
that there must be a consequence for an employer’s non-compliance with the Board’s orders.
[82]
The authority cited by Mr. Tipple in support of his submission that tribunals have relied on
“obstruction of process” to justify similar remedies is unhelpful given that the decision he cites,
Stone v British Columbia (Ministry of Health), 2008 BCHRT 96, involved a statute which
specifically granted the British Columbia Human Rights Tribunal the power to award costs. Indeed,
the Tribunal, at para. 59 of Stone, specifically noted that “Both the Code and the Rules give the
Tribunal specific authority to order costs for non-compliance with its Rules, orders and directions:
Code s. 37(4)(b) and Rules 4(1) and 31.”
[83]
Mr. Tipple’s submission that there cannot be a right without a remedy also does not assist
him. Mr. Tipple did have a remedy if PWGSC was obstructing the Board’s process by failing to
of costs. It is submitted that awarding legal costs under the guise of compensating for a loss
Page: 37
comply with its disclosure orders; he could have gone to the Federal Court to seek enforcement of
those orders. Indeed, Mr. Tipple was aware that he could go to the Federal Court but chose not to.
I advised counsel for Mr. Tipple that he might have to file the
disclosure orders in Federal Court and have it enforce them. Counsel
for Mr. Tipple stated that the hearing had been delayed on many
occasions while he waited for documentation and that, in the best
interests of Mr. Tipple, he stated that seeking an enforcement order
from the Federal Court would only delay the proceedings and cause
additional costs on top of the already additional costs caused by the
respondent not providing the relevant documentation.
[84]
In my view, the award for obstruction of process as articulated by the Board is, in essence, a
veiled costs award. This is evident from the decision as a whole as well as from the fact that the
Adjudicator determined the amount of the damages to be the additional legal costs incurred by Mr.
Tipple that were directly attributable to the alleged non-compliance. It does not assist that the
Adjudicator characterized them as “damages for obstruction of process.” One must consider the
substance of the award, not its form. Parliament provided a mechanism in the PSLRA to effect
compliance with orders of the Board; namely s. 52 of the PSLRA, filing the orders with this Court.
Accordingly, the Board does not have jurisdiction to directly enforce its orders, nor to make a
finding of non-compliance; that is an issue for this Court. By characterizing, inappropriately in my
view, the award as damages for non-compliance in an amount equal to the additional legal costs
incurred, the Board was attempting to do indirectly that which it had no jurisdiction to do directly;
namely, to award legal costs.
As the Adjudicator explained at para. 37 of the decision:
Page: 38
[85]
The ultimate disposition of this issue is linked to my determination on the next issue:
whether the Adjudicator had jurisdiction to award costs. If he did, then this award may stand. If he
4. Jurisdiction to Award Costs
[86]
Mr. Tipple submits that the Adjudicator had jurisdiction to award costs. He notes that
adjudicators under the Canada Labour Code, RSC 1985, c L-2, as well as the Ontario Public
Service Grievance Board, the Ontario Labour Relations Board, and the British Columbia Labour
Relations Board all have the jurisdiction to award costs, although some have decided as a matter of
policy not to exercise this jurisdiction. He submits that an adjudicator under the PSLRA has similar
jurisdiction to an adjudicator under Part III of the Canada Labour Code to decide whether a
dismissal was justified and, if it was not, to determine a remedy. Under s. 242(4)(c) of the Code the
adjudicator may require the employer who dismissed the person to “do any other thing that is
equitable to require the employer to do in order to remedy or counteract any consequence of the
dismissal” whereas the PSLRA provides that the adjudicator “must render a decision and make the
order that he or she considers appropriate in the circumstances.”
[87]
In Banca Nazionale Del Lavoro of Canada Ltd v Lee-Shanok, [1988] FCJ No 594 (CA),
Justice Stone of the Federal Court of Appeal wrote that:
I have no difficulty in reading it [the former identically-worded
version of s. 242(4)(c)], with its broad reference to granting relief
that is "equitable to require the employer to do in order to remedy or
counteract any consequence of the dismissal", as including the power
to award costs. The difficulty I have is in viewing an award of
compensation, gained at some considerable expense to a complainant
in terms of legal costs, as having the effect of making him whole.
Legal costs incurred would effectively reduce compensation for lost
did not, then it must be set aside.
Page: 39
[88]
Mr. Tipple also notes that costs were awarded under the Public Service Staff Relations Act
(the predecessor to the PSLRA) in Matthews and Canadian Security Intelligence Service, supra and
says that s. 228(2) of the former Act provided remedial jurisdiction less broad than under the current
Act as it provided only that “the adjudicator shall render a decision” on the grievance.
[89]
Mr. Tipple notes that the Adjudicator relied exclusively on the Federal Court of Appeal’s
decision in Mowat to determine that he did not have jurisdiction, and submits that this was in error
because Mowat is not applicable to this case for three reasons. First, the wording of the Canadian
Human Rights Act is different than the PSLRA. The Canadian Human Rights Act allows an award
to compensate for “expenses incurred by the victim as a result of the discriminatory practice,” and
Mowat held that costs do not compensate for the discriminatory practice but serve another purpose.
Conversely, Mr. Tipple says that the PSLRA does not limit the remedial authority of the Adjudicator
to compensation, but instead grants him jurisdiction to grant “appropriate” remedies. Second, in
Mowat the Court noted that since some provincial human rights statutes have specific provisions for
costs, those that do not have been interpreted as not granting the jurisdiction to award costs.
Accordingly, the Court found that it would be incongruous to accord different treatment to the
federal legislation which has no express authority to award costs. Mr. Tipple submits that unlike the
human rights regimes, other federal and provincial tribunals dealing with labour and employment
matters have concluded they do have the jurisdiction to award costs even when it is not expressly
remuneration, while their allowance would appear to remedy or, at
least, to counteract a consequence of the dismissal. … While we are
not called upon here to define its true breadth, I am satisfied that it
does surely embrace the awarding of costs to a successful
complainant in appropriate circumstances.
Page: 40
granted. Third, the Court in Mowat relied on the fact that Parliament had considered a proposed
amendment to the Canadian Human Rights Act that would have explicitly provided jurisdiction to
predecessor.
[90]
Furthermore, Mr. Tipple notes that the PSLRA involves a different subject-matter than
disputes before the Canadian Human Rights Tribunal. In this case, adjudication of dismissal
grievances is a substitute for a civil action in a provincial Superior Court where costs are the norm,
whereas there is no corresponding civil action available for discrimination.
[91]
I find decisions on the jurisdiction of other tribunals to award costs under their enabling
statutes to be of little assistance in interpreting the PSLRA and, specifically, in determining whether
an adjudicator under the PSLRA has jurisdiction to make an award of costs.
[92]
Mowat is helpful only insofar as it distils the following interpretive principals and general
observations which are to be followed and which must instruct my examination of the issue:
1.
The jurisdiction to award costs must be found in the statute; there is no inherent
jurisdiction in a statutory tribunal to award costs.
2.
In interpreting the statute, the goal is to seek the intent of Parliament by giving the
words their ordinary and grammatical meaning within the context of and consistent
with the scheme and object of the statute.
award costs. Mr. Tipple says that no such Bill has ever been proposed for the PSLRA or its
Page: 41
[93]
The fundamental question that must be addressed in light of these principals is whether s.
228(2) of the PSLRA grants authority to an adjudicator under the PSLRA to make an award of costs.
228. (2) After considering the
grievance, the adjudicator must
render a decision and make the
order that he or she considers
appropriate in the
circumstances. …
[94]
228. (2) Après étude du grief, il
tranche celui-ci par
l’ordonnance qu’il juge
indiquée. …
Although the adjudicator’s authority to “make the order he or she considers appropriate in
the circumstances” appears to endow the adjudicator with the ability to fashion relief broadly, I have
concluded, for the reasons that follow, that Parliament did not intend that the jurisdiction of an
adjudicator under the PSLRA go so far as to include the authority to make awards of costs.
[95]
First, the PSLRA establishes a grievance and adjudication mechanism for public servants,
including those covered by collective agreements and represented by bargaining agents. The time
frames set out in the PSLRA are short and it is evident that these matters were intended to be dealt
with expeditiously. The Attorney General observes that the PSLRA does not require grievors to
have legal representation and that they are often represented by their bargaining agent. In fact,
employees represented by a bargaining agent are required by ss. 208(4) and 213 of the PSLRA to be
represented by their bargaining agent in the presentation and adjudication of their individual
grievances. Pursuant to s. 212, unrepresented employees may “seek the assistance of, and, if the
employee chooses, may be represented by, any employee organization in the presentation or
reference to adjudication of an individual grievance.” While there is nothing in the PSLRA that
expressly prohibits non-represented grievors such as Mr. Tipple from retaining legal counsel, the
For the sake of convenience, I reproduce that provision:
Page: 42
PSLRA appears to contemplate proceedings with representatives of the department and the
[96]
Second, in my view, an adjudicator is not given carte blanche as to the terms of his or her
order, notwithstanding the wording in s. 228(2) that he or she is to “make the order that he or she
considers appropriate.” The appropriateness of the order and thus the jurisdiction of the adjudicator
must be assessed against the nature of the action grieved, which in this case is the termination of
employment.
[97]
Where, as here, the grievance is related to “a disciplinary action resulting in termination of
the employee,” as described in s. 209(1)(b) of the PSLRA, and that action is found to be
unwarranted, the grievor is entitled to be put back into the position he or she would have been in had
the action not been taken. That may involve reinstatement or when, as here, the term of the contract
has ended, damages for lost wages and benefits as well as compensatory damages for losses
incurred as a consequence of the wrongful act (i.e. moral damages as described by the Supreme
Court in Honda). Such awards are remedial, not punitive. These damages directly address the
grievance of the terminated employee and the conduct of the employer giving rise to the grievance.
[98]
The Federal Court of Appeal has observed that there is a “three-fold objective of costs …
providing compensation, promoting settlement and deterring abusive behaviour”: Air Canada v
Thibodeau, 2007 FCA 115. Costs are not remedial. If they were, then a tribunal would have a right
to make awards of costs absent any express statutory authorization as part of its jurisdiction to
bargaining agent speaking for the two interested parties.
Page: 43
remedy wrongs; however, as has been seen, tribunals do not have that inherent jurisdiction. This
[99]
Furthermore, I disagree with the following statement made by Mr. Tipple at paras. 391 and
392 of his written submissions to the Adjudicator:
… The PSLRA and relevant authorities required Mr. Tipple to
proceed by way of a Grievance to pursue his claim for damages
against his former Employer, to the exclusion of the civil court
system where Mr. Tipple would, as a matter of course, be entitled to
claim for bad faith damages, punitive damages, interest, and
reimbursement of legal costs.
… An adjudicator dealing with a claim by an employee such as Mr.
Tipple has unlimited remedial jurisdiction, and ought to award the
same damages as a court would, including bad faith damages,
punitive damages, interest, and full reimbursement of legal costs.
First, as indicated, cost awards are not damage awards and second, a court only makes cost awards
because it has been expressly given that jurisdiction.
[100] Lastly, I find persuasive the submission of the Attorney General that the intent of Parliament
vis-à-vis cost awards in the PSLRA is revealed in how Parliament dealt with that issue in the Public
Sector Equitable Compensation Act, SC 2009, c. 2, s. 394 (PSECA). That legislation is more
germane than other legislative provisions cited by Mr. Tipple, including the Canada Labour Code,
because the tribunal given jurisdiction under the PSECA is the same as that here, namely the
PSLRB.
[101] The PSECA, when proclaimed in force, will transfer authority over pay equity complaints in
the public service from the Human Rights Commission to the PSLRB. Complaints may be filed by
suggests that there is no authority in s. 228(2) of the PSLRA to award costs.
Page: 44
unionized or non-unionized public servants against their employer or their union representative, or
34. The Board may, in making
an order under this Act, require
the employer, the bargaining
agent or the employer and the
bargaining agent, as the case
may be, to pay to the
complainant all or any part of
the costs and expenses incurred
by the complainant as a result
of making the complaint.
34. La Commission peut, en
rendant toute ordonnance en
vertu de la présente loi, exiger
de l’employeur, de l’agent
négociateur ou des deux, selon
le cas, qu’ils paient au plaignant
tout ou partie des dépenses
exposées par celui-ci par suite
du dépôt de la plainte.
[102] Although the remedial jurisdiction of the PSLRB under the PSECA is worded differently
than its jurisdiction under s. 228(2) of the PSLRA, I agree with the Attorney General that the PSECA
“illustrates the intention of Parliament to grant the PSLRB the power to award costs in specific and
limited circumstances.”
[103] For these reasons I find that the Adjudicator was correct in finding that he had no
jurisdiction under the PSLRA to make an award of damages. As a consequence, and in light of the
discussion above, the order awarding damages for obstruction of process, which was found to be an
award of costs, must be set aside.
5. Interest
[104] The Adjudicator awarded interest on the awards of damage “at the applicable Canada
Savings Bonds rate, year after year, from October 1, 2006 to October 6, 2008.” He limited the
period of interest to that period because he was of the view that it was the period claimed by Mr.
both. Section 34 of the PSECA specifically addresses costs and provides as follows:
Page: 45
Tipple, notwithstanding that he would otherwise have been entitled to interest until payment:
[105] Mr. Tipple submits that the Adjudicator erred in finding, at para. 308 of his decision, that
Mr. Tipple “decided to limit his claim [for interest] to the period from October 1, 2006 to
October 6, 2008.” Mr. Tipple says he never so limited his claim but rather sought interest until
the date of the PSLRB’s decision.
[106] Mr. Tipple filed a grievance which consisted of a cover letter and the Statement of Claim
filed earlier in the Ontario Superior Court (now stayed) which included a claim for “interest …
from August 31, 2006.” Mr. Tipple notes that at no point in his grievance did he limit his claim
for interest to the period ending October 6, 2008. Furthermore, he set out the relief he sought at
para. 418 of his submissions to the Adjudicator, where he requested “interest on the foregoing
amount” without limiting the period for which interest was requested. Finally, Mr. Tipple notes
that in his closing submissions to the Board he specified that he was seeking interest for the full
period up to the Adjudicator’s decision.
[107] Mr. Tipple hypothesizes that the Adjudicator may have misunderstood his claim for
interest because of the wording at para. 412 of his written submissions regarding the appropriate
interest rate to apply wherein he sought the following:
It is respectfully submitted that [t]here is no reason to depart from the
Pepper approach in this case, and that the Grievor should be awarded
interest at the Bank of Canada rate for the period from October 1,
2006 to October 6, 2008, based upon his salary and benefits at the
time of the Employer’s termination of his employment.
Canada (Attorney General) v Morgan, [1991] FCJ No 1105 (CA).
Page: 46
Mr. Tipple says that those submissions related to the appropriate rate of interest to apply, not the
[108] The Attorney General does not suggest that the Adjudicator was right in his
understanding of Mr. Tipple’s submission. Rather, he submits that the interest order must stand
unless it is established that it was unreasonable, and notes the deference required under the
reasonableness standard.
[109] In my view, it is clear that Mr. Tipple did not restrict his claim for interest as found by the
Adjudicator. In addition to other materials in the record, including the grievance and the written
submissions made to the adjudicator, I rely upon the following statement in Mr. Tipple’s affidavit,
filed in this application:
In his closing submissions, my counsel specified that I was seeking
interest for the full period up to the Adjudicator’s decision, not just
the period from October 1, 2006 to October 6, 2008.
[110] Accordingly, the Adjudicator’s award of interest only until October 6, 2008, based on the
finding that Mr. Tipple was only seeking interest until then, is unreasonable and must be set aside
and referred back to the Board.
Summary of Findings
[111] I have found the following with respect to the issues in dispute:
1. The award of $125,000.00 for psychological injury does not fall “within a range of
possible, acceptable outcomes which are defensible in respect of the facts and law”. The
period of time for which he was seeking interest.
Page: 47
quantum is unreasonable and must be set aside. There was evidence before the Adjudicator on
which he could properly make some award of damages for psychological injury. Therefore this part
reasons and the jurisprudence.
2. There was no legal basis for an award of damages for loss of reputation as the employer
had no duty to protect the reputation of Mr. Tipple. Had there been any legal basis, the quantum of
the award, $250,000.00 was unreasonable as it failed to take into consideration that the damage was
directly caused by the actions and conduct of the reporter and The Globe and Mail and that Mr.
Tipple failed in his duty to mitigate his loss.
3. The award of damages for obstruction of process was, in reality, an award of costs and
was therefore beyond the jurisdiction of the adjudicator. It must be set aside.
4. The Adjudicator was correct in finding that he had no jurisdiction under the PSLRA to
award costs to a successful party.
5. The award of interest limited to the period ending October 6, 2008, was based on a
mistake of fact that Mr. Tipple so limited his request and it is therefore unreasonable and must be
set aside and referred back to the Board for re-determination.
[112] In sum, I will allow the application of the Attorney General in Court File T-1295-10 and set
aside the awards for damages for psychological injury, damage to reputation, and obstruction of
process, except that the award of damages for psychological damages will be referred back to the
PSLRB for re-determination. I will allow the application of Mr. Tipple in Court File T-1315-10
only in respect of the award of interest, which is to be referred back to the PSLRB for redetermination.
of the decision must be referred back to the PSLRB for re-determination consistent with these
Page: 48
[113] The Adjudicator, D. R. Quigley, has retired from the PSLRB. The parties are in agreement
decisions required as a result of my Judgment.
[114] The parties informed the Court of their agreement that an appropriate amount for an
award of costs of both applications together would be $7,500.00. Success was divided and I
therefore exercise my discretion not to award costs in either application.
that another Member of the PSLRB should be appointed by the Chair of the PSLRB to make the
Page: 49
JUDGMENT
THIS COURT’S JUDGMENT is that:
The application of the Attorney General in Court File T-1295-10 is allowed:
a)
The award of damages of $125,000.00 for psychological injury is set aside and the
quantum of such damages is referred back to the Public Service Labour Relations
Board for re-determination;
2.
b)
The award of damages of $250,000.00 for loss of reputation is set aside; and
c)
The award of $45,322.03 for obstruction of process is set aside;
The application of Mr. Tipple in Court file T-1315-10 is allowed in part.
The award of interest ending October 6, 2008, is set aside and is referred back to the Public
Service Labour Relations Board for re-determination in keeping with the submissions
previously made by Mr. Tipple that the interest continue until the date of the decision of the
Public Service Labour Relations Board.
3.
No costs are awarded in either matter.
"Russel W. Zinn"
Judge
1.
FEDERAL COURT
DOCKETS:
T-1295-10
ATTORNEY GENERAL OF CANADA v. DOUGLAS TIPPLE
T-1315-10
DOUGLAS TIPPLE v. ATTORNEY GENERAL OF CANADA
PLACE OF HEARING:
Ottawa, Ontario
DATE OF HEARING:
April 11, 2011
REASONS FOR JUDGMENT
AND JUDGMENT:
ZINN J.
DATED:
June 24, 2011
APPEARANCES:
Stephen Victor, Q.C.,
David Cutler
Christopher Rootham
FOR THE APPLICANT
Michael Ciavaglia
Claudine Patry
FOR THE RESPONDENT
SOLICITORS OF RECORD:
VICTOR AGES VALLANCE LLP
Barristers & Solicitors
Ottawa, Ontario
FOR THE APPLICANT
MYLES J. KIRVAN
Deputy Attorney General of Canada
Ottawa, Ontario
FOR THE RESPONDENT
SOLICITORS OF RECORD
SUPREME COURT OF CANADA
DATE: 20080627
DOCKET: 31739
BETWEEN:
Honda Canada Inc. operating as Honda of Canada Mfg.
Appellant / Respondent on cross-appeal
and
Kevin Keays
Respondent / Appellant on cross-appeal
- and Canadian Human Rights Commission,
Ontario Human Rights Commission,
Manitoba Human Rights Commission,
Alliance of Manufacturers & Exporters Canada,
Human Resources Professionals Association of Ontario,
National ME/FM Action Network,
Council of Canadians with Disabilities,
Women’s Legal Education and Action Fund and
Ontario Network of Injured Workers’ Groups
Interveners
CORAM: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and
Rothstein JJ.
REASONS FOR JUDGMENT:
(paras. 1 to 80)
Bastarache J. (McLachlin C.J. and Binnie, Deschamps,
Abella, Charron and Rothstein JJ. concurring)
REASONS DISSENTING IN PART :
(paras. 81 to 124)
LeBel J. (Fish J. concurring)
______________________________
2008 SCC 39 (CanLII)
CITATION: Honda Canada Inc. v. Keays,
[2008] 2 S.C.R. 362, 2008 SCC 39
Honda Canada Inc. v. Keays, [2008] 2 S.C.R. 362, 2008 SCC 39
Appellant/Respondent on cross-appeal
v.
Kevin Keays
Respondent/Appellant on cross-appeal
and
Canadian Human Rights Commission, Ontario Human Rights
Commission, Manitoba Human Rights Commission, Alliance
of Manufacturers & Exporters Canada, Human Resources
Professionals Association of Ontario, National ME/FM Action
Network, Council of Canadians with Disabilities, Women’s
Legal Education and Action Fund and Ontario Network of
Injured Workers’ Groups
Indexed as: Honda Canada Inc. v. Keays
Neutral citation: 2008 SCC 39.
File No.: 31739.
2008: February 20; 2008: June 27.
Interveners
Honda Canada Inc., operating
as Honda of Canada Mfg.
Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and
Rothstein JJ.
Employment law — Wrongful dismissal — Notice period — Employee terminated after
14 years of employment — Factors determining reasonable notice of termination of employment —
Whether employee’s position in company hierarchy relevant factor — Whether 15-month notice
period reasonable.
Damages — Aggravated damages — Punitive damages — Wrongful dismissal —
Employee diagnosed with chronic fatigue syndrome — Employer concerned about employee’s
numerous absences and about his doctor’s notes to cover absences, which provided only limited
information — Employee dismissed after refusing to meet with employer’s doctor — Circumstances
in which aggravated damages resulting from manner of dismissal should be awarded — Whether
employee entitled to aggravated and punitive damages.
Civil procedure — Costs — Costs premium — Whether costs premium should be
awarded — Whether costs should be awarded on substantial indemnity scale.
K had worked 11 years for the same employer, first on an assembly line and later in data
entry, when, in 1997, he was diagnosed with chronic fatigue syndrome. He ceased work and
received disability benefits until 1998, when his employer’s insurer discontinued his benefits. K
returned to work and was placed in a disability program that allows employees to take absences from
work if they provide doctor’s notes confirming that their absences are related to their disability. K’s
on appeal from the court of appeal for ontario
employer became concerned about the frequency of his absences. Moreover, the notes K offered
to explain his absences changed in tone, leaving the employer to believe that the doctor did not
to meet Dr. B, an occupational medical specialist, in order to determine how K’s disability could be
accommodated. On the advice of his counsel, K refused to meet B without explanation of the
purpose, methodology and parameters of the consultation. On March 28, 2000, the employer gave
K a letter stating that it supported K’s full return to work but that K’s employment would be
terminated if he refused to meet B. When K remained unwilling to meet B, the employer terminated
K’s employment.
K sued for wrongful dismissal. The trial judge found that K was entitled to a notice
period of 15 months. He held that the employer had committed acts of discrimination, harassment
and misconduct against K. He increased the notice period to 24 months to award additional
damages dependent on the manner of dismissal. He also awarded punitive damages against the
employer in the amount of $500,000, a costs premium, and costs on a substantial indemnity scale.
The Court of Appeal reduced the costs premium and, in a majority decision, reduced the punitive
damages award to $100,000. The Court of Appeal otherwise upheld the trial judge’s decision.
Held (LeBel and Fish JJ. dissenting in part on the appeal): The appeal should be
allowed in part and the cross-appeal should be dismissed. The award of aggravated damages for
manner of dismissal and the award of punitive damages should be set aside. The cost premium
should be set aside and costs should be adjusted to reflect an award on the regular scale in the lower
courts. Costs are awarded to the employer at the Supreme Court level.
independently evaluate whether he missed work due to disability. As such, the employer asked K
Per McLachlin C.J. and Bastarache, Binnie, Deschamps, Abella, Charron and
Rothstein JJ.: K was wrongfully dismissed and the award of damages reflecting the need for 15
termination, courts should consider the character of the lost employment, the employee’s length of
service, the age of the employee, and the availability of similar employment having regard to the
experience, training and qualifications of the employee. These factors can only be applied on a
case-by-case basis and no one factor should be given disproportionate weight. No presumptions
about the role that an employee’s managerial level plays should be adopted in determining
reasonable notice. The trial judge erred in alluding to the employer’s flat management structure
rather than examining K’s actual functions; however, on the facts of this case there is no basis to
interfere with the assessment of 15 months’ notice. [2] [25] [28-30] [32]
An action for wrongful dismissal is based on an implied obligation in the employment
contract to give reasonable notice of an intention to terminate the relationship in the absence of just
cause. Generally, damages are not available for the actual loss of a job or for pain and distress
suffered as a consequence of being terminated. However, in cases where parties have contemplated
at the time of the contract that a breach in certain circumstances would cause the plaintiff mental
distress, the plaintiff is entitled to recover. This is consistent with the view expressed in Fidler that
all compensatory damages for breach of contract are assessed under one rule, i.e., what was in the
reasonable contemplation of the parties (Hadley v. Baxendale). In the employment law context,
damages resulting from the manner of dismissal will be available if they result from the
circumstances described in Wallace, namely where the employer engages in conduct during the
course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or
months’ notice should be maintained. In determining what constitutes reasonable notice of
unduly insensitive”. These damages should be awarded through an award that reflects actual
Aggravated damages should not have been awarded in this case. The employer’s
conduct in dismissing K was in no way an egregious display of bad faith justifying an award of
damages for conduct in dismissal. On this issue, the trial judge made overriding and palpable errors
of fact. The employer’s March 28 letter to K did not misrepresent the positions of its doctors and
it should not have been faulted for relying on the advice of its medical experts. There is no evidence
that B took a “hardball” attitude towards workplace absences or that K was being set up when asked
to meet B. The employer’s request for a meeting between K and B was normal in the circumstances.
The employer’s decision to stop accepting doctor’s notes was not reprisal for K’s decision to retain
legal counsel. Rather, the employer was simply seeking to confirm K’s disability. Lastly, there is
no evidence that K’s disability subsequent to termination was caused by the manner of termination.
[34-35] [38] [40] [43] [46-48]
Similarly, punitive damages should not have been awarded. Punitive damages are
restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of
punishment on their own. The facts of this case demonstrate no such conduct. Courts should only
resort to punitive damages in exceptional cases and the employer’s conduct here was not sufficiently
egregious or outrageous to warrant such damages. Even if the facts had justified an award of
punitive damages, both the trial judge and the Court of Appeal should have been alert to the fact that
the compensatory damages already awarded carried, under the old test, an element of deterrence and
they should have questioned whether punitive damages were necessary. This failure resulted in
damages rather than by extending the notice period. [50] [55] [57] [59]
considerable and unnecessary duplication in the award of damages. [61-62] [68-70]
“discriminatory conduct” amounted to an independent actionable wrong for the purposes of
allocating punitive damages. The Ontario Human Rights Code provides a comprehensive scheme
for the treatment of claims of discrimination. A breach of the Code cannot constitute an actionable
wrong; therefore the legal requirement for the common law remedy of punitive damages is not met.
Since there is no evidence of discrimination to support a claim of discrimination under the Code and
no breach of human rights legislation serves as an actionable wrong, there is no need to deal with
K’s request for recognition of a distinct tort of discrimination. [62] [64] [67]
Per LeBel and Fish JJ. (dissenting in part on the appeal): The award of additional
damages for the manner of the dismissal should stand. No overriding errors were committed by the
trial judge in this respect and there is a sufficient foundation for findings of bad faith and
discrimination. The punitive damages award, however, had no foundation and overlapped with the
damages for manner of dismissal, and should be set aside. The costs premium also should be set
aside. While a restatement of the law in respect of damages for wrongful dismissal is necessary, any
reform must reflect that a contract of employment is a good faith contract informed by the values
protected by the human rights codes and the Canadian Charter of Rights and Freedoms, particularly
in respect of discrimination. As such, it must be executed and terminated with good faith and
fairness. [81-82] [114] [124]
The evidence supports the trial judge’s findings that the employer was unfairly skeptical
Both the trial judge and the Court of Appeal also erred in concluding that the employer’s
and sought to justify K’s termination or to preclude him from being absent from work without
discipline in reliance on his condition. It was fair to characterize the employer’s conduct as
opinion of K’s physician and to legitimize efforts to eliminate the need for accommodation. The
employer did benefit from K’s termination to the extent that he impeded efficiency goals and
affected workplace morale. The employer’s letter of March 28 was misleading and did misrepresent
the opinions of its doctors. B did practise a hardball approach in general toward absences and
accommodating disabilities and it was not unreasonable to conclude that K was being set-up for
failure by the request that he meet with B. Nor was it a palpable and overriding error to conclude
that the employer cancelled K’s accommodation as reprisal for asserting his right to proper
accommodation through legal counsel. [87-91] [94-95] [99] [112]
Additional or Wallace type damages should be available where the manner of
dismissal causes mental distress that was in the contemplation of the parties. There is an
obligation of good faith and fair dealing on the part of employers in dismissing employees.
There is ample evidence here that the employer acted in bad faith and this is a case where the
employer’s failure to properly discharge its obligation made it foreseeable that K’s dismissal
would cause mental distress. Most notably, the letter of March 28 mischaracterized the opinions
of the employer’s doctors by implying that they did not believe that K’s absences were medically
necessary yet neither doctor recommended that K be removed from the disability program or
claimed that any absences related to chronic fatigue syndrome are unjustified. A further concern
is the employer’s lack of candour and its own uncertainty with respect to the purpose of K’s
meeting with B. Its refusal to provide written clarification of the purpose is suspicious. Finally,
interference with K’s relationship with his treating physician. B was brought in to second-guess the
it is reasonable to conclude that the employer’s conduct and not the mere fact of K’s termination
alone, led to K’s worsened state after he was terminated. However, given the lack of evidence
trial judge granted over and above the 15-month notice period appears reasonable and should be
maintained. [114-117]
The development of tort law is informed by the prohibitions of human rights codes
and the Charter. Discrimination was a troubling aspect of the decision to terminate K and this
impacts on the good faith of the termination. While monitoring employee absences is a valid
objective, there was no assessment in this case of whether the employer’s method of
accommodation and of monitoring K’s absences addressed K’s particular disability. If variable,
self-reporting conditions characterize the very nature of K’s disability, then it is arguable that the
employer acted in a discriminatory manner in subjecting K to the kind of scrutiny that occurred,
denying him accommodation for his disability. [119-123]
Cases Cited
By Bastarache J.
Considered:
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701;
explained: Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; applied: Whiten v. Pilot
Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18; Walker v. Ritchie, [2006] 2 S.C.R. 428, 2006
SCC 45; referred to: McKinley v. BC Tel, [2001] 2 S.C.R. 161, 2001 SCC 38; Minott v.
on the precise loss K suffered as a result of the employer’s misconduct, the compensation the
O’Shanter Development Co. (1999), 168 D.L.R. (4th) 270; Machtinger v. HOJ Industries Ltd.,
[1992] 1 S.C.R. 986; Bramble v. Medis Health and Pharmaceutical Services Inc. (1999), 214
B.C.L.R. (3d) 345; Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3, 2006 SCC
30; Addis v. Gramophone Co., [1909] A.C. 488; Peso Silver Mines Ltd. (N.P.L.) v. Cropper,
[1966] S.C.R. 673; Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085; Hadley
v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145; Seneca College of Applied Arts and Technology
v. Bhadauria, [1981] 2 S.C.R. 181; McGill University Health Centre (Montreal General
Hospital) v. Syndicat des employés de l’Hôpital général de Montréal, [2007] 1 S.C.R. 161, 2007
SCC 4.
By LeBel J. (dissenting in part on the appeal)
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; Seneca College of
Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181; St-Jean v. Mercier, [2002] 1
S.C.R. 491, 2002 SCC 15.
Statutes and Regulations Cited
Canadian Charter of Rights and Freedoms.
Human Rights Code, R.S.O. 1990, c. H.19, s. 5.
APPEAL and CROSS-APPEAL from a judgment of the Ontario Court of Appeal
(Rosenberg, Goudge and Feldman JJ.A.) (2006), 82 O.R. (3d) 161, 274 D.L.R. (4th) 107, 216
N.B.R. (2d) 111; Byers v. Prince George (City) Downtown Parking Commission (1998), 53
O.A.C. 3, 52 C.C.E.L. (3d) 165, [2006] C.L.L.C. ¶230-030, [2006] O.J. No. 3891 (QL), 2006
CarswellOnt 5885, reversing in part a decision of McIsaac J. (2005), 40 C.C.E.L. (3d) 258,
in part, LeBel and Fish JJ. dissenting in part. Cross-appeal dismissed.
Earl A. Cherniak, Q.C., Jasmine T. Akbarali and Roslynn J. Kogan, for the
appellant/respondent on cross-appeal.
Hugh R. Scher, for the respondent/appellant on cross-appeal.
Philippe Dufresne, for the intervener the Canadian Human Rights Commission.
Anthony D. Griffin, for the intervener the Ontario Human Rights Commission.
Sarah Lugtig, for the intervener the Manitoba Human Rights Commission.
George Avraam and Mark Mendl, for the intervener the Alliance of Manufacturers
& Exporters Canada.
Stuart E. Rudner and Stephen Rotstein, for the intervener the Human Resources
Professionals Association of Ontario.
Chris G. Paliare and Andrew K. Lokan, for the intervener the National ME/FM
[2005] C.L.L.C. ¶230-013, [2005] O.J. No. 1145 (QL), 2005 CarswellOnt 1131. Appeal allowed
Action Network.
with Disabilities.
Susan Ursel and Kim Bernhardt, for the intervener the Women’s Legal Education
and Action Fund.
Debra M. McAllister and Ivana Petricone, for the intervener the Ontario Network
of Injured Workers’ Groups.
The judgment of McLachlin C.J. and Bastarache, Binnie, Deschamps, Abella,
Charron and Rothstein JJ. was delivered by
BASTARACHE J. —
1. Overview
[1]
On March 29, 2000, after 14 years of employment, the respondent, Kevin Keays, was
terminated from his employment at Honda Canada Inc. (“Honda”). Keays sued for wrongful
dismissal. The trial judge found that Keays was entitled to a notice period of 15 months. He then
considered additional damages dependent on the manner of dismissal (the so-called “Wallace
damages”) and increased the notice period to 24 months. In addition, the trial judge awarded
Frances M. Kelly and Gwen Brodsky, for the intervener the Council of Canadians
punitive damages against Honda in the amount of $500,000, plus costs on a substantial indemnity
scale with a 25 percent premium. The Court of Appeal unanimously upheld the finding of
(Wallace damages). It also ordered that the costs premium be reduced. A majority (Goudge J.A.
dissenting) ordered that the quantum of punitive damages be reduced from $500,000 to
$100,000.
[2]
I would allow the appeal in part. The regular damages award should be maintained.
The Court of Appeal erred however in maintaining the damages for manner of dismissal
(Wallace damages) and simply reducing the quantum of punitive damages. These awards, as
well as the costs premium, must thus be set aside. I would deny the cross-appeal dealing with the
reduction of the award of punitive damages.
[3]
Keays started working for Honda in 1986, first on the assembly line and later in data
entry. In 1997, his diagnosis of chronic fatigue syndrome (“CFS”) was confirmed by a doctor
from the Sleep Disorder Clinic in Toronto, Dr. Moldofsky. He ceased work and received
disability insurance benefits through an independent insurance provider, London Life Insurance
Co., until 1998 when his benefits were discontinued based on the insurer’s evaluation that Keays
could return to work full-time. Keays’ appeal to the insurer on this evaluation was denied.
Honda had no part in the decision to terminate Keays’ benefits.
[4]
Although London Life’s decision was based on medical opinion that Keays could
return to work without restrictions, Keays continued to absent himself. He was placed in the
wrongful termination as well as the regular damages and the damages for manner of dismissal
Honda Disability Program, which permits disabled employees to take absences without the
invocation of Honda’s attendance policy by confirming that the absence from work is related to
had predicted, and the notes he offered to explain his absences changed in tone leaving the
employer to believe that the doctor did not independently evaluate whether he missed work due
to disability.
[5]
In late 1999, Honda’s administrative coordinator, Susan Selby arranged for Keays
to see Dr. Lester Affoo, an independent physician hired by Honda, because of the increasing
frequency of absences. In January and February 2000, Keays again experienced increased
absences (14 days in total). This prompted Betty Magill, Keays’ manager, to raise the issue with
Selby. They met on March 3 and decided to ask Keays to meet with Dr. Brennan, an occupational
medicine specialist, in order to determine how his disability could be accommodated. After this
meeting, but before Honda had a chance to meet with Keays, Keays decided to retain counsel to
attempt to mediate his concern that he would ultimately be terminated. On March 17, Honda
received a letter from Keays’ counsel outlining his concerns and offering to work towards a
resolution. Honda did not respond.
[6]
On March 21, Magill and Selby met with Keays to explain their concerns about the
deficiencies in the doctors’ notes, described as “cryptic” by Dr. Reinders, and asked him to meet
with Dr. Brennan to determine what could be done to support him at his work. They also
discussed the letter they had received from Keays’ lawyer a few days earlier and explained that
they had not responded to the lawyer because they had a practice of dealing with associates
the disability. However, Keays missed more work than his diagnosing physician, Dr. Morris,
directly, not with third party advocates. At this meeting, Keays agreed to meet with Dr. Brennan.
However, the next day he told Honda that, on the advice of counsel, he would not meet with Dr.
Keays did not come to work for a week following this incident. Upon his return to work, on
March 28, 2000, Selby gave Keays a letter (“March 28 letter”) which I think it is useful to
reproduce in its entirety:
As you know, Betty Magill and I met with you on March 21, 2000, to discuss
your current employment situation at Honda. After you left the meeting, you
returned for some clarification and we had another detailed discussion.
The following is a summary of the matters we discussed:
1. You were told that we have been reviewing your absenteeism as well as the
doctor’s notes that you had been providing to cover those absences. We
discussed your situation with Dr. Affoo who is familiar with your case. In
addition, we had Dr. Brennan (a new physician) review your complete medical
file. Both doctors advised us that they could find no diagnosis indicating that
you are disabled from working.
2. The doctor’s notes that you have been providing to cover your absences have
provided limited information. The notes were merely repeating what you were
telling the doctor. There was no independent diagnosis or prognosis.
3. It was our intention to meet with you following the March break, to discuss our
expectations. Before we had a chance to do so, we received a letter from your
lawyer dated March 17, 2000. In that letter, your lawyer was asking that you no
longer be required to bring notes to support your absences.
4. When we met on March 21, 2000, we advised you that we would no longer
accept that you have a disability requiring you to be absent. Dr. Brennan and Dr.
Affoo both believe that you should be attending work on a regular basis. In
order for Dr. Brennan to get to know you and understand completely your
condition, we advised that we would arrange for Dr. Brennan to meet with you.
The plan was that Dr. Brennan would then communicate directly with your
doctor to effectively manage your condition.
5. Before the meeting ended, you were agreeable to meeting with Dr. Brennan and
I was to proceed to schedule the appointment.
Brennan without explanation of the purpose, methodology and parameters of the consultation.
Our position remains as we explained it to you on March 21, 2000. Kevin, we
do not accept the need for your recent absence nor do we intend to elaborate further
on the purpose of your meeting with Dr. Brennan. This was all explained to you
carefully on March 21, 2000. Our position remains the same. We expect you to meet
with Dr. Brennan and, we expect you to come to work.
Kevin, we sincerely hope that you will co-operate with our efforts. As you have
admitted, your condition has not improved over the past three years and you would
do anything to get better and come to work on a regular basis. We are committed to
supporting you in a full return to work. We sincerely hope that you will co-operate
with us.
[7]
Kevin, you must understand that the current situation is unacceptable. If you do
not agree to meet with Dr. Brennan, we will have no alternative but to terminate
your employment.
Later the same day, Selby telephoned Keays to urge him to reread the letter and
re-consider. Keays remained unwilling to meet Dr. Brennan. In accordance with its warning,
Honda terminated his employment.
2. Decisions Below
2.1 Ontario Superior Court of Justice (2005), 40 C.C.E.L. (3d) 258
[8]
McIsaac J. concluded that Honda bore the burden to show just cause for termination
and that it had failed to carry that burden. McIsaac J. found that Honda’s direction to meet with
Dr. Brennan was not reasonable under the circumstances, and that Keays had a reasonable excuse
for resisting that direction. The termination was not proportional to his refusal. The trial judge
then concluded that Keays was entitled to 15 months’ notice based on the principles of Bardal
The next day (March 22, 2000), you submitted a letter declining to meet with
Dr. Brennan. You requested clarification on the “purpose, the methodology and the
parameters of the assessment.” Since that date, you have called in sick with return
to work date unknown. You returned to work today.
v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.J.). Moreover, McIsaac J. decided
that, given the “egregious bad faith displayed by Honda in the manner of this termination and
24 months (para. 48). Since he had increased the notice period, McIsaac J. did not consider it
appropriate to offer Keays an additional award on the basis of intentional infliction of nervous
shock/emotional distress.
[9]
McIsaac J. determined that the court was without jurisdiction to consider a tort based
on whether Honda breached his rights under the Ontario Human Rights Code, R.S.O. 1990, c.
H.19. He accepted, however, that such complaints could constitute “independent actionable
wrongs” such as to trigger an award of punitive damages, assuming they also merit punishment
(para. 50).
[10]
McIsaac J. denied Keays’ claim for compensation based on “lost” disability benefits
that would have been available from the insurer based on his total disability caused by the
wrongful termination. Such relief was unavailable, the trial judge explained, because Keays did
not plead aggravated damages. I take it that the trial judge meant by this that Keays had not
argued that there was an independent cause of action to support his further claim for true
aggravated damages as defined in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701.
[11]
McIsaac J. noted that punitive damages are exceptional but he had “no difficulty in
finding that the plaintiff has proved that Honda committed a litany of acts of discrimination and
harassment in relation to his attempts to resolve his accommodation difficulties” (para. 57).
McIsaac J. attributed to Honda a “conspiracy to insinuate Dr. Brennan into the plaintiff’s
the medical consequences flowing therefrom”, that notice period should be extended to
long-established medical relationship with his own doctors and, hopefully, to exclude them from
any participation in advocating for his patient’s rights” (para. 60).
In light of all the
[12]
McIsaac J. awarded costs to Keays on a substantial indemnity basis adding a 25
percent premium which together totalled $610,000.
2.2
[13]
Ontario Court of Appeal (Rosenberg and Feldman JJ.A., and Goudge J.A. (dissenting in
part)) (2006), 82 O.R. (3d) 161
The Ontario Court of Appeal dismissed the appeal. Goudge J.A., writing for the
court, except with respect to the quantum of punitive damages, noted that heavily fact-laden
conclusions by the trial judge were entitled to substantial deference. In particular, Goudge J.A.
perceived no reason to interfere with the trial judge’s conclusions that the order to see Dr.
Brennan was unreasonable, that Keays had a reasonable excuse for not complying with the order,
and that the dismissal of Keays was a disproportionate response to his alleged insubordination
and therefore was done without just cause. Goudge J.A. also upheld the trial judge’s conclusions
regarding the appropriate notice period required.
[14]
Goudge J.A. wrote for the court regarding the availability of punitive damages. He
cited McKinley v. BC Tel, [2001] 2 S.C.R. 161, 2001 SCC 38, for the proposition that acts of
discrimination in breach of human rights legislation may serve as a separate actionable wrong
so as to give rise to a punitive damages award in a wrongful dismissal case. Goudge J.A.
rejected Honda’s argument that the Ontario Human Rights Code offers a complete remedial
circumstances, the trial judge awarded $500,000 in punitive damages.
scheme that permits punitive damages only in the event of prosecution with the written consent
of the Attorney General and only to a maximum fine of $25,000. Goudge J.A. thus upheld the
punitive damages was a rational response on the part of the trial judge.
[15]
With respect to the quantum of punitive damages, Goudge J.A. wrote for himself
alone. He noted that an appellate court should review the quantum awarded by asking whether
the amount was rationally required in all the circumstances to punish the defendant’s misconduct.
Goudge J.A. concluded that $500,000 in punitive damages did not exceed what was rationally
required to punish Honda.
[16]
Once again writing for the court, Goudge J.A. discussed Honda’s argument that the
trial judge created a reasonable apprehension of bias, requiring a new trial. He acknowledged
that the trial judge used “several colourful metaphors” but rejected allegations that this reflected
a want of fairness or impartiality (para. 75).
[17]
With regard to costs, Goudge J.A. noted that he would reduce the premium to
$77,500 from $155,000. He dismissed the cross-appeal.
[18]
Rosenberg J.A. wrote for the majority on the question of the quantum of punitive
damages, which he reduced to $100,000. He did so because he believed that the trial judge had
relied on findings of fact not supported by the evidence and because the award failed to accord
with the fundamental principle of proportionality. In particular, Rosenberg J.A. found no
trial judge’s finding of an independent actionable wrong. Given Honda’s conduct, an award of
evidence of a protracted corporate conspiracy. The trial judge also referred to “five years” of
outrageous conduct whereas the case involved a mere seven-month period. According to
could be justified only by extraordinary circumstances. He used Whiten v. Pilot Insurance Co.,
[2002] 1 S.C.R. 595, 2002 SCC 18, as a comparison and noted (at para. 110) that a comment
from that case regarding the fact that “it takes a large whack to wake up a wealthy and powerful
defendant to its responsibilities” had been taken by the trial judge out of context. Bearing in
mind the trial judge’s findings that were supported by the evidence, and especially evidence
pointing to conduct by Honda suggesting planned and deliberate attempts to intimidate and then
dismiss a vulnerable employee, Rosenberg J.A. concluded that an award in excess of those
awarded in other wrongful dismissal cases was appropriate. He saw an award of no more than
$100,000 as justified. He reduced the punitive damages award accordingly. In all other respects,
Rosenberg J.A. concurred with Goudge J.A.
3. Analysis
[19]
This appeal raises a number of important issues related to the proper allocation of
damages in wrongful dismissal cases. Before assessing the validity of the separate heads of
damages awarded by the trial judge and the Court of Appeal, it is essential to point out, as will
be later demonstrated, that the trial judge made a number of palpable and overriding errors, some
of which are mentioned by Rosenberg J.A. Two errors in particular have, in my view, coloured
the trial judge’s judgment, making other findings and inferences suspect. The trial judge first
found that Honda’s “misconduct” was “planned and deliberate and formed a protracted corporate
Rosenberg J.A., a punitive damage award on the scale imposed by the trial judge in this case
conspiracy” (para. 60). As concluded by the Court of Appeal, and as will be further discussed
below, there is simply no evidence to support the trial judge’s allegation of a conspiracy.
when in fact the problem period was no more than seven months. He therefore was considering
the wrong period when dealing with Honda’s conduct; this error was seemingly attributable to
the fact that he considered the cancellation of Keays’ long-term benefits by London Life to be
a relevant factor in assessing the conduct of Honda, while all evidence points to the fact that the
decision was entirely independent of Honda.
[20]
The remaining analysis will reveal more palpable and overriding errors of fact.
However, the above examples alone would suffice to question carefully the factual basis for the
trial judge’s conclusions. I am therefore compelled to review the record in some detail in my
analysis.
[21]
Beyond creating the need to address the many overriding and palpable errors of the
trial judge, this appeal presents the Court with the opportunity to clarify and redefine some
aspects of the law of damages in the context of employment.
[22]
First, I would like to clarify what factors should be considered when allocating
compensatory damages in lieu of notice for wrongful dismissal.
[23]
Second, a review of the basis for and calculation of damages for conduct in dismissal
must be undertaken.
Secondly, the trial judge insisted that the “outrageous conduct” had continued for five years
[24]
Third, in considering the allocation of punitive damages in this case, I conclude that
independent actionable wrongs for the purposes of punitive damages. I will however discuss the
need to avoid overlap of damages for conduct in dismissal and punitive damage awards.
3.1 General Damages: The 15-Month Notice Period
[25]
After finding that Keays had been wrongfully dismissed, the trial judge determined
that he was entitled to an award of damages reflecting the need for 15 months’ notice. In doing
so, he followed Bardal and Minott v. O’Shanter Development Co. (1999), 168 D.L.R. (4th) 270
(Ont. C.A.), at p. 293, wherein it was held that an appropriate notice period is to be determined
in consideration of factors including, but not limited to, the character of the employment, length
of service, the age of the employee and the availability of other employment. In arriving at 15
months, McIsaac J. pointed to: Honda’s “flat” (i.e., egalitarian) management structure as limiting
the effect of Keays’ lower position in Honda’s hierarchy; the fact that Keays had specialized
training to compensate for his lack of formal education; his long service; and the lack of
comparable employment in Alliston. The Court of Appeal agreed with this assessment.
[26]
On appeal before this Court, Honda did not contest the finding of wrongful dismissal.
However, Honda argued that the 15-month notice period allocated by the trial judge was
excessive because he failed to conduct a proper analysis of Keays’ job functions. Specifically,
Honda claimed that an analysis of Keays’ job functions shows that his responsibilities were
it is not necessary to reconsider whether breaches of the Ontario Human Rights Code are
minimal and that he spent a large percentage of his time on data entry. According to Honda, in
view of Keays’ 14 years of service, his little formal education and the character of his
management function was crucial.
[27]
It is true that Honda’s “flat management structure” did not truly illuminate the
character of Keays’ employment and that this label should not matter: what matters is
experience, qualifications and other factors mentioned in Bardal.
[28]
In determining what constitutes reasonable notice of termination, the courts have
generally applied the principles articulated by McRuer C.J.H.C. in Bardal, at p. 145:
There can be no catalogue laid down as to what is reasonable notice in particular
classes of cases. The reasonableness of the notice must be decided with reference
to each particular case, having regard to the character of the employment, the length
of service of the servant, the age of the servant and the availability of similar
employment, having regard to the experience, training and qualifications of the
servant.
[29]
These four factors were adopted by this Court in Machtinger v. HOJ Industries Ltd.,
[1992] 1 S.C.R. 986. They can only be determined on a case-by-case basis.
[30]
It is true that there has been some suggestion that a person’s position in the hierarchy
should be irrelevant to assessing damages for wrongful dismissal (see Bramble v. Medis Health
and Pharmaceutical Services Inc. (1999), 214 N.B.R. (2d) 111 (C.A.), and Byers v. Prince
George (City) Downtown Parking Commission (1998), 53 B.C.L.R. (3d) 345 (C.A.). The
employment, 8 to 10 months would have been appropriate. The fact that Keays’ had no
traditional assumptions about the relevance of a person’s position in the hierarchy was not
directly challenged in this case. It will therefore suffice to say here that Honda’s management
structure” said nothing of Keays’ employment. It does not describe the responsibilities and skills
of that worker, nor the character of the lost employment. The particular circumstances of the
individual should be the concern of the courts in determining the appropriate period of
reasonable notice. Traditional presumptions about the role that managerial level plays in
reasonable notice can always be rebutted by evidence.
[31]
This position is consistent with the original formulation of the Bardal test where
McRuer C.J.H.C. stated:
There can be no catalogue laid down as to what is reasonable notice in particular
classes of cases. [Emphasis added; p. 145.]
[32]
No one Bardal factor should be given disproportionate weight. In the present case,
the trial judge erred in applying one of the factors, alluding to the flat management structure,
rather than examining the actual functions of Keays. Despite this error, the 15-month notice
period is entitled to deference since, on the entirety of the circumstances here, there is no basis
to interfere with the conclusions of the trial judge. Keays was one of the first employees hired
at Honda’s plant. He spent his entire adult working life with Honda. He did not have any formal
education and suffered from an illness which greatly incapacitated him. All these factors will
substantially reduce his chances of re-employment and justify an assessment of 15 months’
notice.
structure has no part to play in determining reasonable notice in this case. The “flat management
[33]
In applying Wallace, the trial judge concluded that Honda’s manner of dismissing
Keays was an egregious display of bad faith that warranted an extension of the notice period to
24 months. He made the following findings of fact in support of his award:
•
In the letter dated March 28, Honda deliberately misrepresented the views of its
doctors.
•
Keays was being “set up” when asked to see Dr. Brennan.
•
Keays’ condition worsened after the dismissal: he became depressed, developed an
adjustment disorder for 3-4 months, and has been unable to work since then.
•
Honda’s decision to cancel the “accommodation” was a form of reprisal for Keays’
retaining legal counsel.
[34]
The Court of Appeal concluded that given the factual nature of determining whether
Honda acted in bad faith, Honda had to demonstrate that the trial judge committed a palpable and
overriding error. It concluded that Honda had failed to demonstrate this and that the trial judge’s
decision was sufficiently supported in the evidence. I cannot agree with this conclusion. A
proper reading of the record shows that Honda’s conduct in dismissing Keays was in no way an
3.2 Damages for Conduct in Dismissal
egregious display of bad faith justifying an award of damages for conduct in dismissal.
As earlier mentioned, it is my view that the trial judge made a number of significant
overriding and palpable factual errors that relate directly to the factual matrix that justified,
according to him, an award of damages for manner of dismissal (Wallace damages). For that
reason alone, the decision cannot stand. I will elaborate on this. I note, however, that this case
sheds light on the legal problems associated with the allocation of these damages. It is therefore
appropriate for this Court to reconsider the Wallace approach and make some adjustments.
3.2.1 The Factual Analysis
[36]
None of the four foundations accepted by the trial judge for his “Wallace award”
of damages is valid. I will examine them individually.
3.2.1.1 The March 28 Letter
[37]
In its submissions to this Court, Honda points out that the trial judge had no basis
for concluding that the March 28 letter (set out in para. 6 above) was callous and insensitive. In
reviewing the facts and reading the letter, it is clear that Honda was relying on expert advice and
simply conveying the information obtained from experts to Keays.
The following two
paragraphs were the most “contentious” of the letter:
1. You were told that we have been reviewing your absenteeism as well as the
doctor’s notes that you had been providing to cover those absences. We
[35]
discussed your situation with Dr. Affoo who is familiar with your case. In
addition, we had Dr. Brennan (a new physician) review your complete medical
file. Both doctors advised us that they could find no diagnosis indicating that
you are disabled from working.
4. When we met on March 21, 2000, we advised you that we would no longer
accept that you have a disability requiring you to be absent. Dr. Brennan and Dr.
Affoo both believe that you should be attending work on a regular basis. In
order for Dr. Brennan to get to know you and understand completely your
condition, we advised that we would arrange for Dr. Brennan to meet with you.
The plan was that Dr. Brennan would then communicate directly with your
doctor to effectively manage your condition. [Emphasis added.]
[38]
The trial judge accepted Keays’ submission that Honda deliberately misrepresented
the positions of both physicians for the purpose of intimidation, excluding his own doctors, and
forcing him to meet with Dr. Brennan. The evidence contradicts this finding.
[39]
First, Dr. Affoo concluded that Keays was able to work and should try to work as
much as possible. He communicated this information to Selby. Dr. Affoo’s testimony is clear on
this point:
Q. . . . did you have any conversation with anyone at Honda about Mr. Keays?
A. Subsequently I reported back to Associate Services, Susan Selby, as to our
meeting. I explained to her that Mr. Keays had been diagnosed with a diagnosis of
chronic fatigue syndrome, as he assured me he had. We talked about him missing
a lot of time off work, and I explained to her that from Mr. Keays’ point of view he
didn’t feel that -- he felt that, that he was doing his best and that we could expect
him to be off work as he has been in the past.
Q. Any other conversation that you recall?
A. Probably within those terms.
...
A. Well, I felt that he was coping quite well at Honda. You know, I discussed
-- I told her the fact that, that he was at a desk and so on and so forth, and he seemed
to be coping quite well at his work place. I felt that, that in my experience with
chronic fatigue one, you know, one wants him to come to work, and, and we should
try and get him to work as, as, as much as we can. And certainly, I didn’t think he
needed to be off work the kind of pattern he had in the past. I felt that, you know,
that he could be off -- I felt that he probably would be off work maybe three or four
times a month, possibly, from his condition, but with a regimented lifestyle, and you
know, with the things that he’s being, that he’s being treated with by his own
physician, that he should be able to do well. [Emphasis added.]
[40]
Second, Dr. Brennan communicated to Honda that he was unable to diagnose Keays
with CFS without meeting with him first. During his examination, Dr. Brennan stated the
following:
I did not accept the diagnosis of chronic fatigue syndrome, largely because I
didn’t feel that I had all the information. [Emphasis added.]
There is nothing misleading or false with Honda’s assertion that both doctors advised that they
could find no diagnosis that would bar Keays from working. Dr. Affoo clearly stated that he
thought it would be good for Keays to work, and Dr. Brennan clearly could find no diagnosis of
CFS without first meeting Keays. Honda was simply relaying the information it received from
its experts to Keays. Given this evidence, I do not see how the trial judge could have concluded
that Honda was trying to intimidate Keays by twisting the positions of the physicians. The
physicians’ positions were clear, and Honda had no reason not to accept the expert advice it was
receiving. The trial judge made an overriding and palpable error in faulting Honda for relying
on the advice of its medical experts.
Q. Do you recall if you made any suggestion as to whether or not Mr. Keays’
condition, as you understood it, warranted absenteeism?
[41]
The trial judge stated, at para. 43 of his decision:
[42]
The trial judge gave no reason to explain why, in its “entirety”, the letter presents
such a view. For a written document to have a certain flavour or sense “in its entirety”, there
must be indicators that create such a flavour within that document. In this case, the letter contains
no such clues. “[I]n its entirety”, the March 28 letter simply conveyed to Keays that Honda
wanted him to meet with Dr. Brennan because their experts had advised them that his condition
did not preclude him from working. The whole context is one in which Honda recognizes that
Keays has a disability and that it has to be dealt with; this is an important consideration in
determining good faith on the part of Honda.
3.2.1.2 No “Set-Up”; No “Hardball”
[43]
The trial judge concluded, at para. 45 of his judgment, that Keays was being “set up”
for failure because Dr. Brennan had already made up his mind that his condition was bogus.
First, I think it is important to note that there is no evidence that Dr. Brennan took on a
“hardball” attitude. A careful analysis of the record reveals that Dr. Brennan simply could not,
with the information that was provided to him, accept a diagnosis of CFS without first meeting
Keays.
[44]
The trial judge stated, at para. 45, that a note written by Dr. Brennan to Honda on
Although parts of the letter may have been accurate in isolation, when considered
in its entirety, it presented a “twisted” view of his condition.
December 3, 2000 reveals that Dr. Brennan “referenced the fact that the diagnosis of CFS carries
‘considerable controversy’ and that ‘many physicians’ do not believe it should be taken as a
medical condition’, but only in certain ‘very limited circumstances’”. These assertions alone
should not lead one to believe that Dr. Brennan was taking a “hardball” approach to workplace
absences. But there is more that has to be taken into account here. After stating that he believed
that chronic fatigue syndrome is a bona fide medical condition under very limited circumstances,
he continued to say:
Those circumstances are those as outlined by the Center for Disease Control (CDC)
in Atlanta. The CDC has developed some strict diagnostic criteria for Chronic
Fatigue Syndrome (CFS) to aid in its diagnosis and differentiation from depression,
fatigue of chronic illness, malingering, multiple rheumatic diseases etc.
[45]
Dr. Brennan was thus simply espousing the prevalent approach adopted by the CDC.
I do not see how this can be qualified as “hardball”, as he was reiterating the information at his
disposal. However, even if one were to conclude that Dr. Brennan was taking a somewhat
“hardball” approach to workplace absences, Honda cannot be faulted for accepting his expert
advice unless a conspiracy exists. As concluded by the Court of Appeal, there simply was no
conspiracy to terminate Keays. Rosenberg J.A. correctly stated at paras. 91 and 93 of his reasons
that:
There is no evidence to support the finding of a protracted corporate conspiracy. The
appellant accommodated the respondent’s increasingly more serious disability over
several years. The fact that the company ran a lean operation in which it was
difficult to accommodate prolonged absences was not proof of a conspiracy.
‘stand alone’ diagnosis” and that “[h]e himself was of the view that it ‘may well be a bona fide
. . . there is no evidence to support this conspiracy to interfere with the
respondent’s relationship with his own physician. In fact, the trial judge’s finding
on this issue is inconsistent with his broad finding that the appellant intended to
dismiss the respondent. There would be no need to “insinuate” Dr. Brennan into the
relationship if the company’s intent all along was to terminate the employment.
[46]
As such, it was not open to the Court of Appeal to accept the trial judge’s finding that
Keays was being set up when asked to meet with Dr. Brennan. Honda was merely listening to
expert advice that can hardly be qualified as “hardball”. There is no rational way to justify the
conclusion that the request for a meeting between Keays and Dr. Brennan was not perfectly
normal in the circumstances.
3.2.1.3 No Reprisal
[47]
The trial judge committed another overriding and palpable error in concluding that
Honda’s decision to cancel its accommodation was a form of reprisal for Keays’ decision to
retain legal counsel. The decision to stop accepting doctors’ notes was not reprisal for Keays
seeking legal counsel. Rather, as concluded by Rosenberg J.A. in Court of Appeal, at para. 98,
Honda was simply seeking to confirm Keays’ disability. Here again, it is important to note that
Honda does not deny that there is a problem that has to be dealt with in a professional and fair
way. As earlier mentioned, the notes had changed in character and were “cryptic” (para. 6
above). Moreover, as stated in para. 5 above, Shelby and Magill met to address the deficiencies
in Keays’ doctors notes and Keays’ absences well before Keays’ lawyer sent his letter.
...
3.2.1.4 Keays’ Condition Worsened
The trial judge committed an overriding and palpable error in considering Keays’
disability subsequent to termination; this was not compensable under the Wallace umbrella
because there was no evidence that the disability was caused by the manner of termination.
3.2.2 The Legal Analysis
[49]
The trial judge’s decision in this case highlights the problems we face in dealing with
damages for conduct in the context of termination of employment. In particular, it raises
questions about the propriety of damages for manner of dismissal, whereby damages are awarded
by extending the notice period (Wallace damages). This re-evaluation is mandated particularly
by this Court’s recent decision in Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R.
3, 2006 SCC 30.
3.2.2.1 Current State of the Law
[50]
An action for wrongful dismissal is based on an implied obligation in the
employment contract to give reasonable notice of an intention to terminate the relationship in the
absence of just cause. Thus, if an employer fails to provide reasonable notice of termination, the
employee can bring an action for breach of the implied term (Wallace, at para. 115). The general
rule, which stems from the British case of Addis v. Gramophone Co., [1909] A.C. 488 (H.L.),
is that damages allocated in such actions are confined to the loss suffered as a result of the
[48]
employer’s failure to give proper notice and that no damages are available to the employee for
the actual loss of his or her job and/or pain and distress that may have been suffered as a
v. Cropper, [1966] S.C.R. 673, at p. 684:
. . . the damages cannot be increased by reason of the circumstances of dismissal
whether in respect of the [employee’s] wounded feelings or the prejudicial effect
upon his reputation and chances of finding other employment.
[51]
Later in Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085,
McIntyre J. stated at p. 1103:
. . . I would conclude that while aggravated damages may be awarded in actions for
breach of contract in appropriate cases, this is not a case where they should be given.
The rule long established in the Addis and Peso Silver Mines cases has generally
been applied to deny such damages, and the employer/employee relationship (in the
absence of collective agreements which involve consideration of the modern labour
law régime) has always been one where either party could terminate the contract of
employment by due notice, and therefore the only damage which could arise would
result from a failure to give such notice.
[52]
The Court in Vorvis nevertheless left open the possibility of allocating aggravated
damages in wrongful dismissal cases where the acts complained of were also independently
actionable. McIntyre J. stated at p. 1103:
I would not wish to be taken as saying that aggravated damages could never be
awarded in a case of wrongful dismissal, particularly where the acts complained of
were also independently actionable, a factor not present here. [Emphasis added.]
consequence of being terminated. This Court affirmed this rule in Peso Silver Mines Ltd. (N.P.L.)
[53]
In Wallace, Iacobucci J. endorsed a strict interpretation of the Vorvis “independently
actionable wrong” approach, rejecting both an implied contractual duty of good faith and a tort
Relying upon the principles enunciated in Vorvis, supra, the Court of Appeal
held that any award of damages beyond compensation for breach of contract for
failure to give reasonable notice of termination “must be founded on a separately
actionable course of conduct” (p. 184). Although there has been criticism of Vorvis
. . . this is an accurate statement of the law. . . . An employment contract is not one
in which peace of mind is the very matter contracted for (see e.g. Jarvis v. Swans
Tours Ltd., [1973] 1 Q.B. 233 (C.A.)) and so, absent an independently actionable
wrong, the foreseeability of mental distress or the fact that the parties contemplated
its occurrence is of no consequence. . . . [Emphasis added.]
[54]
This brings us to Fidler, where the Court, per McLachlin C.J. and Abella J.,
concluded that it was no longer necessary that there be an independent actionable wrong before
damages for mental distress can be awarded for breach of contract, whether or not it is a “peace
of mind” contract. It stated at para. 49:
We conclude that the “peace of mind” class of cases should not be viewed as an
exception to the general rule of the non-availability of damages for mental distress
in contract law, but rather as an application of the reasonable contemplation or
foreseeability principle that applies generally to determine the availability of
damages for breach of contract.
This conclusion was based on the principle, articulated in Hadley v. Baxendale (1854), 9 Ex. 341,
156 E.R. 145, that damages are recoverable for a contractual breach if the damages are “such as
may fairly and reasonably be considered either arising naturally . . . from such breach of contract
itself, or such as may reasonably be supposed to have been in the contemplation of both parties”
of bad faith discharge. At para. 73, he said:
Now, if the special circumstances under which the contract was actually made were
communicated by the plaintiffs to the defendants, and thus known to both parties,
the damages resulting from the breach of such a contract, which they would
reasonably contemplate, would be the amount of injury which would ordinarily
follow from a breach of contract under these special circumstances so known and
communicated. But, on the other hand, if these special circumstances were wholly
unknown to the party breaking the contract, he, at the most, could only be supposed
to have had in his contemplation the amount of injury which would arise generally,
and in the great multitude of cases not affected by any special circumstances, from
such a breach of contract. [p. 151]
[55]
Thus, in cases where parties have contemplated at the time of the contract that a
breach in certain circumstances would cause the plaintiff mental distress, the plaintiff is entitled
to recover (Fidler, at para. 42; Vorvis, at p. 1102). This principle was reaffirmed in para. 54 of
Fidler, where the Court recognized that the Hadley rule explains the extended notice period in
Wallace:
It follows that there is only one rule by which compensatory damages for breach
of contract should be assessed: the rule in Hadley v. Baxendale. The Hadley test
unites all forms of contractual damages under a single principle. It explains why
damages may be awarded where an object of the contract is to secure a
psychological benefit, just as they may be awarded where an object of the contract
is to secure a material one. It also explains why an extended period of notice may
have been awarded upon wrongful dismissal in employment law: see Wallace v.
United Grain Growers Ltd., [1997] 3 S.C.R. 701. In all cases, these results are based
on what was in the reasonable contemplation of the parties at the time of contract
formation. [Emphasis deleted.]
[56]
We must therefore begin by asking what was contemplated by the parties at the time
of the formation of the contract, or, as stated in para. 44 of Fidler: “[W]hat did the contract
(p. 151). The court in Hadley explained the principle of reasonable expectation as follows:
promise?” The contract of employment is, by its very terms, subject to cancellation on notice or
subject to payment of damages in lieu of notice without regard to the ordinary psychological
contemplation of psychological damage resulting from the dismissal since the dismissal is a clear
legal possibility. The normal distress and hurt feelings resulting from dismissal are not
compensable.
[57]
Damages resulting from the manner of dismissal must then be available only if they
result from the circumstances described in Wallace, namely where the employer engages in
conduct during the course of dismissal that is “unfair or is in bad faith by being, for example,
untruthful, misleading or unduly insensitive” (para. 98).
[58]
The application of Fidler makes it unnecessary to pursue an extended analysis of the
scope of any implied duty of good faith in an employment contract. Fidler provides that “as long
as the promise in relation to state of mind is a part of the bargain in the reasonable contemplation
of the contracting parties, mental distress damages arising from its breach are recoverable” (para.
48). In Wallace, the Court held employers “to an obligation of good faith and fair dealing in the
manner of dismissal” (para. 95) and created the expectation that, in the course of dismissal,
employers would be “candid, reasonable, honest and forthright with their employees” (para. 98).
At least since that time, then, there has been expectation by both parties to the contract that
employers will act in good faith in the manner of dismissal. Failure to do so can lead to
foreseeable, compensable damages. As aforementioned, this Court recognized as much in Fidler
itself, where we noted that the principle in Hadley “explains why an extended period of notice
impact of that decision. At the time the contract was formed, there would not ordinarily be
may have been awarded upon wrongful dismissal in employment law” (para. 54).
To be perfectly clear, I will conclude this analysis of our jurisprudence by saying that
there is no reason to retain the distinction between “true aggravated damages” resulting from a
separate cause of action and moral damages resulting from conduct in the manner of termination.
Damages attributable to conduct in the manner of dismissal are always to be awarded under the
Hadley principle. Moreover, in cases where damages are awarded, no extension of the notice
period is to be used to determine the proper amount to be paid. The amount is to be fixed
according to the same principles and in the same way as in all other cases dealing with moral
damages. Thus, if the employee can prove that the manner of dismissal caused mental distress
that was in the contemplation of the parties, those damages will be awarded not through an
arbitrary extension of the notice period, but through an award that reflects the actual damages.
Examples of conduct in dismissal resulting in compensable damages are attacking the
employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding
the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or
other right, permanent status for instance (see also the examples in Wallace, at paras. 99-100).
[60]
In light of the above discussion, the confusion between damages for conduct in
dismissal and punitive damages is unsurprising, given that both have to do with conduct at the
time of dismissal. It is important to emphasize here that the fundamental nature of damages for
conduct in dismissal must be retained. This means that the award of damages for psychological
injury in this context is still intended to be compensatory. The Court must avoid the pitfall of
[59]
double-compensation or double-punishment that has been exemplified by this case.
[61]
Application of the Revised Test to This Case
I have reviewed the major overriding and palpable errors which undermine the trial
judge’s finding that Honda acted in “bad faith” when terminating Keays. There was, in my
opinion, no such breach and no justification for an award of damages for conduct in dismissal.
3.3
[62]
Punitive Damages
In Vorvis, McIntyre J., for the majority, held that punitive damages are recoverable
provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong”.
This position stood until 2002 when my colleague Binnie J., writing for the majority, dealt
comprehensively with the issue of punitive damages in the context of the Whiten case. He
specified that an “actionable wrong” within the Vorvis rule does not require an independent tort
and that a breach of the contractual duty of good faith can qualify as an independent wrong.
Binnie J. concluded, at para. 82, that “[a]n independent actionable wrong is required, but it can
be found in breach of a distinct and separate contractual provision or other duty such as a
fiduciary obligation.” In the case at hand, the trial judge and the Court of Appeal concluded that
Honda’s “discriminatory conduct” amounted to an independent actionable wrong for the
purposes of allocating punitive damages. This being said, there is no need to discuss the concept
of “actionable wrong” here; this was done in Whiten. What matters here is that there was no
basis for the judge’s decision on the facts. I will therefore examine the facts and determine why
3.2.2.2
punitive damages were not well justified according to the criteria in Whiten. I will also discuss
the need to avoid duplication in damage awards. Damages for conduct in the manner of dismissal
malicious and outrageous that they are deserving of punishment on their own. This distinction
must guide judges in their analysis.
[63]
In this case, the trial judge awarded punitive damages on the basis of discriminatory
conduct by Honda. Honda argues that discrimination is precluded as an independent cause of
action under Seneca College of Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181.
In that case, this Court clearly articulated that a plaintiff is precluded from pursuing a common
law remedy when human rights legislation contains a comprehensive enforcement scheme for
violations of its substantive terms. The reasoning behind this conclusion is that the purpose of
the Ontario Human Rights Code is to remedy the effects of discrimination; if breaches to the
Code were actionable in common law courts, it would encourage litigants to use the Code for a
purpose the legislature did not intend — namely, to punish employers who discriminate against
their employees. Thus, a person who alleges a breach of the provisions of the Code must seek
a remedy within the statutory scheme set out in the Code itself. Moreover, the recent
amendments to the Code (which would allow a plaintiff to advance a breach of the Code as a
cause of action in connection with another wrong) restrict monetary compensation to loss arising
out of the infringement, including any injuries to dignity, feelings and self-respect. In this
respect, they confirm the Code’s remedial thrust.
[64]
The Court of Appeal, relying on McKinley, concluded that Bhadauria only precludes
are compensatory; punitive damages are restricted to advertent wrongful acts that are so
a civil action based directly on a breach of the Code — but does not preclude finding an
independent actionable wrong for the purpose of allocating punitive damages. It is my view that
Bhadauria established that a breach of the Code cannot constitute an actionable wrong; the legal
requirement is not met.
[65]
Keays argued in cross-appeal before this Court that the decision in Bhadauria should
be set aside and that a separate tort of discrimination should be recognized. In Bhadauria, Laskin
C.J., writing for the Court, held that the plaintiff was precluded from pursuing a common law
remedy because the applicable human rights legislation (the Code) contained a comprehensive
enforcement scheme for violations of its substantive terms. The subtext of the Bhadauria
decision is a concern that the broad, unfettered tort of discrimination created by the Court of
Appeal would lead to indeterminate liability. Laskin C.J. wrote, at p. 189:
It is one thing to apply a common law duty of care to standards of behaviour under
a statute; that is simply to apply the law of negligence in the recognition of so-called
statutory torts. It is quite a different thing to create by judicial fiat an obligation —
one in no sense analogous to a duty of care in the law of negligence — to confer an
economic benefit upon certain persons, with whom the alleged obligor has no
connection . . . .
The concern that a tort of discrimination does not contain an effective limiting device was raised
by interveners in this appeal. Moreover, as noted by the intervener Manitoba Human Rights
Commission, jurisdictions outside Ontario have human rights legislation that vests jurisdiction
exclusively with the provincial/territorial human rights tribunal. Accordingly, the concern in
Bhadauria that recognition of a tort of discrimination would be inconsistent with legislative
the Code provides a comprehensive scheme for the treatment of claims of discrimination and
intent is still real.
The Council of Canadians with Disabilities, another intervener, raised the concern
that recognition of a tort of discrimination may undermine the statutory regime which, for many
victims of discrimination, is a more accessible and effective means by which to seek redress.
[67]
This said, there is no need to reconsider the position in Bhadauria in this case and
deal with Keays’ request for recognition of a distinct tort of discrimination. There was no
evidence of discrimination to support a claim under s. 5 of the Ontario Human Rights Code,
therefore no breach of human rights legislation serving as an actionable wrong, as required by
Goudge J.A. Furthermore, there was no evidence of conduct meeting the strict requirements in
Whiten. The trial judge concluded that the accommodation provided by admission to the
disability program was itself discriminatory because Keays “had to ‘earn’ each dispensation from
being ‘coached’ for any absences by presenting a ‘note’ from his doctor like some child who is
suspected of ‘playing hooky’ from school” (para. 53). The trial judge then added that it made
little sense to have a disability program and then deter its use by asking for doctors’ notes. The
association of coaching and the requirement of notes made by the trial judge here is puzzling.
The requirement of notes was in effect part of the accommodation because it permitted absences
without the possibility of the same leading to disciplinary action for failing to meet work
requirements. There was no detriment in being part of the disability program and being treated
differently from persons with “mainstream illnesses”. The differential treatment was meant to
accommodate the particular circumstances of persons with a particular type of disability and to
provide a benefit to them. It is indeed apparent from the record that the program was designed
[66]
to establish a continuous relation between management and treating physicians and monitor
absences in order to establish in particular an expected rate of absences which would not give
supported by the facts.
[68]
Even if I were to give deference to the trial judge on this issue, this Court has stated
that punitive damages should “receive the most careful consideration and the discretion to award
them should be most cautiously exercised” (Vorvis, at pp. 1104-5). Courts should only resort to
punitive damages in exceptional cases (Whiten, at para. 69). The independent actionable wrong
requirement is but one of many factors that merit careful consideration by the courts in allocating
punitive damages. Another important thing to be considered is that conduct meriting punitive
damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme
in its nature and such that by any reasonable standard it is deserving of full condemnation and
punishment” (Vorvis, at p. 1108). The facts of this case demonstrate no such conduct. Creating
a disability program such as the one under review in this case cannot be equated with a malicious
intent to discriminate against persons with a particular affliction.
[69]
The majority of the Court of Appeal upheld the award of punitive damages, but
reduced the quantum to $100,000. The findings supporting this decision are demonstrably wrong
and, in some cases, contradict the Court of Appeal’s own findings. Before delving into the
factual analysis, however, it is worth mentioning that even if the facts had justified an award of
punitive damages, the lower courts should have been alert to the fact that compensatory damages
were already awarded, and that under the old test, they carried an element of deterrence. This
rise to disciplinary action. The suggestion that the program itself was discriminatory is not
stems from the important principle that courts, when allocating punitive damages, must focus on
the defendant’s misconduct, not on the plaintiff’s loss (Whiten, at para. 73). In this case, the
The lower courts erred by not questioning whether the allocation of punitive damages was
necessary for the purposes of denunciation, deterrence and retribution, once the damages for
conduct in dismissal were awarded. Be that as it may, we now have a clearer foundation to
distinguish between damages for conduct in dismissal and punitive damages.
[70]
As earlier mentioned, there was considerable duplication in the award of damages
for conduct in dismissal and punitive damages in this case. The discussion of punitive damages
must nevertheless begin with a consideration of the conduct attributed to Honda that justified the
award.
[71]
As earlier mentioned, the main allegation was that Honda discriminated by requiring
Keays to bring in a doctor’s note to justify each absence when employees with “mainstream
illnesses” did not have to do so. The trial judge also found that this requirement had the effect
of lengthening absences, ignoring the evidence of Ms. Selby who testified that Honda did not
require the employee to produce a doctor’s note as a precondition to returning to work. As
discussed earlier, employees outside the disability program did not require notes for absences
of less than five days but were subject to discipline for excessive absences (A.R., at pp. 282-83),
whereas employees in the program were allowed regular absences without discipline beyond the
usual attendance requirement under a system of supervision based on regular contacts with
doctors. The object of the disability program is to maintain regular contact with the family doctor
same conduct underlays the awards of damages for conduct in dismissal and punitive damages.
in order to support treatment. It allows for disability-related absences, a form of accommodation
determined in consultation with doctors. The program requires that medical notes be provided
arbitrariness here (McGill University Health Centre (Montreal General Hospital) v. Syndicat des
employés de l’Hôpital général de Montréal, [2007] 1 S.C.R. 161, 2007 SCC 4, at para. 49). In
addition, I accept that the need to monitor the absences of employees who are regularly absent
from work is a bona fide work requirement in light of the very nature of the employment contract
and responsibility of the employer for the management of its workforce.
[72]
The trial judge also found the refusal to remove the “coaching” record from Keays’
file to be discriminatory, even if there was no evidence of any adverse consequences to the
existence of a coaching file. The evidence was that coaching is not a disciplinary procedure and
would simply permit entry into the disability program allowing absences without disciplinary
consequences (A.R., at pp. 306-14).
[73]
The trial judge also based his decision on harassment; he seemed to relate this
entirely to a suggestion made by Dr. Affoo that Keays consider taking a position with a light
physical component (para. 55). It is certainly difficult to see a course of conduct in a single
incident. Moreover, this was a single suggestion made by an independent expert, never acted
upon. I have already dealt with this argument at para. 39 when discussing the damages for
conduct in dismissal.
[74]
A final basis for the finding that punitive damages were justified is that Honda had
to establish that absences are in fact related to the disability. There is no stereotyping or
“retaliated” against Keays. I have dealt with this at para. 47.
The Court of Appeal pointed to the finding that Honda knew that Keays valued his
employment and was dependent upon it for disability benefits. It is no doubt true that Keays
valued his job and that he was dependent upon that employment for his disability benefits.
However, knowledge of this cannot justify an award of punitive damages. All employees value
their jobs. What matters is Honda’s conduct with regards to Keays’ need for medical attention
and special accommodation. In this respect, it was wrong to blame Honda for Keays’ loss of
disability benefits. London Life’s decision to cut off Keays’ long-term disability benefits had
nothing to do with Honda. It was therefore erroneous to attribute the insurer’s decision to Honda
and allow for punitive damages on such grounds.
[76]
The Court of Appeal found that Honda knew Keays was particularly vulnerable
because of his medical condition. However, according to the Court of Appeal’s own findings,
Honda did not know about the seriousness or true nature of Keays’ medical condition because
Keays would not facilitate an exchange of information about it. Honda was sceptical about
Keays’ disability and was taking steps to confirm it. His medical file did not disclose a definitive
diagnosis of CFS and Keays refused to meet with Dr. Brennan despite repeated assurances that
the meeting was only a “get to know you” session, to be followed by contacts with Keays’
personal physician.
[77]
Finally, the Court of Appeal pointed to Honda’s refusal to deal with Keays’ counsel.
There is no legal obligation on the part of any party to deal with an employee’s counsel while
[75]
he or she continues with his or her employer. Parties are always entitled to deal with each other
directly. What was egregious was the fact that Honda told Keays that hiring outside counsel was
of the lawyer. This conduct was ill-advised and unnecessarily harsh, but it does not provide
justification for an award of punitive damages.
[78]
The evidence and the Court of Appeal’s own findings lead me to conclude that
Honda’s conduct was not sufficiently egregious or outrageous to warrant an award of punitive
damages under the Whiten criteria. The Court of Appeal’s award must thus be overturned.
4.
[79]
The Cost Premium
The final issue that must be addressed relates to the cost premium. In Walker v.
Ritchie, [2006] 2 S.C.R. 428, 2006 SCC 45, this Court found that the risk of non-payment of
lawyer’s fees is not a relevant factor under the Ontario Rules of Civil Procedure (Rule 57.01).
This decision, which was released after the cost premium was awarded in this case, and Honda’s
success on this appeal are determinative. Thus, the cost premium should be set aside.
5.
[80]
Conclusion
The appeal is allowed in part and the cross-appeal is dismissed. The damages for
conduct in dismissal and punitive damages awards are set aside. Costs on this appeal and crossappeal are awarded to Honda. At other levels, costs should be at a partial indemnity scale and
a mistake and that it would make things worse. This was surely a way of undermining the advice
the cost premium set aside.
[81]
LEBEL J. (dissenting in part on the appeal) — I have read the reasons of my
colleague Justice Bastarache. I agree with him that there was no basis for the claim for punitive
damages and that it overlaps with the award of what were formerly known as “Wallace
damages”. I also agree with him that there is a need to review the categories of damages for
dismissal. But any revision must reflect the view accepted by this Court that the contract of
employment is a good faith contract that is informed by the values protected by and recognized
in the human rights codes and the Canadian Charter of Rights and Freedoms, particularly in
respect of discrimination. As the Court found in Wallace v. United Grain Growers Ltd., [1997]
3 S.C.R. 701, the contract of employment often reflects substantial power imbalances. As a
result, it must be performed and terminated in good faith, and fairly.
[82]
With respect, I believe that on the facts of this case, the award of additional damages
for manner of dismissal (formerly “Wallace damages”) should stand. The trial judge committed
no overriding errors in this respect ((2005), 40 C.C.E.L. (3d) 258). Although his review of the
facts may not have been flawless, there was a sufficient basis for the findings of bad faith and
discrimination in the manner in which the employment of the respondent, Kevin Keays, was
terminated by Honda.
[83]
After discussing this, I will add a few comments on this Court’s judgment in Seneca
The reasons of LeBel and Fish JJ. were delivered by
College of Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181, and on its impact
I.
[84]
Appellate Review and the Findings of Bad Faith
This Court’s jurisprudence has had a significant impact on the review of facts by
appellate courts. Indeed, the Court recognizes that it too is bound by the principle of deference
to the findings of a trier of fact (St-Jean v. Mercier, [2002] 1 S.C.R. 491, 2002 SCC 15, at paras.
37 and 46, per Gonthier J.). The trial in the Superior Court of Justice lasted 30 days. The trial
judge heard extensive, and often conflicting, evidence about which he made numerous findings
of fact. Despite some flaws in his review of the facts, his findings of bad faith and discrimination
had an adequate factual foundation. Given the way the issues were addressed in this Court, I will
discuss the errors allegedly committed by the trial judge in some detail in order to show that the
factual foundation for those findings was adequate.
[85]
I have reviewed the errors identified by the majority of the Court of Appeal, as well
as those identified by Justice Bastarache to support his conclusion that Wallace, or manner of
dismissal, damages were not warranted in this case. In my view, several of the findings the
majority of the Court of Appeal identified as errors were in fact supported by the evidence. The
findings my colleague identifies as errors are also, in my opinion, generally supported by the
evidence. I will review each alleged error in turn below.
[86]
I agree that the trial judge wrongly associated the termination of Mr. Keays’ long-
on the development of the law of torts.
term disability insurance with Honda. The majority of the Court of Appeal properly rejected this
finding, as there was no evidence that Honda was involved in the cancellation or in Mr. Keays’
errors:
1.
The appellant’s misconduct was “planned and deliberate and formed a protracted
corporate conspiracy”. The majority found that this was not supported by the
evidence.
2.
The appellant conspired to interfere with the respondent’s relationship with his own
physician. The majority found that this contradicted the trial judge’s finding that the
appellant intended to dismiss the respondent. If it intended to dismiss him, there was
no need to introduce Dr. Brennan into the relationship between Mr. Keays and his
own physician.
3.
The appellant benefited from its misconduct because it rid itself of a “problem
associate”. The majority could find no evidence to support this conclusion.
4.
The appellant’s in-house counsel breached the Rules of Professional Conduct of the
Law Society of Upper Canada. The majority concluded that at most the behaviour
was technical misconduct and that it provided no basis for increasing the punitive
damages.
failed appeal. The majority of the Court of Appeal also identified the following findings as
((2006), 82 O.R. (3d) 161, at paras. 91, 93, 98, 100 and 101)
In the case of the first finding, it may be that the trial judge exaggerated the extent
of Honda’s misconduct. However, the evidence supports the trial judge’s view that Honda was
unfairly skeptical of Mr. Keays’ condition and was seeking to justify its skepticism. It should be
kept in mind that Honda’s intention in seeking to justify its skepticism was clearly: (1) to
preclude Mr. Keays from using his condition to justify absences from work and thereby avoiding
disciplinary action; and/or (2) to justify the termination of Mr. Keays for any continued absences.
In either case, Honda’s conduct was to Mr. Keays’ detriment.
[88]
The second finding, that of interference with the respondent’s relationship with his
doctor, was also reasonable. As I will explain below with respect to Dr. Brennan’s “hardball”
approach, the gist of this approach was that Dr. Brennan would be brought in to “second-guess”
the opinion of an employee’s treating physician. Further, there was a clear conflict between Dr.
Brennan’s objective — to maximize employee productivity — and the objective of an
employee’s treating physician — to maximize the individual’s well-being. Such a conflict may
not always play out. In this case, however, a high potential for conflict arose out of the
controversial nature of chronic fatigue syndrome (“CFS”) and the difficulty of making a
diagnosis.
[89]
In my view, it was fair for the trial judge to characterize Honda’s conduct as
interference with Mr. Keays’ relationship with his treating physician. Honda did not accept the
diagnosis and the assessments of Mr. Keays’ treating physician. Yet, it gave no basis for its
[87]
skepticism. The characterization of the notes of Mr. Keays’ doctor as “cryptic” and as merely
“parroting” his complaints is unfair because of the self-reporting nature of his condition. As the
had been, at any time, any form of legitimate diagnosis for the claim of CFS” (para. 18).
[90]
Further, this finding does not contradict the trial judge’s conclusion that Honda had
intended to terminate Mr. Keays. I do not read the trial judge’s reasons as suggesting that Honda
intended to terminate Mr. Keays from the outset. Rather, the trial judge refers to Honda’s intent
to “deprive him of the accommodation he had already earned” (para. 60). That was the primary
objective. According to the trial judge, Honda went about this by means of a course of conduct
whose purpose was to discourage absences (through intimidation and through the requirement
that he provide a doctor’s note before returning), and which ultimately resulted in termination
when Mr. Keays refused to go along. The implication of the facts as found by the trial judge is
that Honda wanted to introduce Dr. Brennan into the process in order to legitimize its conduct.
Either Mr. Keays would meet with Dr. Brennan, who would justify Honda’s skepticism and avert
any further absences, or he would be fired for insubordination (or for continued illegitimate
absences) and any need to accommodate him would disappear.
[91]
I will now turn to the third finding. If it is accepted that Honda intended to deprive
Mr. Keays of any accommodation, then Honda clearly succeeded in this objective by terminating
him. It is logical to assume that if Honda intended to deprive him of accommodation, it would
in some way benefit from doing so. The facts include concerns about workplace morale and Mr.
Keays’ ability to perform the duties of his job in accordance with the requirements of Honda’s
trial judge pointed out, if Honda was skeptical, the first logical step “was to determine if there
“lean” operation policy. To the extent that Mr. Keays impeded efficiency goals, Honda clearly
[92]
As regards the fourth finding, I agree after reviewing the record that the trial judge
mischaracterized the situation, at least according to the other two Honda employees who testified
(Susan Selby and Betty Magill). They stated that they had met with Mr. Keays to discuss the
proposed meeting with Dr. Brennan. After Mr. Keays left the room, Ms. Selby and Ms. Magill
were paged by Honda’s in-house counsel, who wanted to meet with them about an unrelated
matter. Counsel came to the room they were in, and Mr. Keays re-entered the room after counsel
had arrived. Some discussion about Mr. Keays’ situation ensued, although it appears to have
been minimal.
[93]
In summary, it is my view that the Court of Appeal correctly identified three errors
made by the trial judge: (1) his association of Honda with the cancellation of Mr. Keays’
long-term disability insurance; (2) his conclusion, based on the date the insurance was
terminated, that Honda’s course of conduct had lasted five years; and (3) his characterization of
the incident involving Honda’s in-house counsel as a breach of the Rules of Professional
Conduct. However, I disagree with the majority’s conclusions in respect of the other alleged
errors. These “errors” relate to some extent to the error identified by Justice Bastarache regarding
the March 28 letter, which I will now discuss.
A.
The March 28 Letter
benefited from his termination.
[94]
At paras. 37-42 of his reasons, Justice Bastarache explains his conclusion that the
trial judge erred in finding that Honda had deliberately misrepresented the positions of Dr. Affoo
there was “nothing misleading” about the letter. He concludes, at para. 42, that the “letter simply
conveyed to Keays that Honda wanted him to meet with Dr. Brennan because their experts had
advised them that his condition did not preclude him from working”.
[95]
However, there was evidence on which the trial judge could conclude that the letter
was misleading. The letter contained the following statement: “Both doctors advised us that they
could find no diagnosis indicating that you are disabled from working.” The following comment
was also made: “. . . we advised you that we would no longer accept that you have a disability
requiring you to be absent”. Yet, as the trial judge pointed out, Dr. Brennan testified that he
“never told Honda that Mr. Keays did not have a disability, only that he was unable to ‘verify’
one” (para. 43). The trial judge also mentioned the testimony of Dr. Affoo, who “agreed with the
plaintiff’s suggestion that absences of four per month was in the ‘ball-park’ for an individual
who suffered [from] CFS” (para. 43). Moreover, it should be noted that although Dr. Affoo
testified, on the basis of his experience with other CFS patients, that four CFS-related absences
a month would not be unreasonable, he also said that he could not recall precisely what he told
Ms. Selby regarding the rate of absence that could be expected from Mr. Keays. Dr. Affoo
merely recalled confirming that “he may be off due to his condition” (A.R., at p. 572).
[96]
The trial judge concluded that “the clear implication of this communication was that
his condition was ‘bogus’ and that he was able to attend work without absences” (para. 43).
and Dr. Brennan in its March 28 letter for the purpose of intimidation. He states, at para. 40, that
While it is arguable whether the letter implied that Mr. Keays’ condition was bogus, it clearly
did imply that his condition did not require him to miss work. I am unable to find any evidence
Keays was able to attend work without any CFS-related absences. To the contrary, Dr. Affoo
testified that he had informed Honda that some absences were to be expected. It was therefore
open to the trial judge to conclude that the letter was a “misrepresentation of the medical
information available to Honda at the time” (para. 43).
B.
[97]
Allegations of a “Set-Up” and a “Hardball” Approach
At paras. 43-46, Justice Bastarache rejects the trial judge’s finding that Mr. Keays
was being “set up” by Honda when it insisted that he meet with Dr. Brennan, as well as his
finding that Dr. Brennan took a “hardball” approach to workplace absences. My colleague’s
bases for rejecting these findings are: (1) that Dr. Brennan was merely relying on the criteria for
diagnosing CFS developed by the Center for Disease Control (“CDC”); and (2) that Honda
cannot be faulted for taking its expert’s advice unless a conspiracy existed (and none did). Justice
Bastarache concludes that Honda’s request that Mr. Keays meet with Dr. Brennan was “perfectly
normal in the circumstances” (para. 46). After reviewing the record, in my opinion, the trial
judge could reasonably conclude that Dr. Brennan took a “hardball” approach and that Mr. Keays
was, at least to a certain extent, being “set up” for failure by Honda’s request that he meet with
Dr. Brennan.
[98]
First, I must point out that Justice Bastarache erroneously associates the trial judge’s
that either doctor advised Honda that he believed Mr. Keays’ condition was bogus or that Mr.
reference to Dr. Brennan’s “hardball” attitude with Dr. Brennan’s approach to CFS. In refuting
the trial judge’s view that Dr. Brennan took a “hardball” approach, my colleague reviews Dr.
prevalent approach adopted by the CDC” (para. 45). However, what the trial judge actually stated
was that “the record establishes beyond any debate that Dr. Brennan is of the ‘hardball’approach
to workplace absences associated with illnesses or injuries” (para. 45 (emphasis added)).
Dr. Brennan’s opinion concerning CFS is a separate issue. Although Justice Bastarache makes
reference to Dr. Brennan’s “‘hardball’ approach to workplace absences” (at paras. 44 and 45),
his only discussion of that approach relates to Dr. Brennan’s views on CFS.
[99]
Several excerpts from Dr. Brennan’s testimony are indicative of a “hardball”
approach toward absences, and toward accommodating disabilities generally. In describing his
approach to accommodation, Dr. Brennan stated that “the gold standard for accommodating
somebody, in fact, is to not to have to accommodate them, meaning that their impairment is not
of a nature that would stop them from doing their regular work” (A.R., at p. 618 (emphasis
added)). He then went on to describe a process whereby disabled workers are “matched” with
duties they can perform despite their impairments. Later in his testimony, Dr. Brennan
acknowledged that some people have issues with an “accommodation” that involves being
moved to another job they view as less “prestigious” (A.R., at p. 662). He added that this does
not affect his recommendation as to the appropriate “accommodation”, stating that: “. . . my
opinion is based on [a] medical approach or a functional approach. Prestige isn’t a medical
issue.”
Brennan’s opinion on CFS in order to demonstrate that Dr. Brennan was “simply espousing the
[100]
These excerpts are troubling. The implication is that Dr. Brennan’s objective is to
recommend the “accommodation” that is best for Honda, not the one that is best for the
focussed on maximizing an employee’s productivity for Honda in light of the employee’s
condition. His goal is clearly not to find ways for Honda to make it easier for the disabled
employee to do his or her current job. Certainly, disabilities may make it impossible for
individuals to continue in their current positions. But if accommodation is truly a cooperative and
collaborative process, it requires give and take on both sides. Dr. Brennan’s approach suggests
that rather than assisting disabled employees to continue in their current roles, employers can
simply place disabled employees in other roles that do not require any true accommodation on
the employers’ part. This approach makes the disability the employee’s problem, not a problem
shared with the employer. This is of concern from an equality perspective because it limits the
employment options available to disabled persons.
[101]
Generally, Dr. Brennan appeared to be of the view that only he can truly ascertain
whether an employee has an impairment. He showed skepticism toward the opinions of other
doctors and indicated that he would insist on meeting with an employee no matter what was in
the employee’s medical records, because he needed to assess the person himself in order to
assess the employee’s “impairment” and determine the appropriate “accommodation”. As a
doctor, he was able to give a “medical” opinion both about what an individual was capable of
doing and about what would be “best” for the individual from a medical perspective. This could
easily lead to a situation in which Dr. Brennan’s opinion conflicts with the opinion of the
employee’s treating physician. His objective is not to provide medical care for the individual
employee. Although he suggests that he is only giving a “medical” opinion, his opinion is
employee but, as I mentioned above, to maximize productivity. In my view, the above passages
provide ample support for the trial judge’s view that Dr. Brennan took a “hardball” approach to
[102]
It was argued that regardless of Dr. Brennan’s approach, Honda cannot be faulted
for taking its expert’s advice unless a conspiracy existed. The “advice” referred to is purportedly
that Dr. Brennan needed to meet with Mr. Keays face to face in order to accept the diagnosis of
CFS. However, the trial judge expressly rejected the argument that it was necessary for Dr.
Brennan to meet with Mr. Keays. This was a critical finding in the trial judge’s analysis of the
wrongful dismissal claim. The trial judge found that, given the numerous references to CFS in
Mr. Keays’ medical file as well as his lengthy period of CFS-related disability, there was no need
for Mr. Keays to meet with Dr. Brennan “to resolve [his] attendance defaults” (para. 18).
[103]
Mr. Keays was concerned about meeting with Dr. Brennan because of his previous
experience with his insurer. The insurer had required him to meet with its doctor for an
assessment, after which his long-term disability insurance was terminated even though his own
physician was still of the view that he was not able to return to work. Mr. Keays feared that a
similar situation would occur in which Dr. Brennan would not accept that he had to miss work
due to his CFS, and that this would have negative implications for his continued employment at
Honda. It appears that the trial judge referred to Dr. Brennan’s “hardball” approach in order to
validate Mr. Keays’ concern that Dr. Brennan would not accept his need for CFS-related
absences. There was some evidence that Honda knew (and approved) of Dr. Brennan’s approach.
Ms. Selby testified that Dr. Brennan “had a very good reputation, from what I was told, in terms
absences, and to accommodation generally.
of dealing with workplace absences and a fresh approach, fresh start” (A.R., at p. 449).
The trial judge’s main point appears to be that Honda was relying on Dr. Brennan
and his approach to “deal with” Mr. Keays and his absences. In other words, Honda was relying
on Dr. Brennan to legitimize its view that the absences were not warranted. In light of the
evidence, this conclusion was not unreasonable.
[105]
In regard to the issue of whether Mr. Keays was being “set up”, Dr. Brennan testified
that he was asked by Susan Selby to review Mr. Keays’ file and “provide an opinion as to
whether there was a proven impairment and whether he should be attending work” (A.R., at p.
624). This suggests that before involving Dr. Brennan in the case, Honda already harboured
suspicions about the legitimacy of Mr. Keays’ condition. Further, Honda cancelled its
accommodation of Mr. Keays’ condition at the same time as it urged Mr. Keays to meet with Dr.
Brennan (the trial judge referred specifically to this fact at para. 29). It was therefore not
unreasonable for the trial judge to conclude that the purpose of the meeting was to confirm
Honda’s view that the absences were not justified. I will discuss this further below with respect
to reprisal.
[106]
Finally, although it was suggested that Dr. Brennan was consulted in order to
confirm the diagnosis of Mr. Keays’ condition, the testimony of Ms. Magill and Ms. Selby is
unclear in this regard. At several points, they suggested that Dr. Brennan was consulted in order
to obtain his opinion on whether Mr. Keays was able to work on a more regular basis (i.e.
without CFS-related absences), not on whether Mr. Keays had a bona fide medical condition.
[104]
Ms. Magill testified that the purposes of having Mr. Keays meet with Dr. Brennan were
threefold: first, simply to review Mr. Keays’ medical file with him in person and to discuss his
was to be coordinated with Mr. Keays’ own physician; and third, to review and assess any
restrictions on Mr. Keays’ ability to work and to consider alternative roles for him at Honda
(A.R., at pp. 402-3). Ms. Magill stated that Dr. Brennan had not reached a conclusion on Mr.
Keays’ condition, but had simply reached one about his ability to work (A.R., at p. 406).
[107]
Ms. Selby denied that one of the purposes of the meeting was to develop a treatment
plan for Mr. Keays that Dr. Brennan was to coordinate with Mr. Keays’ physician (A.R., at p.
506). However, she did testify that one of the purposes of the proposed meeting, in addition to
sharing information, was to see whether “there was something that Dr. Brennan could do to help
support [Mr. Keays] in the future” (A.R., at p. 457). Ms. Selby also testified that Mr. Keays
“didn’t have restrictions to assess” and therefore denied that one of the purposes of the meeting
was to assess any restrictions in order to consider an alternative role for Mr. Keays at Honda
(A.R., at p. 507).
[108]
Ms. Selby testified that she had originally spoken to Dr. Brennan regarding
Mr. Keays in order to get his opinion on whether it was “fair to expect Kevin to provide regular
attendance” (A.R., at p. 449). However, Dr. Brennan testified that Ms. Selby had asked him to
review Mr. Keays’ record in order to “provide an opinion as to whether there was a proven
impairment and whether he should be attending work” (A.R., at p. 624). Dr. Brennan added that
he had proposed to Ms. Selby that he meet with Mr. Keays in order to go over his medical history
condition, his symptoms and their impact on his work; second, to develop a treatment plan that
(A.R., at pp. 667-68). Both Ms. Magill and Ms. Selby stated that Mr. Keays was told that the
[109]
I raise the purpose of the meeting as a concern in relation to the set-up issue, because
the record shows an apparent lack of candour in what Mr. Keays was told about the purpose of
the meeting. The testimony of Ms. Magill, Ms. Selby and Dr. Brennan is somewhat conflicting,
so the precise purpose of the meeting remains unclear. Dr. Brennan’s testimony suggests that the
meeting was held in response to Ms. Selby’s request to verify whether there was a “proven
impairment” and whether Mr. Keays’ absences were justified. Yet, this does not seem to be what
Mr. Keays was told. Although Ms. Magill mentioned some other purposes, none of these were
communicated to Mr. Keays either. If there was a lack of candour, this might support the trial
judge’s view that Mr. Keays was being “set up.”
C. Reprisal
[110]
At para. 47, Justice Bastarache rejects the trial judge’s finding that Honda had
cancelled Mr. Keays’ accommodation as a reprisal for his having retained legal counsel. Justice
Bastarache suggests that “Honda was simply seeking to confirm Keays’ disability”. He also notes
that Mr. Keays’ superiors had met to address the deficiencies in his doctors’ notes “well before
Keays’ lawyer sent his letter”.
[111]
In my view, the timing of the cancellation and of the insistence that Mr. Keays meet
with Dr. Brennan is suspect. The letter from Mr. Keays’ counsel was dated March 16. In it,
purpose of the meeting was to review his file and share information (A.R., at pp. 341 and 503).
counsel requested that Mr. Keays be exempted from providing a doctor’s note for each absence
before returning to work. This was a request for a more appropriate accommodation of Mr.
doctors’ notes was to preclude him from claiming any disability-related absences. It was at a
meeting on March 21 that Honda told Mr. Keays that it would no longer accept that he had a
disability requiring him to be absent and that he would have to meet with Dr. Brennan in order
to “manage” his condition.
[112]
I disagree that it was a palpable and overriding error for the trial judge to conclude
that the cancellation was, at least in part, a reprisal for Mr. Keays’ attempt to assert his right to
proper accommodation under the Ontario Human Rights Code, R.S.O. 1990, c. H.19. Instead of
considering Mr. Keays’ position, Honda denied any need for his continued absences. I do not see
how this could be seen as an attempt by Honda “to confirm Keays’ disability”. Honda stated
expressly in the March 28 letter that it no longer accepted that he had a disability requiring
absences. Further, even if Honda was suspicious of Mr. Keays’ condition, the fact that such
concerns had been raised prior to the March 21 meeting does not, in my view, explain or justify
the unilateral cancellation, on such short notice, of the minimal accommodation that had been
provided.
D.
[113]
Keays’ Worsened Condition
Justice Bastarache also rejects the trial judge’s consideration of Mr. Keays’ worsened
condition because he rejects the conclusion that Honda acted in bad faith. As I explained above,
Keays’ disability. Honda’s response to Mr. Keays’ request that he be exempted from providing
I question the reasoning that leads him to reject the trial judge’s findings of fact. In my view, the
impugned findings of fact were supported by the evidence. Given my view that Honda did act
assessment of Wallace damages.
II.
[114]
Reconsidering the Issue of Wallace Damages
In his reasons, Justice Bastarache clarifies the proper approach to assessing Wallace
damages in a wrongful dismissal action. As I mentioned above, his review is a necessary and
welcome restatement of the law on damages for wrongful dismissal. Justice Bastarache explains
that Wallace damages will be available where “the manner of dismissal caused mental distress
that was in the contemplation of the parties” (para. 59). But because this Court held in Wallace
that employers have an “obligation of good faith and fair dealing” when dismissing employees
“and created the expectation that, in the course of dismissal, employers would be ‘candid,
reasonable, honest and forthright with their employees’” (para. 58), an employer’s failure to
properly discharge that obligation makes it foreseeable that a dismissal might cause mental
distress. A failure to show good faith may therefore justify an award of compensatory damages.
The instant case is a case in point.
[115]
There is ample evidence to support the trial judge’s conclusion that Honda acted in
bad faith. Several aspects of Honda’s conduct are particularly persuasive in this regard. Most
notable is the misleading nature of the March 28 letter, which indicated that, according to Dr.
Affoo and Dr. Brennan, Mr. Keays did not have a disability requiring him to be absent from
in bad faith, Mr. Keays’ worsened condition following his termination is relevant to the
work. The clear implication was that Mr. Keays’ recent absences were unrelated to his disability
or, at the very least, that they were medically unnecessary. A further implication, one that was
Keays in excess of the normal allowances would result in disciplinary action. In other words, he
was no longer eligible to participate in the disability program. The justification given for this
decision was the opinion of Honda’s medical experts, yet neither doctor had recommended that
Mr. Keays be removed from the disability program, nor had they claimed that any CFS-related
absences were unjustified.
[116]
A further concern is the apparent lack of candour on Honda’s part in regard to the
purpose of the proposed meeting between Mr. Keays and Dr. Brennan. Neither Ms. Magill nor
Ms. Selby provided any justification for their refusal to explain the purpose of the meeting to Mr.
Keays other than to say that the purpose had already been explained to him in person. Yet, as I
mentioned above, there was conflicting testimony about the purpose of this meeting. Given the
confusion among Honda’s own employees, it is understandable that Mr. Keays was still unclear
about the purpose and that he sought further clarification. In addition, the failure to provide
clarification in writing is somewhat suspicious. Further, given that Mr. Keays was willing to
meet with Dr. Brennan if clarification was provided and that Mr. Keays’ refusal to meet with
Dr. Brennan without such clarification resulted in his dismissal, the refusal to provide it seems
unduly harsh.
[117]
The nature of the events leading up to Mr. Keays’ termination makes it reasonable
to conclude that the conduct of Honda surrounding his termination, and not the fact of
expressly spelled out later in the letter, was that any CFS-related absences from work by Mr.
termination alone, led to his worsened state. Accordingly, an award of damages can be justified
in this case on the basis of Honda’s conduct and of the harm Mr. Keays suffered as a result.
given the lack of evidence on the precise loss Mr. Keays suffered as a result of Honda’s conduct,
I would uphold the compensation the trial judge granted over and above the 15-month notice
period. The quantum of the damages appears reasonable and would give Mr. Keays adequate
compensation.
III. Bhadauria and Tort Law
[118]
I agree that it is not necessary to reconsider Bhadauria in the present appeal. But in
my opinion Laskin C.J. went further than was strictly necessary in Bhadauria. The main thrust
of the decision was that Ms. Bhadauria did not have a legally protected interest at common law
that had been harmed by the defendant’s allegedly discriminatory conduct (pp. 191-92).
However, rather than stop there, Laskin C.J. went on to hold that the Ontario Human Rights Code
“foreclose[s] any civil action based directly upon a breach thereof [and] also excludes any
common law action based on an invocation of the public policy expressed in the Code” (p. 195).
These conclusions imply (and have been interpreted to mean) that any allegations resembling the
type of conduct that is prohibited by the Code cannot be litigated at common law. The Code
covers a broad range of conduct in promoting the goal of equality. Yet the conduct at issue in
Bhadauria was limited to the facts of that case. It would have been sufficient to simply conclude
that the interest advanced by Ms. Bhadauria was not protected at common law. It was not
necessary for this Court to preclude all common law actions based on all forms of discriminatory
Although, as Justice Bastarache explains, Wallace damages are intended to be compensatory,
- 65 -
[119]
The development of tort law ought not to be frozen forever on the basis of this obiter
dictum. The legal landscape has changed. The strong prohibitions of human rights codes and of
the Charter have informed many aspects of the development of the common law.
[120]
On the facts of this appeal, discrimination was a troubling aspect of the decision to
terminate Mr. Keays. The presence of this discrimination aspect taints the process and has an
impact on the issue of whether the employment relationship was terminated in good faith.
Justice Bastarache notes that Mr. Keays suffered no detriment in being treated differently from
employees with “mainstream” illnesses, because the differential treatment was intended to
accommodate him and he is thus implicitly compared with that category of employees (para. 67).
However, Justice Bastarache does not inquire into whether this method of accommodation was
appropriate and whether it addressed the difference of the employee, namely his particular
disability.
[121]
The National ME/FM Action Network, an intervener in this appeal, explained why
the accommodation provided by Honda was not appropriate:
ME/CFS is as yet poorly understood. Those who suffer from it may have highly
variable symptoms. There is no laboratory test that can be used to confirm a
diagnosis. In this context, attributing undue significance to matters such as doctors’
notes which are based upon the patient’s own reporting of symptoms, the treating
doctor’s lack of precision in forecasting absences, and the inability of doctors
employed or retained by an employer to “verify” a diagnosis of CFS or to accept
CFS as justifying absences, will likely be inimical to the accommodation required
conduct.
- 66 -
Although I agree with Justice Bastarache that employers are justified in monitoring the absences
of employees, particularly those who are regularly absent from work (at para. 71), he did not
consider whether Honda’s method of monitoring absences was appropriate (i.e. nondiscriminatory). Honda’s assertion that its disability program and its treatment of Mr. Keays
under that program were non-discriminatory cannot simply be taken at face value.
[122]
Mr. Keays had requested to be exempted from the requirement to provide a doctor’s
note for each CFS-related absence. Honda refused to consider this request, despite the assertion
by Mr. Keays’ attorney that Mr. Keays was concerned that the note requirement created a barrier
to his speedy return to work. Regardless of whether or not the notes created a barrier, it is clear
that Honda was skeptical of Mr. Keays’ condition because of the “cryptic” nature of his doctors’
notes and because his absences had become more frequent than originally predicted. Yet if
variable self-reporting conditions are characteristic of Mr. Keays’ disability, it is arguable that
Honda acted in a discriminatory manner in subjecting him to the kind of scrutiny he underwent
and, in fact, denying him accommodation for his disability.
[123]
While monitoring employee absences certainly remains a valid objective, this can
be done in a variety of ways. Requiring a doctor’s note for each absence is only one alternative.
Others include seeking semi-regular updates from an employee’s physician regarding the nature
of the condition and the course of treatment, checking in with the employee directly, or requiring
doctors’ notes only when the number of absences exceeds the expected number within a given
under human rights codes. [Factum, at para. 14]
- 67 time frame. Not all monitoring methods may be considered non-discriminatory in every context.
“[i]ndividualized accommodation is at the heart of the duty to accommodate and is instrumental
in creating a discrimination free workplace” (Factum, at para. 17). In my view, the employer
must, in monitoring absences, remain mindful of all the circumstances, which include the nature
of the employee’s condition. It should not be assumed that all monitoring methods are acceptable
and non-discriminatory.
[124]
For these reasons, I would allow the appeal in part by setting aside the award of
punitive damages and the costs premium. The cross-appeal should be dismissed. Given the
outcome and the circumstances of the case, I would award costs to the respondent.
Appeal allowed in part, LEBEL and FISH JJ. dissenting in part. Cross-appeal
dismissed.
Solicitors for the appellant/respondent on cross-appeal: Lerners, Toronto.
Solicitors for the respondent/appellant on cross-appeal: Scher & De Angelis,
Toronto.
Solicitor for the intervener the Canadian Human Rights Commission: Canadian
Human Rights Commission, Ottawa.
As stated by the Ontario Network of Injured Workers’ Groups, another intervener in this appeal,
- 68 Solicitor for the intervener the Ontario Human Rights Commission: Ontario Human
Solicitor for the intervener the Manitoba Human Rights Commission: Manitoba
Human Rights Commission, Winnipeg.
Solicitors for the intervener the Alliance of Manufacturers & Exporters
Canada: Baker & McKenzie, Toronto.
Solicitors for the intervener the Human Resources Professionals Association of
Ontario: Miller Thomson, Toronto.
Solicitors for the intervener the National ME/FM Action Network: Paliare, Roland,
Rosenberg, Rothstein, Toronto.
Solicitor for the intervener the Council of Canadians with Disabilities: Community
Legal Assistance Society, Vancouver.
Solicitor for the intervener the Women’s Legal Education and Action
Fund: Women’s Legal Education and Action Fund, Toronto.
Solicitor for the intervener the Ontario Network of Injured Workers’ Groups: ARCH
Disability Law Centre, Toronto.
Rights Commission, Toronto.
- 69 -
Citation:
Kelowna Flightcraft Air Charter Ltd. v.
Buchanan,
2010 BCSC 1650
Date: 20101123
Docket: 88223
Registry: Kelowna
Between:
Kelowna Flightcraft Air Charter Ltd.
Appellant
And
Kevin Buchanan
Respondent
Before: The Honourable Mr. Justice N. Smith
On appeal from the Provincial Court of British Columbia, June 23, 2010, File
No. 80069, Kelowna Registry
Reasons for Judgment
Counsel for the Appelant:
Appearing on his own behalf:
Place and Date of Trial/Hearing:
Place and Date of Judgment:
E.C. Walker
K. Buchanan
Kelowna, B.C.
October 7, 2010
Kelowna, B.C.
November 23, 2010
2010 BCSC 1650 (CanLII)
IN THE SUPREME COURT OF BRITISH COLUMBIA
Kelowna Flightcraft Air Charter Ltd. v. Buchanan
[1]
Page 2
The respondent Kevin Buchanan was employed by the appellant Kelowna
Flightcraft Air Charter Ltd. (“Kelowna Flightcraft”) as a “cost revenue accountant” for
Mr. Buchanan sued in provincial court for wrongful dismissal and was awarded
damages that included $8,500 in “aggravated or punitive damages”. The employer
now appeals that award to this court pursuant to s. 5 of the Small Claims Act,
R.S.B.C. 1996, c. 430 [Small Claims Act].
[2]
Kelowna Flightcraft provides cargo and passenger charter air services as well
as heavy aircraft maintenance and modification services. Mr. Buchanan’s principal
responsibility was to gather and interpret the data required to invoice charter
customers and to prepare those invoices.
[3]
From January 2004 to January 2006 he received scheduled wage increases
from a starting wage of $18.30 per hour to $21.41 per hour. In May 2006 he was
denied a further wage increase of 70 cents per hour that had been scheduled for
January 2006. Mr. Buchanan said at trial that no explanation was provided to him as
to why he did not receive the January 2006 wage increase. Exhibits filed at trial
included an email to Mr. Buchanan from the company’s Director of Human
Resources dated May 10, 2006, which referred to unspecified concerns his
supervisor had with his performance.
[4]
In December 2006, Mr. Buchanan was asked to sit in on interviews for a new
Accounts Receivable clerk, who was hired to take over some of his responsibilities.
Mr. Buchanan was asked to train the new employee through a probationary period
that ended on April 3, 2007−less than three weeks before Mr. Buchanan’s dismissal.
The new employee remained with the company after Mr. Buchanan was dismissed.
[5]
On April 20, 2007, Mr. Buchanan was asked to attend at the Human
Resources Department, where he was given a letter advising him that he was being
laid off due to a restructuring of the Accounting Department. He was told that he
would receive 16 days’ wages in severance pay, was required to hand in his parking
approximately three years and three months before he was laid off on April 20, 2007.
Page 3
and security passes and was escorted from the workplace. Kelowna Flightcraft has
never alleged that Mr. Buchanan was dismissed for just cause.
A little more than one month after Mr. Buchanan’s dismissal, on May 29,
2007, Kelowna Flightcraft issued bonuses to full-time eligible employees of $2,746
net of taxes.
[7]
The trial judge found that Mr. Buchanan was entitled to one month’s notice of
termination and found his monthly wages, vacation pay and benefits at the time of
dismissal to be $4,300. After taking into account the $2,900 that was paid on
dismissal, the trial judge awarded further damages in lieu of notice of $1,400. There
is no appeal from that portion of the judgment. This appeal concerns the trial judge’s
further award of aggravated or punitive damages (he did not specify which) of
$8,500. The trial judge said:
[9]
He does qualify for aggravated or punitive damages because of the
totality of treatment he received. In the year before termination his
performance reviews stopped; he was denied, without explanation, scheduled
pay raises. Although he was an employee with no supervisory role
Mr. Buchanan was asked to train a new employee through the probation
period, after which the employee was kept on by Flightcraft. His termination
deprived him of chance for his yearly bonus, for which he would have
qualified had he been kept on. His dismissal, because of the corporate
reorganization, was carried out as if he was dismissed for just cause, and
being escorted off company property was degrading. Finally he was unable to
get a reference from Kelowna Flightcraft.
[8]
Kelowna Flightcraft argues that there was no basis for an award of
aggravated or punitive damages because there was no evidence, and no express
finding by the trial judge, that it acted unfairly or in bad faith in the manner of
Mr. Buchanan’s dismissal, or that it acted harshly, vindictively, reprehensibly or
maliciously. It says it has been unfairly stained with a judgment that necessarily
implies mala fides.
[9]
In hearing an appeal under the Small Claims Act, I am bound to apply the
same standard of review that the Court of Appeal must apply when reviewing a
decision of this Court. That standard is set out by the Supreme Court of Canada in
Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 [Housen]: pure questions
[6]
Page 4
of law are reviewed on a standard of correctness but findings of fact, inferences of
fact, and questions of mixed fact and law cannot be reversed unless the trial judge
[10]
In Aruthavamalar v. Terhorst, 2009 BCSC 1232 at para. 43, and in Petrick v.
Lakeview Credit Union, 2002 BCSC 672 at para. 66, this Court said that deference
to the trial judge’s findings is of particular importance in appeals from decisions
under the Small Claims Act, the purpose of which is to allow claims to be resolved
and enforcement proceedings concluded in a just, speedy, inexpensive, and simple
manner. I would add that the nature of the proceedings and the demands on the
provincial court are such that the trial judge’s reasons for judgement will often be
brief, as they are in this case.
[11]
Section 5 (1), of the Small Claims Act refers to an appeal of an order of the
provincial court. An appeal of an order is not an appeal of the reasons for judgment.
The necessary content of reasons for judgment was described by Stewart J. in a
somewhat different context, in Eblaghie v. Lee, 2010 BCSC 703 at para. 5:
For present purposes, I choose to note only the following. The Supreme
Court of Canada has stated once and for all that the need for a judge to state
what he decided and why does not mean the judge must articulate how he
made the decision. The "what" is the verdict and the "why" is the basis for the
verdict. The judge is not required to set out every step, finding or conclusion
taken, made or arrived at by him in the process of arriving at the verdict.
Stating the "what" and giving the "why" against the background of the record
is a matter of connecting the evidence and the law on one hand with the
verdict on the other. [Emphasis in original]
[12]
The reasons for judgment in this case do not specify if the trial judge was
awarding aggravated damages, punitive damages, or some combination of the two.
They are not the same thing, although the Supreme Court of Canada noted in
Honda Canada Inc. v. Keays, 2008 SCC 39 [Keays] at para. 60 that confusion
between them in the context of wrongful dismissal cases is “unsurprising”.
[13]
Punitive damages are awarded for “wrongful acts that are so malicious and
outrageous they are deserving of punishment on their own,” while the term
aggravated damages is used (although perhaps not with strict accuracy) to refer to
has made a palpable and overriding error.
Page 5
compensatory damages flowing from the manner in which employment is
terminated: Keays at para. 62. Where the employer engages in conduct during the
mental distress that should have been in the reasonable contemplation of the
parties, additional damages may be awarded to compensate for this loss. The
employee must show that the mental distress was caused by the manner of the
dismissal, and not by the fact of dismissal itself, as noted in Keays at paras. 57, 59
and 62:
[57]
Damages resulting from the manner of dismissal must then be
available only if they result from the circumstances described in Wallace,
namely where the employer engages in conduct during the course of
dismissal that is “unfair or is in bad faith by being, for example, untruthful,
misleading or unduly insensitive” (para. 98).
[...]
[59]
To be perfectly clear, I will conclude this analysis of our jurisprudence
by saying that there is no reason to retain the distinction between “true
aggravated damages” resulting from a separate cause of action and moral
damages resulting from conduct in the manner of termination. Damages
attributable to conduct in the manner of dismissal are always to be awarded
under the Hadley principle. Moreover, in cases where damages are
awarded, no extension of the notice period is to be used to determine the
proper amount to be paid. The amount is to be fixed according to the same
principles and in the same way as in all other cases dealing with moral
damages. Thus, if the employee can prove that the manner of dismissal
caused mental distress that was in the contemplation of the parties, those
damages will be awarded not through an arbitrary extension of the notice
period, but through an award that reflects the actual damages. [...]
[62]
In Vorvis, McIntyre J., for the majority, held that punitive damages are
recoverable provided the defendant’s conduct said to give rise to the claim is
itself “an actionable wrong”. This position stood until 2002 when my colleague
Binnie J., writing for the majority, dealt comprehensively with the issue of
punitive damages in the context of the Whiten case. He specified that an
“actionable wrong” within the Vorvis rule does not require an independent tort
and that a breach of the contractual duty of good faith can qualify as an
independent wrong. [...] Damages for conduct in the manner of dismissal are
compensatory; punitive damages are restricted to advertent wrongful acts
that are so malicious and outrageous that they are deserving of punishment
on their own. This distinction must guide judges in their analysis.
[14]
The requirement for good faith in the manner of an employee’s dismissal was
discussed in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 [Wallace] at
para. 95:
course of the dismissal that is unfair or in bad faith, and that causes the employee
Page 6
The point at which the employment relationship ruptures is the time
when the employee is most vulnerable and hence, most in need of protection.
In recognition of this need, the law ought to encourage conduct that
minimizes the damage and dislocation (both economic and personal) that
result from dismissal. In Machtinger, supra, it was noted that the manner in
which employment can be terminated is equally important to an individual's
identity as the work itself (at p. 1002). By way of expanding upon this
statement, I note that the loss of one's job is always a traumatic event.
However, when termination is accompanied by acts of bad faith in the
manner of discharge, the results can be especially devastating.
[15]
In Wallace, Iacobucci J. further emphasised at para. 103:
[...] where an employee can establish that an employer engaged in bad faith
conduct or unfair dealing in the course of dismissal, injuries such as
humiliation, embarrassment and damage to one’s sense of self-worth and
self-esteem might all be worthy of compensation depending upon the
circumstances of the case.
[16]
The court in Keays also uses the term “bad faith” in reference to damages for
the manner of dismissal, but it is clear that the phrase is to be given a broad
definition and is not intended to refer to the kind of deliberate wrongful and malicious
conduct that gives rise to a claim for punitive damages:
[57]
Damages resulting from the manner of dismissal must then be
available only if they result from the circumstances described in Wallace,
namely where the employer engages in conduct during the course of
dismissal that is "unfair or is in bad faith by being, for example, untruthful,
misleading or unduly insensitive" [Emphasis added]
[58]
[...] In Wallace, the Court held employers “to an obligation of good
faith and fair dealing in the manner of dismissal” (para. 95) and created the
expectation that, in the course of dismissal, employers would be “candid,
reasonable, honest and forthright with their employees” (para. 98). [...] Failure
to do so can lead to foreseeable, compensable damages. [Emphasis added]
[17]
The court in Keays gave some examples of the kind of conduct that might
give rise to damages for conduct in the manner of dismissal:
[59]
[...] Examples of conduct in dismissal resulting in compensable
damages are attacking the employee's reputation by declarations made at
the time of dismissal, misrepresentation regarding the reason for the
decision, or dismissal meant to deprive the employee of a pension benefit or
other right, permanent status for instance [...].
[18]
It has also been recognized that an employee’s actual termination may be
part of a larger pattern of conduct and the employer’s pre-termination and post-
Page 7
termination conduct may be relevant to the issue of bad faith in the manner of
dismissal: Gismondi v. Toronto (City), [2003] O.J. No. 1490 at para. 23 (O.N.C.A.);
(Toronto ON: Carswell, 2010) at 100 and 186.
[19]
I agree with the appellant that there was no evidence in this case of any of the
outrageous or malicious conduct by the employer that might result in an award of
punitive damages. However, the trial judge found:
•
In the year before his dismissal, Mr. Buchanan did not receive performance
reviews, and he was denied a scheduled pay raise;
•
Mr. Buchanan was asked to train a new employee who was kept on after
Mr. Buchanan was laid off;
•
Mr. Buchanan was deprived a chance at the 2006 bonus, for which he would
have qualified had he been kept on for even a few more days;
•
Upon his dismissal, Mr. Buchanan was escorted off company property in a
way that was degrading (there was no evidence of any specific security or
personal concerns that required Mr. Buchanan to be escorted off the
premises); and
•
[20]
Mr. Buchanan was unable to get a reference from Kelowna Flightcraft.
Those findings of fact were supported by evidence. On review of the trial
judge’s findings and reasons in light of the evidence and the applicable law, it is
clear that he found that there was, at least, an insensitivity and a lack of candour on
the part of the employer in the way it went about ending Mr. Buchanan’s
employment. To this end, it is important to note that it is not the role of the appellate
court to second-guess the weight a trial judge places on various items of evidence:
Housen at para. 23.
Natalie C. MacDonald, Extraordinary Damages in Canadian Employment Law
[21]
Page 8
The trial judge referred to Mr. Buchanan’s evidence of the consequences that
flowed from his dismissal, including the end of his marriage. It is necessary to
dismissal, which is compensable, from the distress naturally flowing from the very
fact of the dismissal, which is not compensable. The task of making that distinction
falls entirely within the trial judge’s function as the trier of fact. It will almost always
be a difficult exercise, but it is clear that the trial judge was alive to the distinction
when he said at para. 8: “As to aggravated or punitive damages for the manner of
his termination I agree that Mr. Buchanan is eligible for damages.” [Emphasis added]
[22]
Counsel for the appellant argues that the conduct found by the trial judge falls
well short of the conduct that gave rise to aggravated damages in the reported
cases. However, the court’s task is not simply to compare the conduct at issue to
previous cases and identify an objective threshold of “bad conduct”, below which no
aggravated damages may be awarded. Rather, each case must be decided in the
context of the employment relationship at issue. A variety of factors, including such
things as the size of the enterprise and the nature of the community in which it
operates, may influence how the employer should conduct itself in dismissing an
employee.
[23]
The appellant also argues that there was no evidence of damages that were
in the reasonable contemplation of the employer. It relies on the following evidence
given by Mr. Buchanan:
I came to work. I did my job. There was nothing wrong in my performance
throughout my employment. It came as quite a shock to be dismissed on
April 20, 2007.
[...]
In 2007 I consulted a psychologist for over a month [sic] and-and-a-half.
Losing my employment has resulted in far excessive expectations that
Kelowna Flightcraft ever foresaw. My wife and I have separated. We are no
longer married. My son is eight years old now and is in a split home, partly
due to the maltreatment. [Emphasis added]
[24]
The test, as set out in Keays, is whether it was in the reasonable
contemplation of the parties, at the time the contract was formed, that failure to act in
distinguish mental distress or psychological damage flowing from the manner of
Page 9
good faith in the manner of dismissal would lead to damage. It is not clear in the
statement emphasized above whether Mr. Buchanan was addressing what he
its expectation at the time of dismissal. In any event, what must be foreseeable is
the existence of damage, such as added mental stress, not the precise further
consequences that may flow from it. Mr. Buchanan was acting without counsel and
the trial judge obviously did not interpret the aforementioned statement as an
admission going to the legal elements of the cause of action.
[25]
In conclusion, I am not persuaded that the trial judge erred in law or made
any palpable and overriding error of fact. The appeal must be dismissed.
“N. Smith J.”
assumed to be Kelowna Flightcraft’s expectation at the time of contract formation or
IN THE SUPREME COURT OF BRITISH COLUMBIA
Citation:
Marshall v. Old Meets New Furniture Ltd.
dba Stokes Furniture,
2009 BCSC 748
Date: 20090605
Docket: 07-4437
Registry: Victoria
Between:
Kelly Marshall
Plaintiff
And:
Old Meets New Furniture Ltd. dba Stokes Furniture
Defendants
Corrected Judgment: This judgment was corrected on the front page on
July 23, 2009.
Before: The Honourable Mr. Justice Macaulay
Counsel for the Plaintiff:
A. Berns
Counsel for the Defendant:
P.K. McMurchy
Place and Date of Hearing:
Victoria, B.C.
May 12, 2009
Place and Date of Judgment:
Victoria, B.C.
Editors’ note: Memorandum released July 23, 2009. Original judgment has been
corrected, with text of memorandum appended.
June 5, 2009
[1]
The plaintiff, Kelly Marshall, was an employee of the defendant until her
dismissal in June 2007. Marshall claims damages for wrongful dismissal. The
Marshall for cause.
[2]
In spite of some material conflicts in the affidavits, both parties agreed that
the issues are suitable for final resolution on summary trial under Supreme Court
Rule 18A. The desire of the parties to proceed summarily is understandable given
the relatively modest amount that Marshall claims. I am satisfied that I can address
the evidentiary conflicts other than by simply preferring one view of events over the
other, an approach that would be impermissible: see Royal Bank of Canada v.
Stonehocker, (1985), 61 B.C.L.R. 265, at para. 19.
[3]
Some of the facts are not in dispute. Marshall was 46 at the time of her
termination in 2007. She graduated from high school in 1979 and moved directly into
retail furniture sales. By the time of termination, she had about 28 years of related
sales experience.
[4]
Marshall commenced employment with Stokes Furniture in June 2000 as
store manager of a retail outlet at a Victoria area mall. Her duties included staff
hiring, training and supervision; purchasing product; reporting to the owner; serving
customers and sales.
[5]
At the time of termination, Marshall was earning $1,097.87 weekly. She was
also entitled to 3% of all sales over $60,000. Her total earnings from Stokes
Furniture for the last three years of her employment were: 2005 - $66,182;
2006 - $62,383; and in 2007 through to June 7 - $35,659.55.
[6]
The terms of Marshall’s employment were never put in writing. She took
directions from John Stokes. Stokes was, at all material times, the president and
operator of the corporate defendant and Stokes Furniture.
defendant, referred to in these reasons as Stokes Furniture, claims it dismissed
[7]
Stokes did not attend the retail outlet that Marshall managed on a regular
basis but maintained regular telephone contact with Marshall and, at least near the
end of Marshall’s employment, with another employee, Cristal Novak. Novak took
[8]
At the time of termination, Stokes Furniture paid to Marshall, or on her behalf
as a result of a Canada Revenue Agency garnishee proceeding, $3,842.58. Stokes
Furniture calculated that amount as seven weeks pay in accord with the formula set
out in the Employment Standards Act, R.S.B.C. 1996, c. 113.
[9]
As the statute only sets out minimum severance pay, it does not preclude
Marshall claiming a greater amount of pay in lieu of notice in this proceeding: see
s. 4. I observe, as well, that the statutory obligation to pay severance is deemed
discharged if an employee is dismissed for cause: see s. 63(3)(c).
[10]
At the time of dismissal, Stokes also provided Marshall with a letter of
reference, signed by him in his capacity as president. Addressed to whom it may
concern, the letter reads:
Kelly Marshall was employed as a manager at our Victoria location from June
2000 till June 2007. Her duties included managing a staff of up to seven
employees. She has experience with all aspects of running a retail store of
6500 square feet. Kelly is an excellent sales person and would be a valuable
addition to any retail business looking for an honest dedicated employee.
Marshall did not work again until June 2008 when she commenced employment as a
part-time custodian. She continues in that work today.
[11]
According to Marshall, shortly after she arrived at work on June 7, 2007,
Stokes informed her that she was being terminated and that she should return her
store keys. She deposed that she was shocked and asked what was going on.
Stokes replied that things were not working out. She received the Record of
Employment and the letter of recommendation a few days later. Further, according
to Marshall, Stokes never informed her of any just cause or the reason for her
immediate termination. She first learned that Stokes Furniture alleged just cause
after she had retained counsel.
over as manager after Marshall was dismissed.
[12]
According to Stokes, Marshall’s job performance “significantly deteriorated in
a number of areas” during the last six months or so before her dismissal. He
1.
Marshall passed on her management duties to other staff members,
including Novak;
2.
Marshall had deteriorating relationships with staff;
3.
Marshall did not take steps to stop the theft of furniture placed outside
the store premises; and
4.
Marshall had personal issues that she was struggling with.
Further, according to Stokes, when he called the store to speak to Marshall about
the operation, the latter would refer him to Novak. This happened often enough that
he stopped asking to speak to Marshall. According to him, Marshall never addressed
the staff issues in any constructive way. He discussed the problem of the furniture
thefts with Marshall and, again, according to him, told her that leaving furniture on
the sidewalk was contrary to the lease, but Marshall took no steps to address that
concern.
[13]
Thieves stole furniture from the sidewalk again after that discussion.
According to Stokes, he told Marshall at that point that “she had better start doing
her job or she could look for a job elsewhere.” Her only response was to offer to pay
for the items. He declined to accept.
[14]
Stokes also deposed that he asked Marshall why she passed over her
management duties to Novak but did not get a response. According to him, he “then
told her again that she had better start doing her job or she would have to look for
work elsewhere.” Although the choice of words may suggest that this was a second
occasion on which Stokes warned Marshall, it is likely that there was only one
discussion.
deposed to the following:
[15]
Again, according to Stokes, he monitored Marshall’s job performance over the
next two weeks, although he does not state what that involved, but did not observe
[S]he had neglected her duties as manager, passing them over to Cristal
Novak, [Marshall] failed to report to me about the store and its operation as I
expected her to do in her position as manager, [Marshall] failed to follow my
instructions, which then led to the loss of furniture stock, and [Marshall] failed
to take initiatives to resolve the theft problem or the problem with her relations
with the store’s other staff. She had systemically taken steps on her own
initiative, and without my consent, to effectively eliminate her responsibilities
as manager and to become only a salesperson, which was a component of
her employment.
Novak also provided an affidavit.
[16]
According to Novak, she noticed Marshall’s job performance “significantly
deteriorate” in the last few months before she was terminated. Novak deposed that
Marshall had transferred her management responsibilities “primarily to me, and she
was not doing her job.” She described Marshall as having a negative attitude which
affected staff morale and stated that she was “seriously considering quitting” due to
the heavy workload and stress that she was carrying “due to [Marshall] not doing her
job.” I observe that Novak accepted the position of manager on the same day that
Marshall was dismissed.
[17]
Marshall filed a further affidavit in reply to the above evidence. According to
her, Stokes had instructed her to place the furniture outside on display and never
directed her not to do so. She provided photographic evidence demonstrating the
placement of furniture outside the store as recently as May 8, 2009, the same day
that Novak swore her affidavit and just days before Stokes swore his. Neither Stokes
nor Novak ever addressed the question how the furniture came to be placed on
outside display in the first place or again after Marshall was terminated.
[18]
According to Marshall, her personal issue that Stokes was concerned about
was the death of her father in April 2007. She deposed that she took time off to
grieve. Overall, she denied that Stokes ever raised any concerns about her job
performance until two weeks before her termination. She denied that he indicated
any improvement. He stated that he dismissed Marshall for the following reasons:
that her employment was at risk. According to her, he stated “if you can’t do your job
maybe you shouldn’t be here.” She admitted telling Novak about that conversation.
It is apparent, and I find, that Stokes did not, at any time, give Marshall any
written notification of any dissatisfaction with her job performance. While he may
have had concerns about her job performance, I conclude that he never discussed
them in any direct way with Marshall. I do not accept that he gave Marshall any clear
warning that she was at risk of termination. Stokes’ conduct in paying severance in
lieu of notice and providing the reference letter is inconsistent, in my view, with his
affidavit evidence that he had cause for dismissal without notice.
[20]
I also consider it significant that Stokes sought to water down the plain
complimentary language of his reference letter in his affidavit. He deposed in the
affidavit that “I also provided her with a letter of reference which speaks to her sales
and not management abilities.” The reference letter was not so guarded.
[21]
I also note the same choice of language between Stokes and Novak; each
deposed that Marshall’s job performance significantly deteriorated. Such common
use of expression as between witnesses suggests someone, other than the
witnesses, provided the words or the witnesses collaborated on their evidence.
Either way, the evidence is less deserving of weight as a result.
[22]
Finally, one would expect an honest employer, who is sufficiently dissatisfied
with the performance of an employee to dismiss for cause, to tell the employee that
was the case; not pay severance under the Act as there would be no statutory
obligation to do so; and also, not provide a positive recommendation. The actions of
Stokes Furniture in this case were inconsistent with its contention that it dismissed
Marshall for cause.
[23]
I conclude that, whatever concerns Stokes may have had at the time, they
were not sufficient to justify dismissal for cause nor did he view them as such.
Instead, the concerns have since been elevated, solely in response to Marshall’s
[19]
lawsuit, to alleged grounds for dismissal without notice. I am satisfied that Marshall
was entitled to reasonable notice, or pay in lieu, upon termination.
Even if Stokes had concerns to the extent that he described in his affidavits,
those concerns would not justify, in the circumstances, dismissal without notice.
[25]
Relying on the reasoning in Stein v. British Columbia Housing Management
Commission (1992), 65 B.C.L.R. (2d) 181 (B.C.C.A.), Stokes Furniture contends that
Marshall’s dereliction of duty amounted to a repudiation of her employment contract
justifying dismissal for cause. In Stein, Southin J.A. confirmed the law as set out in
Laws v. London Chronicle (Indicator Newspapers) Ltd., [1959] 2 All E.R. 285 at
287-88 (C.A.), respecting summary dismissal upon an employee’s willful
disobedience of the proper order of the employer. The extract demonstrates that
willful disobedience of such an order shows a complete disregard of an essential
condition of the contract of service and that even a single act of disobedience may
justify dismissal provided it “is of a nature which goes to show that the servant is
repudiating the contract, or one of its essential conditions.”
[26]
Southin J.A. went on, however, to point out the contextual nature of the
inquiry; for example, an employer who sets a rule but then acts in such a way that a
reasonable person would conclude, and the employee did so conclude, that the
employer considered the rule of “little or no importance” cannot treat the failure to
follow the rule as just cause. See para. 23.
[27]
I am not persuaded on the evidence that Stokes gave any precise direction to
Marshall respecting the removal of the furniture from the sidewalk display and, even
if he did, that in the circumstances following, he maintained that direction. I find
Marshall’s denial that Stokes gave her any such direction more consistent with the
continuing practice at the store of using a sidewalk display.
[28]
It follows that I am not persuaded that Marshall engaged in an act of
insubordination justifying immediate dismissal for cause. As I earlier pointed out, it is
apparent that Stokes did not then consider Marshall’s conduct respecting the
[24]
outdoor placement of furniture to amount to insubordination justifying immediate
dismissal.
I consider it more likely that Stokes became concerned over various aspects
of Marshall’s overall performance and that led to his questioning her continuing
commitment and competence as manager. Unless the employee’s performance is
grossly deficient, and I am not persuaded that is the case here, the law is clear that
an employer cannot dismiss an incompetent employee for cause without first
adequately and specifically warning the employee that continuing failure to meet the
required standard would result in dismissal: see Hennessy v. Excell Railing Systems
Ltd., 2005 BCSC 734, at para. 12.
[30]
On his own evidence, Stokes, at most, told Marshall that if she could not do
her job, she would have to look for a job elsewhere. As a warning, that falls well
short of satisfying the requirement referred to in Hennessy and other authority cited
therein.
[31]
It follows that Stokes Furniture was not entitled to dismiss Marshall for cause
and that she was, instead, entitled to reasonable notice or pay in lieu. In that regard,
counsel for Marshall relies on the principles reviewed in the well-known authority of
Ansari v. British Columbia Hydro and Power Authority, [1986] B.C.J. No. 3005, 13
C.C.E.L. 238 (S.C.).
[32]
In Ansari, then Chief Justice McEachern applied the broad test for assessing
reasonableness set out in Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140
(Ont. H.C.), namely that reasonableness of notice is to be decided with reference
to the particular case, taking into account the character of employment, length of
service, age of the employee and the availability of similar employment having
regard to the experience, training and qualifications of the employee. He further
confirmed, at p. 247 of the decision, a rough upper limit for reasonable notice of 18
to 24 months.
[29]
[33]
The availability of alternative employment in the context of assessing
reasonable notice requires a consideration of economic circumstances affecting the
likelihood of the employee obtaining alternative employment. If the termination
account but not by giving it undue emphasis. There is no evidence in the current
case that the termination occurred during a depressed economy and accordingly, I
have limited my consideration to the other factors listed above.
[34]
Counsel for Stokes Furniture contends that Marshall, then age 46, was
effectively only working as a salesperson at the time of termination and that similar
employment was available elsewhere. He argues that, given seven years of service,
17 1/2 weeks, roughly four to five months, pay in lieu of notice, is reasonable. From
that, and subject to Marshall’s duty to mitigate as well as the receipt of seven weeks
pay in lieu at the time of termination, Marshall’s additional entitlement should be
limited to a maximum of 10 1/2 weeks.
[35]
The defence argument depends, in part, on a finding that Marshall was no
longer working as a manager at the time of termination. I am not persuaded that was
the case.
[36]
Counsel for Marshall contends that the appropriate period of reasonable
notice, having regard to the above factors, and the full extent of Marshall’s duties,
which included management, was 28 to 40 weeks, roughly seven to ten months.
Therefore, after subtracting the seven weeks pay in lieu already received, counsel
submits that Marshall is entitled to an additional 21 to 33 weeks pay in lieu.
[37]
I accept the submissions of counsel for Marshall respecting the broad range.
In my view, a reasonable period of notice in all the circumstances was 32 weeks or
eight months.
[38]
The weekly average of Marshall’s earnings for 2007 was $1,097. After
deducting the seven weeks pay in lieu that Marshall received, the balance of 25
weeks' notice equates to pay of $27,425 in lieu. Any award in that amount is, of
occurs during a depressed economy, this would result in taking that factor into
course, dependent on rejecting the additional contention that Marshall failed to
mitigate her losses.
On the question of mitigation, I take into account that Marshall did not work
during the 32 weeks that I have found to represent a reasonable notice period. I
except from my consideration in such regard the fact that Marshall earned about
$1,000 from Nefco Furniture Ltd. in 2007 because Marshall apparently earned up to
a few thousand dollars a year from Nefco over a period of several years while also
working for Stokes Furniture.
[40]
According to Marshall, she attempted unsuccessfully to find other
employment after she was terminated. She deposed that she looked in the
newspaper and on the Internet for employment opportunities. She only applied for
work at two places, neither of which was a furniture retailer and was unsuccessful.
After the expiration of the reasonable notice period, Marshall secured part-time
employment as a custodian and continues in that work to date.
[41]
I infer from Marshall’s evidence that she did not actively seek out employment
in furniture sales for which she was extremely well qualified. Marshall also did not
reply to the evidence of Richard Lerik in this regard. Lerik deposed that, after the
termination, Marshall told him that she was not interested in working in the retail
furniture business and would not be looking for work in that field.
[42]
Lerik was, at the material time, a sales representative for a number of
furniture wholesalers. According to Lerik, he learned of Marshall’s termination shortly
afterwards and passed on to her information that a particular furniture retailer in
Victoria “was interested in speaking to her about a possible position” but that
Marshall advised that she was not interested. There is, at least potentially, a hearsay
aspect to this evidence if proffered as proof of an available job offer.
[43]
Lerik also proffered an opinion. He deposed that “At the time that [Marshall’s]
employment at Stokes Furniture was terminated, the retail furniture business was
[39]
doing very well in Victoria and in my opinion there would have been a number of
sales positions available for an experienced sales person.”
Counsel for Marshall objects to the Lerik evidence as containing inadmissible
hearsay and opinion. In spite of that, Marshall replied to the Lerik affidavit respecting
the possible job offer. According to her, Lerik informed her that the particular retailer
was interested in speaking to her but never said that there was a job opening. She
deposed that even if there had been an opening, she would not have contacted the
retailer as it had a poor reputation.
[45]
It is unnecessary for me to decide if the Lerik evidence about the possible job
offer is admissible for the truth because, even if it is, I see nothing unreasonable in
Marshall’s unwillingness to follow up given her view as to the retailer’s reputation. It
is not the law that an employee who has been terminated must take advantage of
every potential job offer in her field. See, for example, Toivanen v. PMC-Sierra Ltd.,
2008 BCSC 682. There is, in the case at bar, no evidence from which I could infer
that Marshall’s decision was unreasonable.
[46]
As to Lerik’s opinion that sales jobs were available for experienced sales
persons, I make the following observations respecting the weight to be accorded to
it. First, Lerik did not address the availability of positions involving sales and
management. Second, the absence of detail renders it difficult to ascribe any
significant weight to the opinion.
[47]
Finally, and most significantly, with the exception of his evidence respecting
the potential position, Lerik never deposed that he knew of actual positions being
available. The absence of admissible evidence as to other job openings or that
employers were advertising positions to be filled renders it impossible to give any
weight to Lerik’s opinion. For example, there was no evidence of newspaper ads to
demonstrate existing job opportunities.
[48]
By relying solely on opinion evidence, Stokes Furniture ignored the need to
independently prove the underlying facts or assumptions so that the court can give
[44]
weight to the opinion: see R. v. Abbey, [1982] 2 S.C.R. 24 at 46. I am not satisfied
that Stokes Furniture has met the onus on it to demonstrate that Marshall failed to
[49]
Counsel for Stokes Furniture accepts that the onus is on it, as defendant, to
prove that Marshall failed to take reasonable steps to avoid her loss but says that an
inadequate effort to mitigate coupled with a finding that Marshall could have found
comparable alternate employment had she been prepared to expend a reasonable
effort supports the court reducing what would otherwise be a reasonable notice
period. I agree with the underlying legal propositions as set out in Carlysle-Smith v.
Dennison Dodge Chrysler Ltd., [1997] B.C.J. No. 3075 (S.C.), 33 C.C.E.L. (2d) 280.
[50]
I accept that there was a lack of effort by Marshall to find employment in the
retail furniture industry. However, that is insufficient proof of failure to mitigate
without more: see Carlyle-Smith at para. 26. At the very least, there must also be
evidence that there were positions open within the industry that would bear
investigation: see Bates v. John Bishop Jewellers Limited, 2009 BCSC 158, at
paras. 13-14.
[51]
The difficulty in the present case is that there is insufficient evidence that
alternate employment was available in the industry to justify me concluding that
Marshall failed to take steps to obtain such employment as a reasonable person in
her position ought to have. For that reason, I am not persuaded that Marshall failed
in her duty to mitigate and decline to reduce the reasonable notice period set out
above.
[52]
In the result, Marshall is entitled to judgment in the amount of $27,425. If they
cannot agree, counsel may speak to the effect on costs of any offer to settle under
the Supreme Court Rules. Otherwise, Marshall is entitled to her costs of one day of
trial pursuant to the summary tariff set out in Rule 66(29)(a).
“M.D. Macaulay, J.”
The Honourable Mr. Justice Macaulay
take reasonable steps to avoid her loss.
THE LAW COURTS
MEMORANDUM
TO:
The Parties and Legal Counsel
CC:
All Legal Publishers
FROM:
Superior Courts Judgment Office
DATE:
July 23, 2009.
RE:
Case Name: Marshall v. Old Meets New Furniture Ltd.
Neutral Citation: 2009 BCSC 748
Docket: 07-4437
Please be advised that the attached Reasons for Judgment of Mr. Justice Macaulay
dated June 5, 2009, have been edited.
On the front page the date of hearing has been amended to May 12, 2009.
A copy of this memorandum and attached Reasons for Judgment will be placed in
the court file. The original Reasons for Judgment which were previously distributed
will be retained in the court file.
Please direct any enquiries to the Superior Courts Judgment Office at:
[email protected].
THE SUPREME COURT OF
BRITISH COLUMBIA
McKinley v. BC Tel, [2001] 2 S.C.R. 161, 2001 SCC 38
Appellant
Martin Richard McKinley
v.
BC Tel, British Columbia Telephone Company,
BC Telecom Inc., BC Tel Services Inc.,
BC Tel Systems Support Inc., B.C. Mobile Ltd.,
BC Tel Properties Inc., Canadian Telephones
and Supplies Ltd., and TSI Telecommunications
Services International Inc.
Respondents
Indexed as: McKinley v. BC Tel
Neutral citation: 2001 SCC 38.
File No.: 27410.
2001: January 24; 2001: June 28.
Present: McLachlin C.J. and L’Heureux-Dubé, Iacobucci, Major, Bastarache, Binnie
and Arbour JJ.
on appeal from the court of appeal for british columbia
Employment law – Wrongful dismissal – Dishonest conduct – Whether
employee’s dishonesty, in and of itself, necessarily gives rise to just cause for summary
dismissal – Whether nature and context of such dishonesty must be considered –
Whether trial judge erred in instructing jury that employee’s dishonesty would merit
termination only if it was of “a degree that was incompatible with the employment
-2relationship” – Applicable standard for assessing whether and in what circumstances
Employment law – Wrongful dismissal – Jury’s verdict – Dishonest
conduct – Jury finding that just cause for summary dismissal did not exist – Whether
jury’s verdict reasonable.
Damages – Wrongful dismissal – Extended period of notice – Whether
trial judge erred by putting issue of extended notice period before jury – Whether jury
award for damages representing extended notice period reasonable.
Damages – Wrongful dismissal – Aggravated damages – Whether criteria
for allowing issue of aggravated damages to go to jury met.
Damages – Wrongful dismissal – Punitive damages – Whether issue of
punitive damages should have been put to jury.
The appellant is a chartered accountant who was employed by the
respondents (“BC Tel”). In 1993, he began to experience high blood pressure as a
result of hypertension. By June 1994 his blood pressure was rising on a daily basis and
following his physician’s advice he took a leave of absence from work. The appellant
had indicated to his employer that he wished to return to work, but in a position that
carried less responsibility. He was advised that BC Tel would attempt to find another
suitable position for him within its corporate structure. On August 31, 1994 BC Tel
terminated the appellant’s employment. By that time, the appellant had worked for BC
Tel for almost 17 years and was 48 years of age. The appellant rejected BC Tel’s
severance offer and took the position that his employment was terminated without just
dishonesty provides just cause.
-3cause and without reasonable notice or pay in lieu of reasonable notice. He brought
a wrongful dismissal action in the British Columbia Supreme Court. B.C. Tel took the
he had been dishonest about his medical condition, and the treatments available for it.
The trial judge held that there was sufficient evidence to put the question
of just cause for dismissal to the jury. In instructing the jury on this point, he stated
that in order for just cause to exist, the jury must find (a) that the appellant’s conduct
was dishonest in fact, and (b) that “the dishonesty was of a degree that was
incompatible with the employment relationship”. The trial judge also held that the jury
could consider whether aggravated damages as well as damages for bad faith in the
conduct or manner of the dismissal were warranted. On the other hand, he held that
there was no evidence upon which a claim for punitive damages could be based, and
thus, this question was not put to the jury. The jury found in favour of the appellant,
awarding him general damages, special damages, aggravated damages, and pension
contributions. The Court of Appeal set aside the jury award and ordered a new trial,
finding that the trial judge committed a reversible error in instructing the jury that the
appellant’s dishonesty would merit termination only if it was of a degree that was
“incompatible with the employment relationship”. The appellant appealed to this
Court and BC Tel cross-appealed, submitting that, if the Court dismissed the appeal,
it ought to dismiss the appellant’s wrongful dismissal action outright rather than order
a new trial.
Held: The appeal should be allowed. The cross-appeal should be
dismissed.
position that they had just cause for the appellant’s summary dismissal, alleging that
-4Whether an employer is justified in dismissing an employee on the grounds
of dishonesty is a question that requires an assessment of the context of the alleged
to a breakdown in the employment relationship. Just cause for dismissal exists where
the dishonesty violates an essential condition of the employment contract, breaches the
faith inherent to the work relationship, or is fundamentally or directly inconsistent with
the employee’s obligations to his or her employer. In accordance with this test, a trial
judge must instruct the jury to determine: (1) whether the evidence established the
employee’s deceitful conduct on a balance of probabilities; and (2) if so, whether the
nature and degree of the dishonesty warranted dismissal. The second branch of the test
does not blend questions of fact and law. Rather, assessing the seriousness of the
misconduct requires the facts established at trial to be carefully considered and
balanced. As such, it is a factual inquiry for the jury to undertake. In certain contexts,
the contextual approach might lead to a strict outcome: cause for termination exists
where theft, misappropriation or serious fraud is found. However, lesser sanctions may
be applied for less serious types of misconduct. An effective balance must be struck
between the severity of an employee’s misconduct and the sanction imposed.
The approach endorsed by the Court of Appeal would entitle an employer
to dismiss an employee for just cause for a single act of dishonesty, however minor.
The consequences of dishonesty would remain the same, irrespective of whether the
impugned behaviour was sufficiently egregious to violate or undermine the obligations
and faith inherent to the employment relationship. Such an approach could foster
results that are both unreasonable and unjust. Absent an analysis of the surrounding
circumstances of the alleged misconduct, its level of seriousness, and the extent to
which it impacted upon the employment relationship, dismissal on a ground as morally
disreputable as “dishonesty” might well have an overly harsh and far-reaching impact
misconduct. More specifically, the test is whether the employee’s dishonesty gave rise
-5for employees. In addition, allowing termination for cause wherever an employee’s
conduct can be labelled “dishonest” would further unjustly augment the power
examines each case on its own particular facts and circumstances, and considers the
nature and seriousness of the dishonesty in order to assess whether it is reconcilable
with sustaining the employment relationship, is favoured.
The trial judge’s
instructions were entirely consistent with the contextual approach and cannot serve as
a basis for setting aside the jury verdict.
An appellate court is entitled to set aside a jury’s verdict where it is found
that the evidence did not permit a jury acting judicially to reach the conclusion that it
did. In the present case, while there may not have been a full disclosure of all material
facts by the appellant concerning his treatment and medication, an analysis of the
record as a whole leads to the conclusion that the jury could have reasonably and
judicially found that the appellant did not engage in dishonest conduct of a degree
incompatible with his employment relationship. There is therefore no basis upon
which to interfere with the jury’s verdict that B.C. Tel had not proven just cause
warranting dismissal.
There is also no basis for interfering with the trial decision on the issue of
the extended notice period. Where a dismissal is accompanied by bad faith or unfair
dealing on the part of the employer, Wallace establishes that such conduct merits
compensation by way of an extension to the notice period. This remedy is not
triggered by the dismissal itself, but by the exacerbating factors that, in and of
themselves, inflict injury upon the employee. The trial judge’s analysis and jury
charge adhered to the principles set out by this Court in Wallace, and the jury could,
based on the evidence, reasonably find that the notice period should be extended.
employers wield within the employment relationship. An analytical framework that
-6Although the appellant may have agreed to terminate his employment contract, this did
not necessarily imply a waiver of his right to be treated fairly and in good faith by his
recognizing an award for extended notice.
The order for aggravated damages must be set aside since the criteria for
allowing the question of aggravated damages to go to the jury were not met. The
proper threshold for allowing the issue of aggravated damages to be determined by a
jury is whether sufficient evidence exists. The standard set out by the trial judge fell
short of that test by suggesting, in effect, that any evidence, even a mere scintilla
thereof, would suffice to put the matter of aggravated damages to the jury for its
consideration. Applying the correct standard to the present case, there was not
sufficient evidence before the trial judge to allow the jury to deliberate on the question
of aggravated damages.
Finally, the trial judge’s ruling that the question of punitive damages
should be withheld from the jury was sound and should be left undisturbed. The
evidence did not support a finding of an “independent wrong”, including
discrimination, and B.C. Tel’s conduct was not sufficiently harsh, vindictive,
reprehensible, malicious or extreme in nature to warrant punishment.
Cases Cited
Applied: Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701;
referred to: McPhillips v. British Columbia Ferry Corp. (1994), 94 B.C.L.R. (2d) 1;
Vancouver-Fraser Park District v. Olmstead, [1975] 2 S.C.R. 831; Clouston & Co. v.
Corry, [1906] A.C. 122; Laws v. London Chronicle, Ltd., [1959] 2 All E.R. 285; R. v.
employer, nor did it preclude the protection that Wallace intended to confer by
-7Arthurs, Ex parte Port Arthur Shipbuilding Co. (1967), 62 D.L.R. (2d) 342; Blackburn
v. Victory Credit Union Ltd. (1998), 36 C.C.E.L. (2d) 94; Jewitt v. Prism Resources
(3d) 66; MacNaughton v. Sears Canada Inc. (1997), 186 N.B.R. (2d) 384; Dougherty
v. Bathurst Golf Association Ltd. (1997), 189 N.B.R. (2d) 230; Butler v. Canadian
National Railways, [1939] 3 W.W.R. 625; Holloway v. Encor Energy Corp. (1991),
93 Sask. R. 226; Epoch v. Beaver Lumber Co. (1997), 45 C.C.E.L. (2d) 135; Thompson
v. Boise Cascade Canada Ltd. (1994), 7 C.C.E.L. (2d) 17; Justason v. Cox Radio &
T.V. Ltd. (1997), 190 N.B.R. (2d) 228; McCluskey v. Lawtons Drug Stores Ltd. (1998),
204 N.B.R. (2d) 137, aff’d (1999), 210 N.B.R. (2d) 198; Boston Deep Sea Fishing and
Ice Co. v. Ansell (1888), 39 Ch. D. 339; Federal Supply and Cold Storage Co. of South
Africa v. Angehrn & Piel (1910), 80 L.J.P.C. 1; Real Canadian Superstore
(Saskatchewan) v. United Food and Commercial Workers, Local 1400 (1998), 173
Sask. R. 203; Reade v. Newfoundland Co-Ordinating Council on Deafness (1987), 63
Nfld. & P.E.I.R. 194; Smith v. Dawson Memorial Hospital and Flood (1978), 29
N.S.R. (2d) 277; Evans v. Sobeys Capital Inc. (1995), 15 C.C.E.L. (2d) 197; Lake
Ontario Portland Cement Co. v. Groner, [1961] S.C.R. 553; Reference Re Public
Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313; Machtinger v. HOJ
Industries Ltd., [1992] 1 S.C.R. 986; McCannell v. McLean, [1937] S.C.R. 341; Gray
Coach Lines Ltd. v. Payne, [1945] S.C.R. 614; Scotland v. Canadian Cartridge Co.
(1919), 59 S.C.R. 471; Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R.
1085; Horton v. Niagara (Regional Municipality) (1987), 9 C.H.R.R. D/4611;
Wamboldt v. Department of National Defence (1983), 4 C.H.R.R. D/1479; British
Columbia (Public Service Employee Relations Commission) v. BCGSEU, [1999] 3
S.C.R. 3; British Columbia (Superintendent of Motor Vehicles) v. British Columbia
(Council of Human Rights), [1999] 3 S.C.R. 868; Collinson v. William E. Coutts Co.,
[1995] B.C.J. No. 2766 (QL).
Ltd. (1981), 30 B.C.L.R. 43; Hill v. Dow Chemical Canada Inc. (1993), 11 Alta. L.R.
-8Statutes and Regulations Cited
Rules of the Supreme Court of Canada, SOR/83-74, Rule 29 [mod. SOR/95-325, s. 2].
Authors Cited
Levitt, Howard A. The Law of Dismissal in Canada, 2nd ed. Aurora, Ont.: Canada
Law Book, 1992.
APPEAL and CROSS-APPEAL from a judgment of the British Columbia
Court of Appeal (1999), 123 B.C.A.C. 295, 67 B.C.L.R. (3d) 337, 42 C.C.E.L. (2d)
168, [1999] B.C.J. No. 1075 (QL), allowing an appeal and dismissing a cross-appeal
from a decision of Paris J. Appeal allowed. Cross-appeal dismissed.
D. Murray Tevlin, Geoffrey J. Litherland and Jennifer A. Lamont, for the
appellant/respondent on the cross-appeal.
Jack
Giles,
Q.C.,
and
Karen
Shirley-Paterson,
for
the
respondents/appellants on the cross-appeal.
The judgment of the Court was delivered by
IACOBUCCI J. --
I. Introduction
1
This appeal arises out of a wrongful dismissal action. It calls upon the
Court to elaborate the circumstances in which an employer would be justified in
Canadian Human Rights Act, R.S.C. 1985, c. H-6.
-9summarily dismissing an employee as a result of the latter’s dishonest conduct. More
specifically, the question is whether any dishonesty, in and of itself, suffices to warrant
be considered in assessing whether just cause for dismissal exists.
2
The appeal also raises ancillary questions relating to the propriety of the
trial judge’s decision to put to the jury questions related to awards for an extended
notice period, aggravated damages, and punitive damages. In addition, the parties
sought a review of the reasonableness of the jury verdict on various matters decided
at trial. A cross-appeal also has been brought, wherein the respondents submitted that,
if the Court dismissed the appeal, it ought to dismiss the appellant’s wrongful dismissal
action outright rather than order a new trial.
3
For the reasons that follow, I am of the view that this appeal should be
allowed and that the jury’s verdict should be restored on all questions except that
related to aggravated damages. As I would allow the appeal, the cross-appeal must per
force be dismissed.
II. Factual Background
4
The appellant, Martin Richard McKinley, is a chartered accountant who
was employed by the respondents, the BC Tel group of companies (“BC Tel”). While
working for BC Tel, he held various positions, earned promotions, and received salary
increases. In 1991, he became Controller, Treasurer and Assistant Secretary to certain
BC Tel companies. But in 1993, the appellant began to experience high blood pressure
as a result of hypertension. Initially, this condition was brought under control through
medication, and by taking some time away from work. However, by May of 1994, the
an employee’s termination, or whether the nature and context of such dishonesty must
- 10 appellant’s health took a turn for the worse. His blood pressure had begun to rise again,
and by June of that year, it was rising on a daily basis. Following his physician’s
5
By July 1994, the appellant’s superior, Ian Mansfield (“Mansfield”), raised
the issue of the appellant’s termination from his employment. During discussions with
his employers, the appellant indicated that he wished to return to work, but in a
position that carried less responsibility. He was advised that BC Tel would attempt to
find another suitable position for him within its corporate structure. However,
alternative employment was never offered to the appellant. Although at least two
positions for which the appellant qualified opened during the period in question, these
were filled by other employees.
6
While the appellant was still on leave from work owing to his health
condition, Mansfield telephoned him and instructed him to report to the respondents’
offices on August 31, 1994. The appellant complied, and on that day, the respondents
terminated his employment. By that time, the appellant had worked for BC Tel for
almost 17 years and was 48 years of age.
7
Although the respondents made the appellant a severance offer, this was
rejected. According to the appellant, his employment was terminated without just cause
and without reasonable notice or pay in lieu of reasonable notice. He thus brought a
wrongful dismissal action in the Supreme Court of British Columbia, arguing that his
termination was an arbitrary and wilful breach of his employment contract, which was
conducted in a high-handed and flagrant manner. The appellant maintained that the
respondents’ actions amounted to an intentional infliction of mental suffering. He
alleged that, as a result of the wrongful dismissal, he lost his employment income and
advice, the appellant took a leave of absence from work.
- 11 benefits, as well as the short-term disability benefits he was then receiving. He also
argued that the dismissal prevented him from qualifying for, or receiving, any long-
the appellant sought an order for general compensatory damages, special damages for
the expenses incurred in attempting to find new employment, aggravated damages, and
damages for mental distress and the intentional infliction of mental suffering, as well
as punitive damages.
8
Aside from his wrongful dismissal action, the appellant filed an
information with the Canadian Human Rights Commission, based on the same
allegations of fact. He argued that his dismissal contravened the Canadian Human
Rights Act, R.S.C. 1985, c. H-6. At the time of trial, he had not yet filed a formal
complaint.
9
The respondents admitted to having terminated the appellant’s employment
on August 31, 1994. However, their initial defence rested on the ground that, in
dismissing the appellant, they offered him a compensation package of salary and
benefits in lieu of reasonable notice. Moreover, the respondents maintained that
throughout the months of July and August 1994, they used their best efforts, to the
appellant’s knowledge, to locate an alternate suitable position for him within BC Tel.
Finally, the respondents denied the appellant’s allegations with respect to the flagrant
nature of the dismissal, and submitted that the termination actually occurred in a
professional manner, and in consultation with the appellant.
10
In a Further Amended Statement of Defence (October 6, 1997), the
respondents maintained that the appellant’s illness “frustrated the object of the
[appellant’s] employment”. They thus claimed that they were justified in treating the
term disability benefits, and caused him to lose his future pension benefits. As such,
- 12 employment contract as at an end, and in terminating it as they did on August 31, 1994.
The respondents submitted that in dismissing the appellant, they offered him a
11
However, on November 20, 1997, three days into the trial of this case, the
respondents obtained permission from the court to amend their pleadings once again.
They abandoned the defence of frustration, and instead argued that just cause for the
appellant’s summary dismissal existed. Specifically, the respondents alleged that the
appellant had been dishonest about his medical condition, and the treatments available
for it. This argument was based on the respondents’ recent discovery of a letter (dated
December 12, 1994) written by the appellant to Dr. Peter Graff, an internal medicine
and cardiac specialist, who was one of the appellant’s attending physicians. In this
letter, the appellant wrote to Dr. Graff acknowledging that, during a previous medical
appointment, Dr. Graff had recommended a certain medication – the “beta blocker” –
as the next method of treatment for the appellant’s hypertension. Although beta
blockers were not prescribed at that time, the letter indicated that Dr. Graff had advised
the appellant that such treatment should begin upon the latter’s return to work, if his
blood pressure remained high.
12
The respondents claimed that the appellant deliberately withheld the truth
as to Dr. Graff’s recommendations regarding the use of beta blockers and their ability
to enable him to return to his job without incurring any health risks. However, the
appellant’s evidence at trial revealed that, insofar as he was concerned, he had not lied
to the respondents.
13
At trial, the appellant’s wrongful dismissal action was heard before a judge
and jury. Paris J. held that there was sufficient evidence to put the question of just
compensation package in lieu of reasonable notice.
- 13 cause for dismissal to the jury. In instructing the jury on this point, Paris J. stated that,
in order for just cause to exist, it must find (a) that the appellant’s conduct was
with the employment relationship”. Paris J. also held that the jury could consider
whether aggravated damages, as well as damages for bad faith in the conduct or
manner of the dismissal were warranted. On the other hand, he held that there was no
evidence upon which a claim for punitive damages could be based, and thus, this
question was not put to the jury.
14
The jury found in favour of the appellant, awarding him the following
amounts: $108,793 in general damages; $1,233 in special damages; $100,000 in
aggravated damages; $6,091 in pension contributions; prejudgment interest; and costs.
Paris J. refused to make an order for special costs, and for increased costs.
15
The Court of Appeal for British Columbia set the jury award aside and
ordered a new trial. The appellant’s cross-appeal on the question of punitive damages
was dismissed. According to the Court of Appeal, dishonesty is always cause for
dismissal. Thus, by instructing jurors that the appellant’s dishonesty would merit
termination only if it was of a degree that was “incompatible with the employment
relationship”, Paris J. committed a reversible error.
III. Judicial History
A. Supreme Court of British Columbia (Paris J.), November 27, 1997
16
Paris J. made several observations regarding the instructions and questions
he would put to the jury. First, with respect to the question of just cause for dismissal,
dishonest in fact, and (b) that “the dishonesty was of a degree that was incompatible
- 14 he stated that – without making any comments as to its weight – he was bound to note
that there was some evidence of a lack of frankness by the appellant regarding his
whether the evidence amounted to proof of “dishonesty of a degree incompatible with
the employment relationship”.
17
Paris J. held further that questions regarding damages related to bad faith
in the conduct or manner of dismissal were to be put to the jury. In this regard, it was
to determine whether the evidence revealed that there was bad faith or unfair conduct
by the respondents, as contemplated by this Court in Wallace v. United Grain Growers
Ltd., [1997] 3 S.C.R. 701. If so, it was to decide by how many months the notice period
should be extended beyond that which would be considered as the “reasonable” period
of notice in this case.
18
The trial judge also found that the question of aggravated damages should
be decided by the jury. In his view, there was some evidence to support the appellant’s
contention that, within the context of the dismissal, the respondents engaged in a wilful
or deliberate infliction of mental distress amounting to tortious conduct. Whether the
appellant actually suffered such mental distress, and whether there existed an intention
to inflict such distress was to be inferred from the evidence, and was for the jury to
decide.
19
However, Paris J. held that there was no evidence upon which the
appellant’s claim for punitive damages could be based. He found that human rights
legislation did not add anything to this dimension of the case, and there was no
evidence of discrimination on the basis of disability. Moreover, Paris J. stated that
ability to return to his previous position. But, it was to be left to the jury to decide
- 15 there was no proof of harsh, vindictive, and malicious conduct on the respondents’
20
In charging the jury on the issue of dismissal for just cause on the basis of
an employee’s dishonesty, Paris J.’s instructions were as follows:
Now in this case, the defendant puts forward the defence that it had
just cause for dismissal of the plaintiff. If just cause existed at the time of
the dismissal, the defendant had the right to terminate the employment
contract without giving any notice. That is because conduct amounting to
just cause for dismissal constitutes a breach of the contract. Now the
burden of proving just cause is on the defendant. Now what constitutes just
cause for dismissal may vary depending upon the circumstances of the case
which must be assessed by you the jury. Generally speaking, however,
examples of just cause would be an employee’s serious misconduct,
habitual neglect of duty, incompetence, repeated willful [sic] disobedience,
or dishonesty of a degree incompatible with the employment relationship.
The conduct must be such as to undermine or seriously impair the trust and
confidence the employer is entitled to place in the employee in the
circumstances of their particular relationship. Something less than that is
not sufficient cause for dismissal without reasonable notice. Perhaps I
should repeat that for you. As to just cause for dismissal the conduct of the
employee must be such as to undermine or seriously impair the trust and
confidence the employer is entitled to place on the employee in the
circumstances of their particular relationship. In the case of dishonesty it
must be of a degree incompatible with the employment relationship.
Something less than that is not sufficient cause for dismissal without
reasonable notice.
...
Remember that as I have told you to find cause for dismissal you
would have to find not only that the plaintiff was deceitful as the defendant
contends but that the dishonesty was of a degree that was incompatible
with the employment relationship. [Emphasis added.]
The question put to the jury on this point asked simply:
Have the Defendants proven that (unknown to them at the time), cause for
dismissal existed when they terminated the Plaintiff on August 31, 1994?
part.
- 16 -
B.
21
Court of Appeal for British Columbia (Hollinrake J.A. for the Court) (1999), 67
B.C.L.R. (3d) 337
On appeal, the respondents argued that the trial judge’s jury instructions
were incorrect in law. They maintained that an employee’s dishonest conduct,
irrespective of its degree, is always cause for dismissal. In this respect, the respondents
relied on McPhillips v. British Columbia Ferry Corp. (1994), 94 B.C.L.R. (2d) 1
(C.A.); leave to S.C.C. refused, [1995] 1 S.C.R. ix.
22
The Court of Appeal held that the dishonesty asserted by the respondents
was not as clear as in McPhillips, where an employee billed his employer for
unauthorized personal expenses. However, it found that Paris J. invited the jury to
consider the extent of the dishonesty alleged, and to determine whether this “was of
a degree that was incompatible with the employment relationship,” and thus “sufficient
to warrant dismissal”. According to the Court of Appeal, such instructions were
incorrect as a matter of law. In this regard, Hollinrake J.A. stated at para. 25:
Dishonesty within the contract of employment, as is the case alleged here,
is cause and that cause is not founded on the basis of the “degree” of the
dishonesty.
Considering the evidence before the jury and the question that had been put to it in
regard to the existence of just cause, Hollinrake J.A. held that it was not possible to
discern the jury’s exact findings. It may have found that, on the basis of the evidence
as a whole, there was no dishonesty. However, the jury also may have concluded that
there was dishonesty related to the employment contract, but that such dishonesty was
not of the requisite “degree” to provide just cause for dismissal, as articulated by the
The jury responded to this question in the negative.
- 17 trial judge. If the second scenario were true, a miscarriage of justice had resulted in
23
In considering the specific nature of the flaw within the jury charge,
Hollinrake J.A. stated at paras. 27 and 28:
In my opinion, this jury should have been instructed that if it found
dishonesty on the evidence as asserted by the [respondents] it must, as a
matter of law, conclude that there existed cause for dismissal. The only
finding of fact for the jury to make was dishonesty or no dishonesty and
if the former was found by the jury the judge would then have been bound
as a matter of law to conclude that there was cause for dismissal. That
conclusion is mandated by the McPhillips case.
I am unable to see any difference in substance from the charge before
us and that in McPhillips. In my opinion, they both suffer from the
identical fatal flaw. That being, it cannot be determined on appeal whether
or not the jury had found there was no dishonesty or there was dishonesty
found but in the collective mind of the jury that dishonesty did not “justify
the firing” (McPhillips) or was not “of a degree incompatible with the
employment relationship” (the instant case).
24
The court thus stated that the jury charge in this case – which referred to
the “degree of dishonesty” incompatible with the employment relationship – put a
mixed question of fact and law to the jury. Whether the appellant had been dishonest
with his employers was a question of fact for the jury to decide. However, the jury
should not have been permitted to determine whether the “degree” of dishonesty
sufficed to warrant dismissal, since as a matter of law, all dishonesty within an
employment relationship provides just cause.
25
Before the Court of Appeal, the respondents, referring to the case of
Vancouver-Fraser Park District v. Olmstead, [1975] 2 S.C.R. 831, submitted that the
appellant’s wrongful dismissal claim should be dismissed in preference to ordering a
new trial. They argued that it would be impossible for any jury acting judicially to
reach the conclusion that the appellant was honest with his employers about his ability
this case.
- 18 to return to work. The Court of Appeal declined to dismiss the action. It held that,
given the evidence, there was some measure of confusion in the mind of the appellant
steps he should take for his own health and well-being. Thus, while the evidence could
allow a jury to arrive at a finding of dishonesty justifying dismissal without notice, it
also would be open to the trier of fact to conclude that there was no dishonest conduct
on the part of the appellant. As such, the appellant’s action against his former
employers could not be dismissed.
26
Accordingly, the appeal was allowed, the order of the British Columbia
Supreme Court set aside, and a new trial was ordered on all issues. The appellant’s
cross-appeal on the issue of whether the trial judge erred by failing to put the question
of punitive damages to the jury was unnecessary to deal with, given the order for a new
trial on all issues. As such, the cross-appeal was dismissed without reasons.
IV. Issues
27
This appeal raises the following issues:
A.
Did the trial judge err by instructing the jury that, to find just cause for
dismissal, it would have to find not only that the plaintiff was deceitful,
but that the dishonesty was “of a degree that was incompatible with the
employment relationship”?
B.
Based on the evidence before it, could the jury, acting judicially, have
reasonably found that the appellant’s conduct was not dishonest and thus,
that just cause for summary dismissal did not exist?
as to the availability of a different job, the medical advice he received, and what future
- 19 C.
Was the jury award for damages representing an extended notice period
D.
Should the question of aggravated damages have been put to the jury in
this case?
E.
Should the question of punitive damages have been put to the jury in this
case?
V. Analysis
A. The Standard for Dishonest Conduct in the Employment Relationship
28
Although this Court has yet to consider the question of whether an
employee’s dishonesty, in and of itself, necessarily gives rise to just cause for
summary dismissal, this issue has been examined by the English courts, as well as
appellate and lower courts in Canada. From an analysis of this jurisprudence, no clear
principle or standard emerges. Rather, while one line of authority suggests that the
nature of the dishonesty and the circumstances surrounding its occurrence must be
considered, another seems to indicate that dishonest conduct alone – regardless of its
degree – creates just cause for dismissal. A brief review of these two strands of
jurisprudence would be useful before determining which should guide this Court’s
analysis in the present case.
1.
Authority Indicating that Context Must Be Considered when
Assessing Whether Dishonesty Amounts to Just Cause for Dismissal
reasonable?
- 20 29
When examining whether an employee’s misconduct – including dishonest
misconduct – justifies his or her dismissal, courts have often considered the context of
itself, give rise to just cause. Rather, the question to be addressed is whether, in the
circumstances, the behaviour was such that the employment relationship could no
longer viably subsist.
30
The Privy Council’s decision in Clouston & Co. v. Corry, [1906] A.C. 122,
adopted this analytical framework. The question arising in that case was whether an
employee’s public drunkenness and disobedient conduct warranted his dismissal. The
Privy Council’s ruling spoke generally to the concept of “misconduct” and held that
there was no fixed rule of law to define when termination would be warranted. The
question is one of degree. The trial judge must first determine whether there is any
evidence to submit to the jury in support of the allegation of justifiable dismissal. He
or she also may direct jurors by informing them of the nature of the acts which, as a
matter of law, will justify dismissal. However, the ultimate question of whether just
cause for such dismissal exists is one of fact that the jury must decide. Thus, the Privy
Council indicated that it is not sufficient that the jury find misconduct alone, since this
will not necessarily provide a basis for dismissal. Rather, the jury must determine that
the misconduct is impossible to reconcile with the employee’s obligations under the
employment contract. In this regard, Lord James of Hereford stated at p. 129:
In the present case the tribunal to try all issues of fact was a jury. Now
the sufficiency of the justification depended upon the extent of
misconduct. There is no fixed rule of law defining the degree of
misconduct which will justify dismissal. Of course there may be
misconduct in a servant which will not justify the determination of the
contract of service by one of the parties to it against the will of the other.
On the other hand, misconduct inconsistent with the fulfilment of the
express or implied conditions of service will justify dismissal. [Emphasis
added.]
the alleged insubordination. Within this analysis, a finding of misconduct does not, by
- 21 -
31
A similar analysis was undertaken in subsequent decisions dealing with this
English Court of Appeal stated the following at p. 287:
[S]ince a contract of service is but an example of contracts in general, so
that the general law of contract will be applicable, it follows that, if
summary dismissal is claimed to be justifiable, the question must be
whether the conduct complained of is such as to show the servant to have
disregarded the essential conditions of the contract of service. [Emphasis
added.]
As such, Lord Evershed, M.R., held that a single act of disobedience justified dismissal
only if it demonstrated that the servant had repudiated the contract or one of its
essential conditions. In this way, the ruling in Laws indicated that an analysis of
whether an employee’s misconduct warrants dismissal requires an assessment of its
degree and surrounding circumstances.
32
This contextual approach also has been adopted in several decisions by
Canadian appellate courts. For example, in R. v. Arthurs, Ex parte Port Arthur
Shipbuilding Co. (1967), 62 D.L.R. (2d) 342, at p. 348, the Ontario Court of Appeal
stated that an employer’s right to summarily dismiss an employee is triggered by
“serious misconduct”, which was recognized as including habitual neglect of duty,
incompetence, wilful disobedience or “conduct incompatible with his duties, or
prejudicial to the employer's business.”
33
More recently, the Nova Scotia Court of Appeal in Blackburn v. Victory
Credit Union Ltd. (1998), 36 C.C.E.L. (2d) 94, adopted a contextual analysis for
assessing whether misconduct – and in particular, dishonest misconduct – warranted
summary dismissal. On this point, Flinn J.A., writing for the court at p. 110, held:
issue. For instance, in Laws v. London Chronicle, Ltd., [1959] 2 All E.R. 285, the
The difficulty which I have with the position of counsel for the
employer is that, in dealing with this aspect of his first ground of appeal,
he treats the acts of misconduct in isolation. The courts do not consider an
act of misconduct, in and of itself, to be grounds for dismissal without
notice, unless it is so grievous that it gives rise to the inference that the
employee intends no longer to be bound by the contract of service.
There is no definition which sets out, precisely, what conduct, or
misconduct, justifies dismissal without notice, and rightly so. Each case
must be determined on its own facts. . . .
Thus, according to this reasoning, an employee’s misconduct does not inherently
justify dismissal without notice unless it is “so grievous” that it intimates the
employee’s abandonment of the intention to remain part of the employment
relationship. In drawing this conclusion, the Nova Scotia Court of Appeal relied on the
following passage in H. A. Levitt’s The Law of Dismissal in Canada (2nd ed. 1992),
at p. 124:
What constitutes just cause in a specific situation is particularly
difficult to enumerate because it depends not only on the category and
possible consequences of the misconduct, but also on both the nature of the
employment and the status of the employee . . . .
The existence of misconduct sufficient to justify cause cannot be
looked at in isolation. Whether misconduct constitutes just cause has to be
analyzed in the circumstances of each case. Misconduct must be more
serious in order to justify the termination of a more senior, longer-service
employee who has made contributions to the company.
34
The jurisprudence also reveals that an application of a contextual approach
– which examines both the circumstances surrounding the conduct as well as its nature
or degree – leaves the trier of fact with discretion as to whether a dishonest act gives
rise to just cause. For example, in Jewitt v. Prism Resources Ltd. (1981), 30 B.C.L.R.
43 (C.A.), Taggart J.A. held that an analysis of the employee’s misconduct “in the
circumstances” of that case did constitute cause for dismissal. Jewitt involved an
- 22 -
- 23 employee who allowed a co-director’s signature to be traced on a balance sheet. In
contrast, an examination of the surrounding circumstances in Hill v. Dow Chemical
conclude that the misconduct in question merely reflected a single incident of “poor
judgment”. This finding, along with the conclusion that the employee lacked an
intention to deceive, caused the court to conclude that the impugned behaviour did not
warrant summary dismissal. At issue in Hill was an employee’s unauthorized donation
of bandages and ice packs owned by his employer to a local hockey team, in breach
of company procedure. Similarly, in MacNaughton v. Sears Canada Inc. (1997), 186
N.B.R. (2d) 384 (C.A.), Bastarache J.A., as he then was, found that the impugned
conduct of the employee was not sufficiently serious to justify his dismissal, as it did
not repudiate an essential condition of the employment contract. Although the
employee had been subject to prior reprimands, these reprimands must also be taken
in context, and do not eliminate the need for the misconduct “to be of some
importance” (p. 394). This same court affirmed, in Dougherty v. Bathurst Golf
Association Ltd. (1997), 189 N.B.R. (2d) 230, that just cause exists where the
misconduct in question is “clearly inconsistent” with the employee’s duties under the
employment contract.
35
Cases in which courts have explicitly ruled that the issue of just cause is
one of fact to be put to a jury lend further support to an approach that considers the
particular circumstances surrounding the alleged employee misconduct. Rather than
viewing cause for dismissal as a legal conclusion that must be drawn in any case where
disobedience (including dishonesty) is proven, these cases indicate that just cause can
only be determined through an inquiry by the trier of fact into (a) whether the evidence
demonstrated employee misconduct and (b) whether, in the circumstances, such
misconduct sufficed to justify the employee’s termination without notice.
Canada Inc. (1993), 11 Alta. L.R. (3d) 66 led the Alberta Court of Queen’s Bench to
- 24 -
36
This approach was adopted in Butler v. Canadian National Railways,
his position based on evidence that CNR property was missing from a department that
he was charged with overseeing. In the appeal from the verdict finding insufficient
cause for dismissal, Turgeon C.J.S., citing Clouston, supra, held that the issue of cause
was unquestionably one of fact to be put to the jury. In a concurring judgment, Gordon
J.A. also cited Clouston to reject the employer’s argument that the question of whether
it had sufficient cause for dismissal was an issue of law. In this regard, Gordon J.A.
made the following comments at p. 631:
I think, therefore, with deference, that the learned trial Judge was right
in submitting the question to the jury. It was only necessary for the
plaintiff to establish that he was employed for an indefinite time and that
he was dismissed without notice. The onus then shifted to the defendant to
prove that such dismissal was justified. . . . With deference therefore, I
think that the learned trial Judge was right in submitting the question to the
jury. The plaintiff has a statutory right to have the issues in the action
decided by the jury. A Judge can intervene and say that there is no
evidence to go to a jury so far as the plaintiff is concerned but I know of
no authority which gives the Judge power to say that the defendant had
given sufficient evidence to satisfy the onus thrown upon him and that
therefore he will not submit the case to the jury. [Emphasis added.]
37
This reasoning was endorsed by the Saskatchewan Court of Appeal in
Holloway v. Encor Energy Corp. (1991), 93 Sask. R. 226. Referring explicitly to
Butler and Clouston, Gerwing J.A. held at p. 228 that “[i]t was not open to the trial
judge to reserve to himself the question of just cause”. Rather, this issue was
considered to be one of fact, to be left for the jury to decide.
38
In addition to the appellate decisions mentioned above, the contextual
approach to assessing employee misconduct also has been followed in several trial
judgments in Canada. See for example: Epoch v. Beaver Lumber Co. (1997), 45
[1939] 3 W.W.R. 625 (Sask. C.A.), a case in which an employee was dismissed from
- 25 C.C.E.L. (2d) 135 (Ont. Ct. (Gen. Div.)), at p. 143; Thompson v. Boise Cascade
Canada Ltd. (1994), 7 C.C.E.L. (2d) 17 (Ont. Ct. (Gen. Div.)), at p. 34. Further in
v. Lawtons Drug Stores Ltd. (1998), 204 N.B.R. (2d) 137 (Q.B.), aff’d (1999), 210
N.B.R. (2d) 198 (C.A.), the court examined the nature and extent of the misconduct,
as well as the surrounding circumstances, in order to determine whether the
employment relationship could be sustained.
39
To summarize, this first line of case law establishes that the question
whether dishonesty provides just cause for summary dismissal is a matter to be decided
by the trier of fact, and to be addressed through an analysis of the particular
circumstances surrounding the employee’s behaviour. In this respect, courts have held
that factors such as the nature and degree of the misconduct, and whether it violates
the “essential conditions” of the employment contract or breaches an employer’s faith
in an employee, must be considered in drawing factual conclusions as to the existence
of just cause.
40
But a second branch of jurisprudence sets out a separate analytical structure
for this issue, and suggests that the only question for a trier of fact is whether employee
dishonesty exists. Once this is established, the conclusion that must be reached as a
matter of law is that the employer had the right to dismiss its employee. It is to this
second line of authority that I now turn.
2.
41
Authority Indicating that Dishonesty In and Of Itself Warrants Dismissal
Without Notice
The broad language used in a second line of decisions indicates that
dishonesty, in and of itself, provides just cause, irrespective of the factors and
Justason v. Cox Radio & T.V. Ltd. (1997), 190 N.B.R. (2d) 228 (Q.B.), and McCluskey
- 26 circumstances surrounding the conduct, the nature or degree of such dishonesty, or
42
This approach was articulated by the English Court of Appeal in Boston
Deep Sea Fishing and Ice Co. v. Ansell (1888), 39 Ch. D. 339. In that case, an agent
had been instructed to arrange for several fishing boats to be built for his employer.
The agent then received a secret commission from the boat builder, which the company
learned of approximately one year later. The employee’s conduct was found to be
fraudulent, and this was held to provide ample justification for dismissal without
notice. In reaching this conclusion, Bowen L.J. discussed the standard applicable for
determining when dishonesty suffices as cause for terminating the employment
relationship. At p. 363 he stated:
[I]n cases where the character of the isolated act is such as of itself to be
beyond all dispute a violation of the confidential relation, and a breach of
faith towards the master, the rights of the master do not depend on the
caprice of the jury, or of the tribunal which tries the question. Once the
tribunal has found the fact – has found that there is a fraud and breach of
faith – then the rights of the master to determine the contract follow as
matter of law.
This passage indicates that once the confidence inherent to the master-servant
relationship is breached, just cause for dismissal – as a matter of law – is automatically
triggered, and must not depend on whether the trier of fact finds that such cause exists.
Although Bowen L.J. spoke primarily to fraud, he also indicated that “breach of faith”
in general may warrant dismissal. Such broad language suggests that any dishonest
conduct which ruptures the trust inherent to the employer-employee relationship
provides just cause.
43
A similar view was adopted by the Privy Council in Federal Supply and
Cold Storage Co. of South Africa v. Angehrn & Piel (1910), 80 L.J.P.C. 1. This case
whether it breached the essential conditions of the employment relationship.
- 27 made plain that an employee who engages in a fraudulent act of a serious nature (in
that case, taking a secret commission) intimates that he or she has forfeited the right
An agent who takes a secret commission does a dishonest act, and that act
shews he is unfit for a position of trust and confidence. It is the revelation
of character which justifies dismissal. . . .
Although the dishonest act alone served as a basis for cause, it is also important to note
that the misconduct was fraudulent in character, a point that was emphasized by the
Privy Council. This suggests an awareness and consideration of the “nature” of the
misconduct in rendering judgment.
44
In British Columbia, the leading case on the matter in issue – and the
authority that the Court of Appeal relied on in the instant case – is McPhillips, supra.
The judicial history underlying that case is quite similar to that in the present appeal.
In McPhillips, an employee billed unauthorized personal items ordered from one of his
employer’s suppliers to his employer. Upon discovering this, the employer terminated
the employee for just cause, which was then challenged by the employee before the
courts. In a recharge to the jury, the trial judge provided the following instructions on
the issue of cause (at pp. 5-6):
The defendant must convince you in this case that the plaintiff was
dishonest, that he breached a trust imposed on him. And as I said whether
there is a cause to dismiss is a finding of fact. If you are convinced that
the plaintiff was dishonest, you must be convinced that that fact, in all the
circumstances of the relationship between the plaintiff and the defendant,
justified the firing. [Emphasis added by Hollinrake J.A.]
In reviewing this jury charge, the Court of Appeal in McPhillips held that the trial
judge erred by leaving it to the jury to decide whether the employee’s dishonesty was,
“in all the circumstances” of the employment relationship, sufficient to warrant
to be continued in the employer’s service. In this respect, it was stated at p. 3:
- 28 dismissal. Rather, relying on Boston Deep Sea Fishing, supra, the court held at p. 6
that “[d]ishonesty is always cause for dismissal because it is a breach of the condition
45
Writing for the Court of Appeal in McPhillips, Hollinrake J.A. went on to
distinguish that case from Clouston by indicating that the contextual approach for
assessing whether misconduct amounts to just cause could not be extended to cases in
which such misconduct was rooted in dishonest behaviour. He thus concluded that the
law on this issue required that the jury be instructed that, if dishonesty on the part of
the employee was found, cause was thereby established as a matter of law, and thus,
the employer was justified in terminating employment.
46
The strict approach reflected in McPhillips resonates in several other
decisions rendered by Canadian courts, which have held that a finding of dishonesty,
in and of itself, creates just cause for summary dismissal. In each of these cases,
however, the courts dealt with forms of dishonesty that, as in McPhillips, bordered on
theft, misappropriation, forgery or a fraudulent sham. In that connection, the courts
drew parallels between dishonesty and fraud, either by noting their common
ingredients (see Real Canadian Superstore (Saskatchewan) v. United Food and
Commercial Workers, Local 1400 (1998), 173 Sask. R. 203 (Q.B.), per Klebuc J.), or
by characterizing both as equal causes for dismissal (see Reade v. Newfoundland CoOrdinating Council on Deafness (1987), 63 Nfld. & P.E.I.R. 194 (Nfld. S.C.T.D.), at
p. 198, per Wells J.; and Smith v. Dawson Memorial Hospital and Flood (1978), 29
N.S.R. (2d) 277 (S.C.), per Morrison J.). In this vein, courts also emphasized that, for
dishonesty to amount to cause, the employer must prove intent on the employee’s part
to engage in deceitful conduct (see Evans v. Sobeys Capital Inc. (1995), 15 C.C.E.L.
(2d) 197 (Nfld. C.A.), per Cameron J.A.).
of faithful service” (emphasis added).
- 29 -
47
This line of jurisprudence seems to indicate that a finding of dishonesty
of the cases considered here, where cause was found to exist, courts were confronted
with very serious forms of employee dishonesty. This point is instructive for
determining the proper analytical approach to be adopted in the case at bar.
3.
48
Applicable Standard for Assessing Whether and in What
Circumstances Dishonesty Provides Just Cause
In light of the foregoing analysis, I am of the view that whether an
employer is justified in dismissing an employee on the grounds of dishonesty is a
question that requires an assessment of the context of the alleged misconduct. More
specifically, the test is whether the employee’s dishonesty gave rise to a breakdown
in the employment relationship. This test can be expressed in different ways. One
could say, for example, that just cause for dismissal exists where the dishonesty
violates an essential condition of the employment contract, breaches the faith inherent
to the work relationship, or is fundamentally or directly inconsistent with the
employee’s obligations to his or her employer.
49
In accordance with this test, a trial judge must instruct the jury to
determine: (1) whether the evidence established the employee’s deceitful conduct on
a balance of probabilities; and (2) if so, whether the nature and degree of the
dishonesty warranted dismissal. In my view, the second branch of this test does not
blend questions of fact and law. Rather, assessing the seriousness of the misconduct
requires the facts established at trial to be carefully considered and balanced. As such,
it is a factual inquiry for the jury to undertake.
gives rise to just cause as a matter of law. However, I am struck by the fact that, in all
- 30 50
While ample case law supports this position, as discussed above, a second
line of jurisprudence seems to run counter to it, suggesting that dishonest conduct
However, a closer inspection of these cases reveals that they actually support a
contextual approach. As noted, these judgments involved dishonesty that was
symptomatic of an overarching, and very serious misconduct. In most cases, the courts
were faced with allegations to the effect that an employee had intentionally devised to
extract some financial gain or profit to which he or she was not entitled, at his or her
employer’s expense. Such conduct was frequently tantamount to a serious form of
fraud, and explicitly characterized by the courts as such.
51
This being the case, I conclude that a contextual approach to assessing
whether an employee’s dishonesty provides just cause for dismissal emerges from the
case law on point. In certain contexts, applying this approach might lead to a strict
outcome. Where theft, misappropriation or serious fraud is found, the decisions
considered here establish that cause for termination exists. This is consistent with this
Court’s reasoning in Lake Ontario Portland Cement Co. v. Groner, [1961] S.C.R. 553,
where this Court found that cause for dismissal on the basis of dishonesty exists where
an employee acts fraudulently with respect to his employer. This principle necessarily
rests on an examination of the nature and circumstances of the misconduct. Absent
such an analysis, it would be impossible for a court to conclude that the dishonesty was
severely fraudulent in nature and thus, that it sufficed to justify dismissal without
notice.
52
This is not to say that there cannot be lesser sanctions for less serious types
of misconduct. For example, an employer may be justified in docking an employee’s
always, irrespective of its surrounding circumstances, amounts to cause for dismissal.
- 31 pay for any loss incurred by a minor misuse of company property. This is one of
53
Underlying the approach I propose is the principle of proportionality. An
effective balance must be struck between the severity of an employee’s misconduct and
the sanction imposed. The importance of this balance is better understood by
considering the sense of identity and self-worth individuals frequently derive from
their employment, a concept that was explored in Reference Re Public Service
Employee Relations Act (Alta.), [1987] 1 S.C.R. 313, where Dickson C.J. (writing in
dissent) stated at p. 368:
Work is one of the most fundamental aspects in a person's life,
providing the individual with a means of financial support and, as
importantly, a contributory role in society. A person's employment is an
essential component of his or her sense of identity, self-worth and
emotional well-being.
This passage was subsequently cited with approval by this Court in Machtinger v. HOJ
Industries Ltd., [1992] 1 S.C.R. 986, at p. 1002, and in Wallace, supra, at para. 95. In
Wallace, the majority added to this notion by stating that not only is work itself
fundamental to an individual's identity, but “the manner in which employment can be
terminated is equally important”.
54
Given this recognition of the integral nature of work to the lives and
identities of individuals in our society, care must be taken in fashioning rules and
principles of law which would enable the employment relationship to be terminated
without notice. The importance of this is underscored by the power imbalance that this
Court has recognized as ingrained in most facets of the employment relationship. In
Wallace, both the majority and dissenting opinions recognized that such relationships
several disciplinary measures an employer may take in these circumstances.
- 32 are typically characterized by unequal bargaining power, which places employees in
a vulnerable position vis-à-vis their employers. It was further acknowledged that such
55
In light of these considerations, I have serious difficulty with the absolute,
unqualified rule that the Court of Appeal endorsed in this case. Pursuant to its
reasoning, an employer would be entitled to dismiss an employee for just cause for a
single act of dishonesty, however minor. As a result, the consequences of dishonesty
would remain the same, irrespective of whether the impugned behaviour was
sufficiently egregious to violate or undermine the obligations and faith inherent to the
employment relationship.
56
Such an approach could foster results that are both unreasonable and
unjust. Absent an analysis of the surrounding circumstances of the alleged misconduct,
its level of seriousness, and the extent to which it impacted upon the employment
relationship, dismissal on a ground as morally disreputable as “dishonesty” might well
have an overly harsh and far-reaching impact for employees. In addition, allowing
termination for cause wherever an employee’s conduct can be labelled “dishonest”
would further unjustly augment the power employers wield within the employment
relationship.
57
Based on the foregoing considerations, I favour an analytical framework
that examines each case on its own particular facts and circumstances, and considers
the nature and seriousness of the dishonesty in order to assess whether it is
reconcilable with sustaining the employment relationship. Such an approach mitigates
the possibility that an employee will be unduly punished by the strict application of an
unequivocal rule that equates all forms of dishonest behaviour with just cause for
vulnerability remains in place, and becomes especially acute, at the time of dismissal.
- 33 dismissal. At the same time, it would properly emphasize that dishonesty going to the
core of the employment relationship carries the potential to warrant dismissal for just
4. Application to Paris J.’s Jury Instructions
58
Applying the foregoing analysis to this case, unlike the Court of Appeal,
I see no reason to interfere with the trial decision on the basis of Paris J.’s instructions
to the jury. This charge – to the effect that the appellant’s dishonesty had to be “of a
degree incompatible with the employment relationship” – properly advised jurors to
consider the circumstances surrounding the appellant’s conduct with a view to
appreciating whether the extent of the alleged dishonesty undermined his essential
obligations to his employers. Paris J.’s instructions therefore were entirely consistent
with the contextual approach discussed above, and thus do not serve as a basis for
setting the jury verdict aside.
B. Reasonableness of the Jury Verdict
59
The respondents maintain that, even if Paris J. did not err in charging the
jury, the jury’s verdict was unreasonable and unjust, and thus should be overturned.
This Court has repeatedly used a test of “reasonableness” when considering whether
to set aside a jury’s verdict. In Vancouver-Fraser Park District, supra, at p. 839, de
Grandpré J. held that while jury verdicts must be treated with considerable respect and
be accorded great weight, they should not be regarded with awe. Rather, where it is
found that the evidence “did not permit a jury acting judicially to reach the conclusion”
that it did, an appellate court is entitled to set it aside.
cause.
- 34 60
Similarly, in McCannell v. McLean, [1937] S.C.R. 341, Duff C.J. stated the
[T]he verdict of a jury will not be set aside as against the weight of
evidence unless it is so plainly unreasonable and unjust as to satisfy the
Court that no jury reviewing the evidence as a whole and acting judicially
could have reached it.
In addition, an appellate court that finds there was “no evidence” supporting a
particular verdict has “the right and the duty” to set aside that verdict (see Gray Coach
Lines Ltd. v. Payne, [1945] S.C.R. 614, at p. 618). Although these two tests are
distinct, in neither case may the appellate court set aside a verdict on “mere doubts [it]
may entertain” or on its “reaching on the reading of the evidence a conclusion different
from that the jury reached” (see Scotland v. Canadian Cartridge Co. (1919), 59 S.C.R.
471, at p. 477, per Davies C.J.).
61
In the present case, given the variance in the evidence before the jury, I
must conclude that it could have reasonably and judicially found that the appellant did
not engage in dishonest conduct of a degree incompatible with his employment
relationship. Therefore, the requisite standard for setting aside the verdict was not met,
as I now will discuss.
62
The December 12, 1994 letter from the appellant to Dr. Graff, an internal
medicine and cardiac specialist and one of his treating physicians, provides an
instructive starting point for the analysis of this issue. In this letter, the appellant
requested that Dr. Graff clarify his recollection of the treatment recommended during
a medical appointment that had taken place on July 20, 1994. The most relevant
passage of this letter for the purposes of the present appeal states the following:
reasonableness test as follows at p. 343:
The only issue that concerns me is that while I agree that you
recommended a “beta blocker” as the next method of treatment on July 20,
1994, it is my understanding that you did not want me to start treatment
until I returned to work. I remember telling you that BCTEL did not want
me back at work until my blood pressure was fully controlled - a concept
that bothered you at the time. . . . My recollection is that you said that if
I was not returning to the stressfull [sic] job that causing [sic] my elevated
blood pressure, then I should remain on Adalat until I was in my new job.
If my blood pressure remained elevated in my new job, I was to return to
see you to begin a “beta blocker” treatment. You did not issue me a
prescription or give me any “beta blocker” samples on July 20.
. . . It does not make sense to me that I would refuse to try “beta blockers”
as it also does not make sense that you would prescibe [sic] medication
where the apparent cause or trigger was removed!
According to the respondents, this letter revealed the appellant’s knowledge of the
availability of a medication, namely, the beta blocker, which one of his physicians
believed could effectively enable him to return to his former position without any risk
to his health. Moreover, the respondents pointed out that, on cross-examination, the
appellant testified that Dr. Graff did not discuss any of the adverse side effects of this
medication with him. The appellant further testified that Dr. Graff was of the view that,
while this medication should not be prescribed at that time, if the appellant returned
to work in his former position and his blood pressure continued to rise, there would be
a reason to consider administering the beta blockers.
63
The respondents also argued that this letter indicated that Dr. Graff had
implied during the July 20, 1994 appointment that the appellant could return to work,
in which case beta blockers might eventually become necessary. However, in voice
mail messages left for his immediate superior just after that appointment (on July 20th
and 27th, 1994), the appellant stressed that both his family doctor and Dr. Graff were
of the view that “a new job, a new change of environment” was what he truly needed.
While the appellant alluded to the possibility of trying a “new medication”, he
indicated that Dr. Graff was of the view that it should not be attempted – given its
- 35 -
- 36 adverse side effects – if his health could be improved by “a job change in a different
64
From this evidence, a certain degree of inconsistency can be identified
between what the appellant appears to have been told by Dr. Graff, and the information
he subsequently conveyed to his employers. The evidence suggests that Dr. Graff
believed that the appellant could return to work, even in his former position as
Controller, and, if his hypertension became more acute at that point, it could be
controlled through the use of beta blockers. However, the voice mail messages of July
20th and July 27th indicate that the appellant did not put this information forward as
fully and clearly as he might have. Rather than mention the possibility of returning to
his former position if beta blockers were administered, he instead stressed that his
physicians were of the view that a change in jobs would in fact be the most beneficial
form of “treatment”. At trial, however, the appellant admitted on cross-examination
that this advice had not in fact been given by his specialist.
65
This contradiction could raise some suspicion in the minds of jurors as to
the trustworthiness of the appellant’s character. But, does the evidence lead
unquestionably and unequivocally to the conclusion that the appellant’s conduct was
sufficiently dishonest to provide just cause for summary dismissal? A review of the
evidence in its entirety leads me to answer this question in the negative. To my mind,
the material in the record provides a sufficient basis for a jury to conclude that the
appellant reasonably and truly believed that his physicians, including Dr. Graff, were
of the view that beta blockers should be considered only as a “last resort” treatment,
and that they were not yet required at that point in time. The soundness of this
interpretation is reinforced by Dr. Graff’s assessment of the appellant on July 6, 1994,
in which he stated that he “would be reluctant to change the medications [the
kind of environment”.
- 37 appellant] is on at this point in time”, and instead “suggested that he return to work,
and closely monitor his blood pressure at the office and at home”. If the appellant’s
medication (Hytrin) should be used. He indicated that beta blockers should be
considered only if this proved unsuccessful. Given that the appellant testified to being
under the impression that his employers were seeking out alternate positions for him
within BC Tel, a rational and logical inference to draw from the evidence is that he
believed, on his physician’s advice, that beta blockers would be administered only if
he returned to work in his original job.
66
The respondents claimed in oral argument that the appellant’s falsehood
lay in giving Dr. Graff’s imprimatur to the notion that beta blockers carried adverse
side effects. However, a review of the evidence that attested to the potential risks of
this medication suggests that the appellant’s physicians would have been reluctant to
prescribe it unless it was required to bring the appellant’s hypertension under control.
At trial, Dr. Charles R. Brasfield, a medical doctor and psychiatrist who treated the
appellant on an intermittent basis between 1993 and 1996, testified that the side effects
of beta blockers could include an increase in depression, as well as specific sexual side
effects, congestive heart failure, and respiratory arrest. Moreover, the evidence
suggests the appellant’s awareness of these side effects. In a document entitled
“History of High Blood Pressure and BC Tel Involvement”, which was introduced as
an exhibit at trial, the appellant stated that another one of his physicians (Dr.
Andersen) refused to prescribe beta blockers because of their “unacceptable side
effects”.
67
Despite these potential risks, the evidence also suggests that the appellant
would have been willing to accept treatment through beta blockers had he believed this
blood pressure continued to rise, Dr. Graff was of the view that another form of
- 38 would be necessary for enabling him to return to work at BC Tel. In the December 12,
1994 letter, the appellant told Dr. Graff that “[i]t does not make sense” that he would
employers aware of his medical issues, and even explained the potential for beta
blockers to be used as treatment. According to this evidence, the appellant asked his
employers whether he should return to Dr. Graff to try beta blockers; yet, his superior
indicated that this would not be necessary, since he would likely be placed in another,
less stressful position. The appellant’s testimony in regard to his willingness to attempt
beta blockers is corroborated by a note handwritten by BC Tel’s Human Resources
Manager on September 1, 1994, the day following the appellant’s dismissal. This
document indicates that in a telephone conversation that morning, the appellant told
the Human Resource Manager that “if he had known the only job was his old one the
Doctor would have changed his medication and he could have returned to work”.
68
The respondents claimed that this evidence revealed that the appellant truly
did not believe beta blockers to be unsafe. To my mind, however, it provided a
sufficient basis upon which the jury could reasonably conclude that the appellant was
willing, as a “last resort”, to take a risky medication if this became necessary to return
to BC Tel.
69
Thus, while there may not have been a full disclosure of all material facts
by the appellant, this was not required of him. Rather, the question is whether he
engaged in dishonesty in a manner that undermined, or was incompatible with his
employment relationship. An analysis of the record as a whole leads me to conclude
that the jury, acting judicially, could have reasonably found that this was not the case.
For this reason, there is no basis upon which to interfere with the jury’s verdict that the
respondents had not proven just cause warranting dismissal.
refuse to try beta blockers. Furthermore, the appellant testified that he kept his
- 39 -
70
At the outset, it should be noted that the reasonableness of the extended
notice period, as well as the question of aggravated damages (discussed below), were
not called into question by the appellant, but by the respondents. Normally, a
respondent seeking to raise an issue on appeal must do so by applying for leave to
cross-appeal, pursuant to Rule 29 of the Rules of the Supreme Court of Canada,
SOR/83-74. However, this was unnecessary in this case. Rule 29 indicates that “[a]
respondent who seeks to set aside or vary the whole or any part of the disposition of
the judgment appealed from shall apply for leave to cross-appeal within 30 clear days
after the service of the application for leave” (emphasis added). In the present case, the
Court of Appeal for British Columbia allowed the respondents’ appeal and ordered a
new trial on all issues. The respondents do not seek to have any part of this disposition
set aside or varied. Rather, they have raised the issues of the extended notice period
and aggravated damages as alternative arguments, stating that if the trial judgment is
restored, the awards under these heads should be struck. The respondents never
reached these alternative arguments before the Court of Appeal, since that court
accepted their main position that the trial judgment should be set aside in its entirety.
Consequently, the Court of Appeal never ruled on the propriety of the jury’s awards
for an extended notice period and aggravated damages.
71
Before this Court, the respondents again raised these issues in the
alternative. I thus begin by examining the extended notice award, and will proceed to
consider the question of aggravated damages in the discussion that follows.
C. Extended Notice Period
- 40 72
At trial, Paris J., referring to this Court’s decision in Wallace, supra, ruled
that whether damages representing an extended period of notice should be awarded in
determine whether such a remedy was warranted, based on “whether the matters
pointed to by counsel in submissions, if proven by the evidence, constitute such bad
faith or unfair conduct as contemplated by the Wallace case”. Pursuant to its
deliberations, the jury concluded that a reasonable notice period in this case was 22
months. Having found that the respondents acted in a manner that was unfair or in bad
faith in conducting the dismissal, the jury extended this notice period by an additional
four months to represent the damage caused by these exacerbating factors.
73
In Wallace, this Court recognized that the parties to an employment
contract are subject to obligations of good faith and fair dealing. These obligations
subsist throughout the relationship up until, and including its termination. In the
context of dismissal from employment, the majority in Wallace described the
employer’s duties at para. 98 as follows:
[A]t a minimum, I believe that in the course of dismissal employers ought
to be candid, reasonable, honest and forthright with their employees and
should refrain from engaging in conduct that is unfair or is in bad faith by
being, for example, untruthful, misleading or unduly insensitive.
74
Where a dismissal is accompanied by bad faith or unfair dealing on the part
of the employer, Wallace establishes that such conduct merits compensation by way
of an extension to the notice period. This remedy is not triggered by the dismissal
itself, but by the exacerbating factors that, in and of themselves, inflict injury upon the
employee. The nature of this remedy thus was described in Wallace, at para. 103, as
follows:
this case was a question for the jury to decide. He stated that it would be for jurors to
[W]here an employee can establish that an employer engaged in bad faith
conduct or unfair dealing in the course of dismissal, injuries such as
humiliation, embarrassment and damage to one's sense of self-worth and
self-esteem might all be worthy of compensation depending upon the
circumstances of the case. In these situations, compensation does not flow
from the fact of dismissal itself, but rather from the manner in which the
dismissal was effected by the employer.
Wallace also made clear that the extent by which a notice period should be extended
for bad faith or unfair dealing in the conduct of a dismissal will depend, in each case,
on the degree of injury that an employee sustains. While recognizing that tactics that
affect the employee’s ability to find new employment is particularly deserving of such
a remedy and may merit more compensation, the majority also ruled that “intangible
injuries”, which give rise to emotional damage, also may suffice to attract an award in
the form of an extended notice period (para. 104).
75
In the present case, the respondents argued that Paris J. erred by putting the
question of an extended notice period before the jury. They maintained that because
the appellant agreed to his termination pending an acceptable severance package, he
should not be entitled to complain about the “manner” of this dismissal once it actually
occurred. I respectfully disagree. Although the appellant may have agreed to terminate
his employment contract, it certainly cannot be said that this necessarily implied a
waiver of his right to be treated fairly and in good faith by his employers, nor that it
precluded the protection that Wallace intended to confer by recognizing an award for
extended notice.
76
In putting the question of extended notice to the jury, Paris J.’s reasoning
was entirely consistent with the decision in Wallace. An examination of his charge to
jurors reveals that, in his view, there was sufficient evidence that the respondents
engaged in bad faith or unfair dealing in dismissing the appellant. In this respect, Paris
- 41 -
- 42 J. pointed to the fact that the appellant submitted that he was dismissed while on shortterm disability and suffering from hypertension and depression, and that the
The trial judge further noted the evidence pointed to by the appellant, which related
to the difficulty the appellant experienced in obtaining a copy of his long-term
disability plan from his employers, and the fact that the respondents reduced their
severance offer during negotiations over the appellant’s termination. Paris J. then
properly instructed the jury that it was to decide, based on this Court’s decision in
Wallace, whether, in light of this evidence, bad faith conduct or unfair dealing on the
part of the respondents had been proven. If so, Paris J. explained that the length of the
notice period was to be extended by “such further period that [was thought to be]
reasonable in the circumstances”.
77
Considering that Paris J.’s analysis and jury charge adhered to the
principles set out in Wallace, and because the jury could, based on the evidence before
it, reasonably find that the notice period should be extended by four months, I see no
basis for interfering with the trial decision on this point.
D. Aggravated Damages
78
The key principles for establishing the circumstances in which aggravated
damages in wrongful dismissal actions may be awarded were set out by this Court in
Wallace and in Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085.
In Vorvis, McIntyre J. (writing for the majority) highlighted that unlike punitive
damages, aggravated damages serve the purpose of compensation for intangible
injuries. He stated that such damages could be awarded where: (1) an employer’s
conduct was “independently actionable”, (2) it amounted to a wrong that was separate
respondents took this route rather than find him another position within the company.
- 43 from the breach of contract for failure to give reasonable notice of termination, and (3)
it arises from the dismissal itself, rather than the employer’s conduct before or after the
79
These criteria were considered in Wallace, where the majority also
recognized that aggravated damages could be awarded for mental distress flowing from
a wrongful dismissal. However, in Vorvis and Wallace alike, aggravated damages were
denied to the plaintiff.
80
In the present case, Paris J. noted that the standard to apply in assessing the
issue of aggravated damages is that set out in Wallace. While he properly recognized
that such damages require “an independent cause of action”, he then articulated the
applicable threshold in the following way:
It seems to me that, speaking at least in a general way, the evidence
pointed to by counsel as the manner of the conduct of dismissal has to be
considered as some evidence of willfull [sic] or deliberate infliction of
mental distress which would be tortious conduct. Whether the plaintiff
suffered such mental distress and whether an intention to inflict any such
mental distress can be inferred from the evidence is for the jury to say. I
cannot say there is no evidence of such things. [Emphasis added.]
On this basis, Paris J. allowed the jury to consider the issue of aggravated damages.
The jury decided that the appellant was entitled to damages under this head in the
amount of $100,000.
81
The respondents disputed the trial decision on this point, stating that Paris
J. employed an incorrect standard in allowing the jury to consider the question of
aggravated damages. I am also of that opinion. According to Wallace, the proper
threshold for allowing this issue to be determined by a jury is whether or not sufficient
dismissal (pp. 1103-4).
- 44 evidence exists. It was found on the facts of that case that there was no basis upon
which to interfere with the finding that “there was insufficient evidence” of a
short of the Wallace test by suggesting, in effect, that any evidence, even a mere
scintilla thereof, would suffice to put the matter of aggravated damages to the jury for
its consideration.
82
Applying the correct standard to the present case, I would conclude that
there was not sufficient evidence before Paris J. to allow the jury to deliberate on the
question of aggravated damages. More specifically, a fair reading of the evidence does
not, in my view, suggest that the respondents acted with an intention to harm the
appellant either by deliberately inflicting mental distress or by acting in a
discriminatory manner. It is true that, as the appellant noted, the illness from which he
suffered, namely hypertension, has been considered a disability in human rights
jurisprudence (see Horton v. Niagara (Regional Municipality) (1987), 9 C.H.R.R.
D/4611 (Ont. Bd. Inq.), and Wamboldt v. Department of National Defence (1983), 4
C.H.R.R. D/1479 (Can. Trib.)). Yet, while the appellant was never offered an alternate
position within BC Tel to accommodate his health needs, the evidence is far from clear
that the respondents did not make a bona fide effort to find other viable work for him.
This is evidence negating any wilful intention to harm, as was argued by the appellant.
In this connection, the record indicates that the appellant was aware that the
respondents were in the process of downsizing during the time in question, and it thus
would be difficult to find a suitable alternate position. Moreover, although two
positions for which the appellant was qualified did become available while he was on
disability leave, the evidence does not establish that he was the victim of
discrimination, and denied such work on the basis of his illness. Rather, legitimate
separately actionable wrong (emphasis added). The standard set out by Paris J. fell
- 45 explanations were offered to clarify why the respondents decided that the appellant
83
Thus, despite the allegations raised by the appellant, the evidence fails to
establish any separate actionable wrong on the respondents’ part. In this respect, I
would emphasize that the conduct of the parties must be assessed in light of the context
in which it was undertaken. Here, the impugned behaviour occurred during
negotiations between the parties over the appellant’s termination from BC Tel. Within
this bargaining relationship, both sides were entitled to put their strongest case
forward. Consequently, in this setting, clear evidence is required to substantiate a claim
that the employer’s conduct rises to the level of an intentional infliction of harm.
84
Having considered all of this, I find that the criteria for allowing the
question of aggravated damages to go to the jury were not met in the instant case.
Therefore, the order for aggravated damages must be set aside.
E. Punitive Damages
85
As is the case for aggravated damages, the starting point for assessing the
propriety of an award for punitive damages in the context of a wrongful dismissal
action begins with this Court’s decisions in Vorvis and Wallace. As alluded to earlier,
in Vorvis, McIntyre J. recognized the confusion that sometimes exists between
aggravated and punitive damages, and explained that these two heads of damages are
distinguishable by their different purposes. While aggravated damages aim to
compensate for intangible injury, punitive damages are penal and exemplary in nature,
and may be awarded only where the conduct giving rise to the complaint is found to
merit punishment.
should not fill these positions.
- 46 -
86
In Vorvis, the Court sought to determine whether punitive damages may
employee, and if so, whether the circumstances of that case called for such an award.
Pursuant to a review of the relevant common law authorities on this issue, McIntyre
J. held that although punitive damages will very rarely be appropriate in breach of
contract cases, there are some situations in which such an award would be warranted.
More specifically, such damages may be awarded where the defendant’s conduct
constituted a separate, actionable wrong, independent of the dismissal itself.
Furthermore, the conduct must be deserving of punishment because of its extreme and
injurious character. In this respect, McIntyre J. stated, at pp. 1107-8:
[P]unitive damages may only be awarded in respect of conduct which is of
such nature as to be deserving of punishment because of its harsh,
vindictive, reprehensible and malicious nature. I do not suggest that I have
exhausted the adjectives which could describe the conduct capable of
characterizing a punitive award, but in any case where such an award is
made the conduct must be extreme in its nature and such that by any
reasonable standard it is deserving of full condemnation and punishment.
Within the particular circumstances of Vorvis, the employer’s conduct, standing alone,
was not considered sufficiently offensive to constitute an actionable wrong, nor of a
nature that would justify the imposition of a punitive damages award.
87
This analysis was adopted in Wallace, where it was held that an award for
damages beyond compensation for breach of an employment contract "must be
founded on a separately actionable course of conduct" (para. 73). This criterion applies
to both aggravated and punitive damages. However, punitive damages were
distinguished in Wallace, at para. 79, as follows:
be awarded in an action for breach of contract based on the wrongful dismissal of an
Punitive damages are an exception to the general rule that damages are
meant to compensate the plaintiff. The purpose of such an award is the
punishment of the defendant: S. M. Waddams, The Law of Damages (3rd
ed. 1997), at p. 483. The appellant argued that the trial judge and the Court
of Appeal erred in refusing to award punitive damages. I do not agree.
Relying on Vorvis, supra, Lockwood J. found that UGG did not engage in
sufficiently “harsh, vindictive, reprehensible and malicious” conduct to
merit condemnation by such an award. He also noted the absence of an
actionable wrong. The Court of Appeal concurred. Again, there is no
reason to interfere with these findings. Consequently, I agree with the
courts below that there is no foundation for an award of punitive damages.
88
In the present appeal, the trial judge held that the appellant had not adduced
evidence upon which to base a viable claim for punitive damages. In his view, the
proof was not indicative of harsh, vindictive and malicious conduct by the respondents,
nor of contempt for the appellant’s rights. Paris J. further held that human rights
legislation did not add anything to this dimension of the case, as there was no evidence
to substantiate an argument that the appellant suffered discrimination on the basis of
disability in the sense contemplated by such legislation. The appellant’s cross-appeal
from this holding before the Court of Appeal for British Columbia was dismissed
without reasons.
89
Paris J.’s reasoning on this issue was consistent with the principles and
analytical framework set out in Vorvis and Wallace. First, as discussed in regard to the
propriety of the aggravated damages award, there is insufficient evidence to establish
an actionable wrong, separate and apart from the dismissal, on the respondents’ part.
As discussed, the appellant was correct to state that his hypertension constituted a
disability in law. Thus, the failure to find him another position may create a prima
facie case of discrimination, given the employer’s duty to accommodate disabled
employees to the point of undue hardship. See British Columbia (Public Service
Employee Relations Commission) v. BCGSEU, [1999] 3 S.C.R. 3, and British
Columbia (Superintendent of Motor Vehicles) v. British Columbia (Council of Human
- 47 -
- 48 Rights), [1999] 3 S.C.R. 868. Moreover, this discrimination may in turn give rise to a
punitive damages award. See Collinson v. William E. Coutts Co., [1995] B.C.J. No.
basis for interfering with Paris J.’s conclusion that the evidence did not support a
finding of an “independent wrong”, including discrimination. Furthermore, based on
my review of the evidence, I cannot say that Paris J. erred in concluding that the
respondents’ conduct was not of a character contemplated by McIntyre J. in Vorvis. In
other words, it was not sufficiently harsh, vindictive, reprehensible, malicious or
extreme in nature to warrant punishment. As such, Paris J.’s ruling that the question
of punitive damages should be withheld from the jury was sound, and should be left
undisturbed.
VI. Disposition
90
For the foregoing reasons, the appeal is allowed, the judgment of the
British Columbia Court of Appeal is set aside, and the order of Paris J. is restored, with
the exception of the award for aggravated damages, which is struck. Having allowed
the appeal, it is unnecessary for this Court to deal with the cross-appeal, which is
therefore dismissed. Because of the appellant’s substantial success, I would grant him
costs here and in the courts below.
Appeal allowed with costs. Cross-appeal dismissed.
Solicitors for the appellant/respondent on the cross-appeal: Tevlin,
Gleadle, Vancouver.
2766 (S.C.) (QL). But, for the reasons set out above, I am of the view that there is no
- 49 Solicitors for the respondents/appellants on the cross-appeal: Farris,
Vaughan, Wills & Murphy, Vancouver.
COURT FILE NO.: 07-CV-329711SR
DATE: 20090416
SUPERIOR COURT OF JUSTICE
B E T W E E N:
JOHN PANIMONDO
- and -
SHOREWOOD PACKAGING
CORPORATION
)
)
) Howard Markowitz, for the Plaintiff
)
)
Plaintiff )
)
)
)
)
) Derek L. Rogers, for the Defendant
)
)
)
)
Defendant )
)
)
) HEARD: March 24, 25, 2009
G.R. Strathy J.
[1]
The plaintiff, John Panimondo, was one of 29 employees who were fired by the
defendant Shorewood Packaging Corporation (“Shorewood”) on March 13, 2006 as a result of a
decision to close one of the printing lines at its plant in Mississauga, Ontario. Mr. Panimondo, a
46 year-old journeyman pressman, with 11 years of service, was given a lump sum payment in
lieu of notice, equivalent to 9 ½ months’ wages. His benefits were continued for that period and
he was offered re-employment counselling. He did not find work during the notice period and in
2009 CanLII 16744 (ON SC)
ONTARIO
Page: 2
compensation in lieu of notice.
[2]
For the reasons that follow, I have concluded that the employer’s payment in lieu of
notice was reasonable, subject to some minor adjustments to the calculation of the amount paid. I
also find that, although the employee did not make reasonable efforts to mitigate his damages,
the employer has not discharged the onus of establishing that the employee would have reduced
his loss had he done so.
Part I: The Facts
A.
The Parties
Mr. Panimondo
[3]
Mr. Panimondo was born in 1959. He did not finish grade 10 and dropped out of school
in 1976. He found a job with a packaging company called Ashton & Potter, working on a
printing line. He started out as a “feeder”, responsible for feeding paper or paperboard stock into
the machine, and later became an apprentice second pressman, operating the printing machine
itself. He was with that company for 18 years, until it went into receivership. At the time his
employment ended, he was being paid an hourly wage of $21.00.
[4]
After a short period of unemployment, Mr. Panimondo was hired by Shorewood on
January 22, 1995. He began as a feeder, but about six months later he was promoted to pressman.
At the time of the termination of his employment, he was receiving a wage of $37.36 per hour.
this wrongful dismissal action, he claims that he should have received at least 11 months’
Page: 3
bargaining unit.
[5]
All of Mr. Panimondo’s training has been on the job. He holds no certification or formal
employment qualifications.
[6]
Mr. Panimondo worked on a printing press that was used to print packages for consumer
goods, such as cosmetics, candy and home care products. It also printed music lyrics that were
inserted into CDs, containing the text of the songs on the disk. The presses he operated were
either a 40-inch “Komori” Press or a 40-inch “104 KBA” press. The 40 inches describes the
width of the paper sheet, but the presses themselves are massive – some 65 feet in length and 15
feet in width. They were valuable pieces of equipment, worth as much as $5 million. Three
people were needed to run a press. Mr. Panimondo, the pressman, was in charge of the operation,
and was assisted by a feeder and a helper. Mr. Panimondo operated the controls and coordinated
the work of the other two employees. He reported to a pressroom supervisor or to a manager,
depending on who was on hand at a particular time.
[7]
Mr. Panimondo’s wage of $37.36 was paid for a 36-hour work week. He testified that
overtime was a regular feature of his employment, but that the amount of overtime varied from
year to year. In a given year it had been as little as $3,000 and as much as $20,000. He estimated
that he made between $3,000 and $5,000 in overtime in the year preceding the termination of his
employment.
The company was not unionized. At a union shop, he would have been a member of the
Page: 4
His total income in 2005, including wages and overtime, was $76,554. In 2004 it was
$82,524 and in 2003 it was $73,285.
[9]
Mr. Panimondo had a benefits package that included a health, dental and group life
insurance plan, short-term disability (“STD”) and long-term disability (“LTD”) plans and a
pension plan to which the company contributed. There was also an employee assistance program
(“EAP”) that provided employees with counselling in matters of health, finances and wellness.
[10]
Mr. Panimondo was recently separated from his wife at the time of the termination of his
employment. He continued to live in the house where they had resided. There is no evidence that
he had any dependents. He testified that he was somewhat depressed at the time of his
termination because of his separation and the recent death of his father.
Shorewood
[11]
Shorewood’s packaging plant in Mississauga had 350 employees, about 300 of whom
were employed on an hourly basis, and the other 50 were administrative and managerial. The
business was owned by the International Paper Company of New York and was one of 14 or 15
plants in North America. About 75% of Shorewood’s production was for the United States.
[12]
Mr. Terry O’Boyle, Shorewood’s Operations Manager, testified that at the end of 2005 or
early 2006 a decision was made by the company’s head office that there was not sufficient
business to support the number of employees in the Mississauga plant. The company made a
decision to get out of the “paper music” business, which was not profitable, and another account
was discontinued because it was not making money. As a result, Shorewood took two presses out
[8]
Page: 5
seniority and skill sets of the work force, the company terminated the employment of 29
workers, including Mr. Panimondo. The other dismissed workers were pressmen, feeders and
helpers.
[13]
About two years later, in April or May of 2008, another 50 employees were laid off at the
plant.
B.
The Severance Package
[14]
Shorewood developed a severance package for all 29 employees who were terminated in
March 2006. The formula was based on years of service. Each employee was given the payment
in lieu of notice to which he or she was entitled under the Employment Standards Act 2000, S.O.
2000, c. 41 (the “ESA”). As well, each employee was paid an additional 3 weeks’ wages for each
year of service. The employees’ benefits, other than LTD and STD, were extended for the
duration of the notice period, as was the ability to take advantage of the EAP, which included job
transition counselling. The payment in lieu of notice was made in a lump sum and was not
subject to reduction in the event of re-employment. The employee was not required to sign a
release as a condition of accepting the severance package; however, as an inducement, the
company offered an additional payment of $1,000 to the employee if he or she signed a release.
[15]
Mr. Panimondo was provided with a letter dated March 13, 2006 setting out the details of
the company’s payment, which were as follows:
of operation, one of which was the “Komori” that Mr. Panimondo operated. After examining the
[16]
-
he was to receive a lump sum payment in the gross amount of
$55,143.36, equal to 41 weeks’ salary – the actual cash payment to
him would be net of statutory deductions;
-
he would remain covered under Shorewood’s STD and LTD plans
for 8 weeks until May 8, 2006;
-
he would remain covered under Shorewood’s health, dental and
group life policies until the earlier of December, 25, 2006 and the
date on which he commenced alternative employment;
-
the company would continue to make contributions to his pension
plan until May 8, 2006;
-
he would be paid any unpaid vacation pay accrued to May 8, 2006;
-
he would be reimbursed for any outstanding business expenses;
and
-
he would remain entitled to the services of the EAP, including job
transition counselling, until December 25, 2006.
Mr. Panimondo received a gross payment of $10,759.68 for his 8 weeks’ payment in lieu
of notice under the ESA and a gross payment of $44,383.38 representing 3 weeks’ pay for each
of his 11 years of service. He also received a payment of $5,229.97 for his accrued and unpaid
vacation pay. He was not prepared to sign a release and therefore did not receive the additional
payment of $1,000.
[17]
Mr. Panimondo did not receive a reference letter at the time of the termination of his
employment. His counsel requested a letter in his correspondence to Shorewood on September
20, 2006 and although a letter was prepared by Shorewood, it was never received by Mr.
Panimondo.
Page: 6
Page: 7
Ms. Benn, the defendant’s human resources supervisor, testified that Mr. Panimondo is
the only one of the 29 employees who received the severance package who has advanced a claim
against the company.
C.
Plaintiff’s Mitigation Efforts
[19]
Mr. Panimondo testified that because of his depression, he did not seek re-employment in
the first few months after his dismissal, but he started looking in “about May-June”. He looked in
the paper, searched the internet and spoke to some people he knew. He said that he sent out some
letters to prospective employers during this time, but that he had not retained, or had lost, copies
of those letters. There are, in fact, no records of Mr. Panimondo’s employment search before
September 2006 and there is no specific evidence of any job he applied for, any company he
contacted, or any person he spoke to before that time.
[20]
It appears that Mr. Panimondo retained counsel in May of 2006. On September 20, 2006,
Mr. Markowitz wrote to Shorewood, referring to a letter he had written May 29, 2006 to which
he had apparently received no reply, and enclosing a draft statement of claim which he said
would be issued if there was no reasonable improvement in the severance package.
[21]
A few days after his lawyer’s second letter to Shorewood, on September 25, 2006, Mr.
Panimondo faxed his resumé to about 20 printing companies in the GTA. It appears that his fax
went through to 16 of them. His resumé was almost identical to the resumé that he had prepared
[18]
Page: 8
contained his street address at the top along with the area code, but there was no city or
municipality shown as his residence. No covering letter was sent with the fax of his resumé and
it was not addressed to any particular person at the prospective employer. There was no evidence
of any follow up by Mr. Panimondo.
[22]
Mr. Panimondo made a considerably longer list of prospective employers in February of
2007 and he sent out a fax to some 37 companies, again simply sending his resumé with no
covering letter and no named addressee. There is no evidence of any follow-up.
[23]
Mr. Panimondo eventually obtained occasional employment with a company called
Advance Printing, beginning in late February or early March of 2007. He said that he received a
total pay of about $15,000 between the time he first started working for the company and
December of 2008, at which time the company declared bankruptcy. He is presently
unemployed. He produced pay stubs from Advance Printing showing that he earned a total of
$6,680 between March 1 and May 11, 2007.
[24]
There was no reliable evidence concerning the state of the printing business in the GTA
in March of 2006. There is no evidence that the problems facing Shorewood were common to
other printing companies. While Mr. Panimondo’s records indicate that he sent his resumé to a
considerable number of printing companies in the GTA, Ms. Benn of Shorewood acknowledged
that the printing industry was a small one and that there are a relatively small number of
competitors on the same scale as Shorewood.
some 12 years earlier when he applied for a job at Shorewood. It was one page long and it
D.
The Statement of Claim
[25]
The statement of claim was issued on March 19, 2007. It bears little relationship to the
evidence presented in this case. The claim pleads that Mr. Panimondo was provided with “only
bare minimum employee notice period” pursuant to the ESA. It pleads that the termination was in
part “in reprisal for John’s most legitimate workplace suggestions raised in good faith for the
benefit of this employer”. It alleges that there was bad faith by Shorewood and claims aggravated
damages and an extended notice period. It claims that Mr. Panimondo has suffered mental
distress, frustration, aggravation, inability to sleep, eat and concentrate, and the forced
downsizing of his home. It pleads that the employer failed to provide a letter of reference. In its
conclusion, the statement of claim alleges “wrongful termination, bad faith, unjust enrichment,
and overall high-handed behaviour by this international/corporate defendant employer such as to
justify an award of aggravated damages, extended notice period and John’s legal costs paid to
him on a substantial indemnity basis”. The plaintiff pleads that he was entitled to “minimum 11+
notice of termination of his employment”.
[26]
The claim based on “reprisal” was abandoned at the outset of the trial. At the conclusion
of the evidence, the plaintiff’s counsel indicated that the claims for punitive and aggravated
damages and emotional distress were not being pursued. This was a prudent, if belated,
concession as there was absolutely no evidence to support those claims.
Part II: Analysis
[27]
There are three issues in this case:
Page: 9
[28]
(a)
Notice: what is the applicable notice period?
(b)
Damages: what damages did the plaintiff sustain?
(c)
Mitigation: has the defendant satisfied the onus of proving that the plaintiff
failed to mitigate his damages and, if so, what is the consequence?
I will review each of these issues in order, and will set out my conclusions on each issue.
Page: 10
Page: 11
[29]
The decision of Chief Justice McRuer in Bardal v. Globe & Mail Ltd., [1960] O.W.N.
253, 24 D.L.R. (2d) 140 (H.C.J.) (“Bardal”) remains the touchstone in wrongful dismissal cases.
In that case, the Chief Justice stated, at para 21:
There can be no catalogue laid down as to what is reasonable notice in
particular classes of cases. The reasonableness of the notice must be
decided with reference to each particular case, having regard to the
character of the employment, the length of service of the servant, the
age of the servant and the availability of similar employment, having
regard to the experience, training and qualifications of the servant.
[30]
The plaintiff in Bardal was the director of advertising of the Globe and Mail and a
member of the board of directors. He had been with the company for 17 years. He was held
entitled to one years’ severance in lieu of notice. That award would be considered very modest
by today’s standards.
[31]
In applying the Bardal factors to a particular case, one must keep in mind Chief Justice
McRuer’s admonition that “the reasonableness of the notice must be decided with reference to
each particular case …” Thus, the weight to be given to one factor depends on its relative
importance in the overall context and its relationship to the other factors including “the
availability of similar employment, having regard to the experience, training and qualifications
of the servant”.
[32]
The duty of the court, in applying the Bardal principle, is to determine whether the
specific notice given by the employer was reasonable in all the circumstances and, if not, to
determine what notice or compensation in lieu should have been given: Clark v. BMO Nesbitt
Reasonable Notice
Page: 12
235 (C.A.). I accept the submission of Mr. Markowitz on behalf of the plaintiff that it is wrong to
ask whether the employer’s payment was “in the ballpark”.
[33]
With respect to the factor of character of employment, there appears to be a presumption
that employees with more senior positions in an organization, such as those with management
responsibilities, require a longer notice period than those with lower levels of responsibility. It is
presumed that there are fewer employment opportunities available for those whose specialized
knowledge and skills demand higher managerial positions with comparable salaries and benefits:
Minott v. O’Shanter Development Company Ltd. (1999), 42 O.R. (3d) 321, 40 C.C.E.L. (2d) 1
(C.A.); Cronk v. Canadian General Insurance Company (1995), 25 O.R. (3d) 505, 14 C.C.E.L.
(2d) 1 (C.A.).
[34]
While length of service must not be given undue prominence, and should not be allowed
to overshadow the other factors, there is no doubt that length of service has traditionally been a
very import factor in determining the period of notice.
[35]
With respect to the factor of age, there is a general presumption that, after a certain age,
it becomes progressively more difficult for an employee to obtain new employment: see
Trudeau-Linley v. Plummer Memorial Public Hospital (1993), 1 C.C.E.L. (2d) 114 (Ont. Gen.
Div.). Mr. Rogers submits that some courts have found that “the forties” is an effectively neutral
age and that employees in their forties are neither at the start nor the end of their careers and,
consequently, have a number of working years left: Lavinskas v. Jacques Whitford & Associates
Ltd. (2005), 51 C.C.E.L. (3d) 112 (Ont. S.C.J.) at para. 101; Orlando v. Essroc Canada Ltd.
Burns (2007), 61 C.C.E.L. (3d) 268 (Ont. S.C.J.), varied on other grounds (2008), 243 O.A.C.
Page: 13
forties today expect to stay healthier, work longer and live longer than they did a generation or
two ago. While 50 may not quite be the new 40, most prospective employers expect that people
in their mid-40s have some very good and productive working years ahead of them. Those
workers have the added benefit of experience, maturity and reliability.
[36]
Having said that, as with the other Bardal factors, it is wrong to generalize. The
employment prospects of one man or woman at 45 may be vastly different than those of another
and may depend on the interplay with the other factors and with other relevant circumstances.
[37]
The availability of similar employment, having regard to the experience, training and
qualifications of the servant is a question that must be asked prospectively, as opposed to
retrospectively. The determination of reasonable notice must be made based on the
circumstances prevailing at the time of dismissal, and not judged by the length of time it has
taken the employee to find employment: Harper v. Bank of Montreal (1989), 27 C.C.E.L. 54
(Ont. Div. Ct.); McCrae v. Conference Board of Canada (1993), 45 C.C.E.L. 29 (Ont. Gen.
Div.).
[38]
Many employees, particularly those engaged in production and manufacturing, receive a
large part of their training through on-the-job experience as opposed to through formal education
or certification. The lack of educational credentials may be no impediment for an employee
whose work experience is ideally suited to an available job. It may be a limiting factor, however,
where the employee does not have vital accreditation for the job that is available: see McKay v.
Elton-Yale Ltd. et al. (1996), 31 O.R. (3d) 216 (Gen. Div.) On the other hand, highly
(1995), 17 C.C.E.L. (2d) 19 (Ont. Gen. Div.). It is probably fair to say that Ontarians in their
Page: 14
employee. I accept the general proposition, expressed by Glithero J. in Orlando v. Essroc
Canada Inc., that “long-term employment within a narrow field has the effect of leaving the
employee in a less marketable position when searching for replacement employment”.
[39]
Mr. Markowitz, in the pleading and in his submissions, suggests that the plaintiff should
have received notice equivalent to one month for each year of service. He points, in particular, to
Mr. Panimondo’s responsibility for supervising two co-workers, his 11 years of service, his
middle age (46), and the difficulties he would encounter finding comparable employment, having
regard to his lack of education and work qualifications and his narrow range of experience,
which was restricted to the operation of printing machinery.
[40]
Mr. Rogers on behalf of Shorewood submits that the employer’s severance payment was
a very reasonable one, in all the circumstances. Mr. Rogers urges the primacy of the Bardal
approach and says that Mr. Panimondo was at the very lowest level of the supervisory ladder. He
submits that Mr. Panimondo was a young, healthy and strong 46-year-old who would have been
an asset to any employer. He says that what Mr. Panimondo may have lacked in schooling and
technical training he made up through maturity and on-the-job experience and that his greatest
problem was his failure to mitigate his damages. Once he did start looking for another job, in late
September of 2006, he was able to find one by the following February or March, albeit not on a
full-time basis.
[41]
In support for his submission that Mr. Panimondo should have received 11 months’
notice – one year for each year of service – Mr. Markowitz refers to Mr. Justice Sproat’s
sophisticated but restricted training may similarly limit the scope of available work for another
Page: 15
refers to the wrongful dismissal database kept by Mr. Barry Fisher. Justice Sproat suggests that
in the case of employees with between 6 and 15 years of service there has, in fact, been close to a
one-to-one correlation between years of service and months of notice, and that the so-called “rule
of thumb” of one months’ notice for each year of service may have some validity “for cases in
the mid-seniority range.” There is reference to the same analysis in the 3rd edition (Toronto:
Carswell, 2004) at p. 6-4.12. To state the obvious, this statistical analysis was based on an
average that necessarily included employees at all levels of the employment ladder as well as a
consideration of the other Bardal factors. More importantly, the “rule of thumb” approach has
been firmly rejected by the Court of Appeal in Minott v. O’Shanter Development Company Ltd.,
as giving undue prominence to one of the Bardal factors – length of service – as opposed to
considering all the factors and any other relevant circumstances.
[42]
Both parties have referred to what they submit are comparable cases, as guides to the
appropriate notice in this case. The use of comparable cases must be approached with caution as
they all turn on their facts. Nevertheless, there is a need for consistency in approaching
reasonable notice and the courts have frequently looked to similar cases for guidance in
determining notice.
[43]
Mr. Markowitz relies on Pillo v. Lowe Graphics Ltd. [1998] O.J. No. 2835 (Gen. Div.) in
support of his contention that the plaintiff should have received 11 months’ notice. The plaintiff
in that case was employed as a “film stripper” in a graphic design company for just over 11
years. He had some “lead hand” responsibilities. The plaintiff was 53 years old at the time of his
Wrongful Dismissal Handbook, 2nd ed., (Toronto: Carswell, 2003) at p. 6-419 which in turn
Page: 16
employment in a field that was becoming increasingly computer-dependent. He found that the
appropriate period of notice was 11 months. The plaintiff in that case was 7 years older than Mr.
Panimondo and there was a specific finding that his skill-set was being eclipsed by technology.
While it was argued that the machines on which Mr. Panimondo worked were becoming
obsolete, I am not satisfied that his skills could not be applied to new generations of printing
machines.
[44]
Both parties also referred to Rowsell v. Quebecor World Specialty Group, 2005
CarswellOnt 4051 (S.C.J.). The plaintiff was a “second pressman” who had been employed by
the defendant for almost 16 years. From time to time he acted as “first pressman” on smaller
machinery. It was found that his position involved the use of technical skills. The trial judge
found that although the employer had lost customers and had downsized, by the same token, the
market was difficult for the employee. It was found that the employee was entitled to a 12-month
notice period.
[45]
I also note the recent decision of Mr. Justice Taylor of this Court in Aucion v. Liturgical
Publications of Canada Ltd., [2009] O.J. No. 1032 (S.C.J.) in which a 47-year old printing press
operator, with 14 years’ of service, a high school education and no supervisory responsibility
was awarded 10 months’ pay in lieu of notice.
[46]
Mr. Rogers has referred to a number of cases in which employees in positions
comparable to the plaintiff’s have been awarded damages in a range of 9 to 13 months’ notice.
He submits that, as was the case of Pillo v. Lowe Graphics Ltd., the employees who received
termination and Juriansz J., as he then was, found that he was likely to have difficulty in finding
Page: 17
years of service. He mentions the following cases:
Meli v. Chemical Resins Corp., 1993 CarswellOnt 2829 (S.C.J.) – machine operator and
supervisor of 4 other employees with 9 years’ service would have received 9 months’
notice had he not been dismissed for cause;
Roger v. Falcon Machinery (1965) Ltd. (2006), 53 C.C.E.L. (3d) 309 (Man. Q.B.) – 55year-old labourer and crane operator with 13.5 years’ service received 9 months’ notice
Daley v. Depco International Inc. (2004), 37 C.C.E.L. (3d) 255 (Ont. S.C.J.) – 58-yearold machine operator with 13 years’ service would have received 10 months’ notice if he
had not been dismissed with cause;
Bryson v. Print Key Inc., 2005 CarswellOnt 2636 (S.C.J.) – 36-year-old bindery operator
with 13.5 years service received 10 months’ notice;
Dawson v. FAG Bearings Ltd. 2008 CarswellOnt 6386 (S.C.J.) – 57-year-old machine
operator with almost 14 years of service received 10 months’ notice;
Brooks v. Oldershaw Steel Services Ltd., 2003 CarswellOnt 719 (S.C.J.) – 53-year-old
grinder machine operator with 13 years’ service received 13 months’ notice.
[47]
I note as well two recent Ontario cases, involving operators of machinery:
Carter v. Packall Packaging Inc., [2004] O.J. No. 334 (S.C.J.) – a 40-year-old extruder
operator, with a grade 12 education, who was married with two children, had worked for
the company for 10 years; the trial judge found that the employer had engaged in “bad
faith” conduct and extended the notice period to 12 months – it is not clear what the
notice period would have been in the absence of a finding of bad faith;
Smith v. Ramara (Town), [2008] O.J. No. 1319 (S.C.J.) – 44-year-old heavy equipment
operator with 18 years of service held entitled to 12 months’ notice; an important factor,
in the trial judge’s view, being the length of “unblemished” employment.
[48]
In Moldovanyi v. Canac Kitchens Ltd., [2009] O.J. No. 711, (S.C.J.), Mr. Justice Brown
examined a numbers of cases over a five-year span involving the same employer. The employees
were generally team leaders or foremen in their 40s and 50s with more than 12 years of service.
If one excluded from that list a quality assurance manager with 2 1/2 years of service and added
notice at the higher end of the scale were generally over 50 years old; most had more than 12
Page: 18
Brown awarded 14 months notice, the notice awarded was, generally, comparable to the notice
given by the employer in this case.
[49]
Having reviewed these cases, I turn to the application of the Bardal factors in this case.
The character of the employment was a production position, operating a sophisticated and
expensive printing machine, with some responsibility for coordinating the work of two manual
labourers. It was not a managerial position and Mr. Panimondo’s supervisory responsibilities
were modest.
[50]
The age of the employee was 46 years. Mr. Panimondo appeared to be a fit, strong and
healthy 46-year-old and he was described by Mr. O’Boyle as someone who knew his craft fairly
well.
[51]
The length of service was just over 11 years.
[52]
The availability of similar employment, having regard to the experience, training and
qualifications of the servant is the most difficult factor to assess in this case. There was no direct
evidence as to the availability of similar employment. It was suggested by Mr. Markowitz that
the decision of Shorewood to lay off Mr. Panimondo and 28 other employees was a reflection of
the depressed state of the printing industry in the Toronto area, but there is no evidence of that
and I do not accept the suggestion that I should take judicial notice of the state of the Canadian
dollar at the time or, even if I did, that this would lead me to conclude that the printing business
was depressed. It is probably a fair conclusion, however, that Mr. Panimondo’s lack of
Mr. Moldovanyi, a customer service representative with 19 years of service, to whom Justice
Page: 19
his ready employability to the printing industry. The documentation produced by Mr. Panimondo
suggests that there were a substantial number of printing companies in the GTA.
[53]
Taking all these factors into consideration, it is my opinion that 9 ½ months’ notice was
reasonable in the circumstances of this case. That notice is consistent with the notice given
recently to employees in comparable positions with comparable lengths of service, ages and
qualifications. Mr. Panimondo’s own evidence makes it clear that there were a number of
employers engaged in similar businesses in the GTA and I cannot conclude that they were
affected by the same factors that prompted Shorewood to reduce its operations or that the state of
the employment market required greater notice.
[54]
It follows that, in general terms, I conclude that the employer’s decision to base Mr.
Panimondo’s severance on 41 weeks, or approximately 9 ½ months’, of compensation in lieu of
notice was a reasonable decision, subject to my conclusions set out below with respect to the
quantum of compensation to which he was entitled and mitigation.
Damages
[55]
There are three elements of damages that were not part of the payment made to Mr.
Panimondo in lieu of notice. The first is overtime, the second is the employer’s pension
contribution and the third is a salary increase or bonus.
educational and technical qualifications, coupled with his restricted work experience would limit
Page: 20
[56]
In Munoz v. Canac Kitchens, [2008] O.J. No. 4774 (S.C.J.), I reviewed the authorities on
overtime and concluded that “it appears to be accepted in Ontario that where overtime is part of
the employee’s regular compensation, and where it is within the reasonable expectation of the
parties that the employee would receive overtime, it is recoverable …” As Justice Lederer noted
in the subsequent case of Gutierrez v. Canac Kitchens Ltd., [2009] O.J. No. 115 (S.C.J.), each
case necessarily depends on its own circumstances. Defendant’s counsel submits that the use of
previous overtime averages is inappropriate in the face of contradictory evidence: Yiu v. Canac
Kitchens Ltd., 2009 CarswellOnt 1164 (S.C.J.); DeRuyer v. Sifto Canada Inc. (1995), 11
C.C.E.L. (2d) 294 (Ont. Gen. Div.); Brendon v Kellogg Salada Canada Inc. (1989), 24 C.C.E.L.
179 (Ont. Dist. Ct.). In this case, he submits, due to the downturn in the defendant’s business it is
likely that overtime would have been reduced or eliminated at Shorewood.
[57]
As I have noted above, Mr. Panimondo testified that he had always been paid overtime,
that it varied from year to year and that he was paid between $3,000 and $5,000 in overtime in
2005. There is no evidence that the defendant paid any overtime to anyone in the 2006 year and,
given the evidence of the defendant’s reasons to reduce its workforce, it seems unlikely that
substantial overtime would have been paid. Nevertheless, because I find that overtime was a
regular and expected component of Mr. Panimondo’s remuneration, some modest allowance for
overtime should be made for the 9 ½ month period of notice, and I would allow $2,000.
Overtime
Page: 21
[58]
No contribution was made to Mr. Panimondo’s pension during the period of notice,
beyond the eight-week period to May 8, 2006. Ms. Benn testified that the employer’s annual
pension contribution was $4,363. The additional contribution for the period from May 8 to the
end of the 9 ½-month notice period would have been approximately $2,769.
The proper
approach to the determination of Mr. Panimondo’s loss of the added contribution to his pension
would be to determine the present value of the difference between the value of the pension at the
time pension contributions ceased (in this case, May 8, 2006) and the time they would have
ceased, had reasonable notice been given: Levitt, The Law of Dismissal in Canada, 3rd ed.
looseleaf (Aurora, Ont: Canada Law Book, 2003), at para 9:10.140. In the absence of such
evidence, the value of the pension contribution is a reasonable measure of damages.
Salary Increase
[59]
The damages payable to a wrongfully dismissed employee may include a salary increase
or bonus to which he or she was contractually entitled, and would have received but for the
dismissal: Levitt, The Law of Dismissal in Canada, at para. 9:10.380. There was evidence that
Shorewood gave its remaining employees a 2% salary increase in 2006 or a lump sum
equivalent. In Mr. Panimondo’s case, this would have amounted to approximately $1,400 on a
12-month basis or $1,107 on a 9 ½-month basis.
[60]
In the result, I have concluded, based on a 9 ½ months’ severance, that the plaintiff
Pension
Page: 22
9 ½ months’ wages
Overtime
2,000.00
Salary Increase
1,107.00
Pension
2,769.00
Total
[61]
$55,367.52
$61,243.52
Mr. Panimondo was in fact paid $55,142.68 as a lump sum. The difference is $6,100.84.
It is worth noting that Mr. Panimondo received the payment “up front” whereas the defendant’s
only obligation was to make the payment over time.
Mitigation
[62]
Mr. Rogers on behalf of Shorewood submits that a plaintiff in a wrongful dismissal case
has a duty to make efforts to mitigate his or her damages by seeking alternate employment and
that a plaintiff’s failure to take reasonable steps to mitigate will result in a reduction of the
damages that would otherwise be awarded. He relies upon Johnstone v. Harlequin Enterprises
Ltd. (1991), 36 C.C.E.L. 30 (Ont. Gen. Div.) at paras. 51-52 and 60; Lindsay v. Toronto Transit
Commission, 1996 CarswellOnt 4556 (Gen Div.) at paras. 35 and 37-39; and Brooks v.
Oldershaw Steel Services Ltd., 2003 CarswellOnt 719 (S.C.J.) at para 24. He submits that Mr.
Panimondo’s damages should be reduced as a result of his failure to mitigate.
[63]
It is settled law that the plaintiff must take all reasonable measures to mitigate the loss
and that he or she cannot recover for damages that are avoidable. The leading case is Michael v.
should have received:
Page: 23
is on the defendant – the defendant must show that, by the exercise of reasonable diligence, the
plaintiff could have found other employment of a similar kind, suited to his or her skills or
abilities.
[64]
In Evans v. Teamsters Local Union No. 31, [2008] S.C.J. No. 20, 2008 SCC 20, the
Supreme Court of Canada reiterated that the employer bears the onus of proving not only that the
employee failed to make reasonable efforts to find employment, but also that the employee
would in fact have found employment had reasonable efforts been made. The same principle was
expressed and applied by the Court of Appeal in Clark v. BMO Nesbitt Burns Inc., above.
[65]
I find that Mr. Panimondo did not make reasonable efforts to find employment. I accept
that he was entitled to a period of two or three months to get over the initial shock, collect
himself, develop a job search plan and make the necessary preparations: see Pauloski v. Nascor
Inc., [2002] 5 W.W.R. 114, 16 C.C.E.L. (3d) 202 (Alta. Q.B.) at para 93. There is no evidence
that his depression required medical treatment or seriously impacted his ability to make a search.
He failed to take advantage of free employment counselling offered by the employer. There is no
specific evidence at all that he made any efforts to find employment until September 2006 and I
conclude that he made no such efforts. When he began to make efforts in September, they were
not reasonable by any standard – they have all the appearance of going through the motions to
create a paper trail for the purpose of these proceedings. While there was some complaint that
the employer had not provided a letter of reference, this subject was not pursued. In any event, an
employer has no obligation to provide a reference: McNevan v. AmeriCredit Corp., 2008 ONCA
Red Deer College, [1976] 2 S.C.R. 324, which holds that the onus of proving a failure to mitigate
Page: 24
Panimondo’s half-hearted efforts.
[66]
In spite of this, and in spite of the fact that Mr. Panimondo was able to find some work
with Advance Printing once he did start looking for a job, I am unable to find that the employer
has discharged the burden of proving that reasonable efforts during the notice period would have
resulted in a reduction of his damages. I therefore make no reduction.
Conclusion
[67]
An employer faced with a need to downsize has choices as to how it should treat its loyal
employees who, through no fault of their own, will lose their jobs. In some of the cases to which
I have referred, and others that have been before the court in recent years, employers have given
the bare minimum statutory notice, thinking that economic duress will force many employees to
find re-employment quickly and that many of those remaining will be too intimidated or too
financially weakened to take legal action. The remainder will be beaten into submission by
aggressive legal strategies. The social cost of this choice is obvious. The employer’s other
choice is to take the high road and to give the employees the reasonable notice to which they are
entitled. This choice can be expensive, but its social benefit is equally obvious. It is not
necessarily easy to carry out in practice, because – as has been pointed out – the determination of
reasonable notice is an art, not a science, and reasonable people may differ on the appropriate
notice in a given case. In this case, the employer took the high road. It went beyond its legal
obligation by paying the compensation in a lump sum and without deduction in the event of reemployment. This was an enormous benefit to the employees because it gave them financial
846. I am not satisfied that a letter of reference would have been of any assistance in light of Mr.
Page: 25
high road does not diminish the court’s responsibility to carefully examine the individual case
before it, but I am satisfied that the notice given in this case was reasonable, subject to the minor
adjustments I have made.
[68]
In conclusion, the plaintiff is entitled to recover the sum of $6,100.18 together with pre-
judgment interest. In the event the parties are unable to agree on costs, counsel may make written
submission to me, care of Judges’ Administration.
___________________________
G.R. Strathy J.
Released:
April 16, 2009
security and flexibility as well as an incentive to find work quickly. The employer’s choice of the
ONTARIO
B E T W E E N:
JOHN PANIMONDO
Plaintiff
- and -
SHOREWOOD PACKAGING
CORPORATION
Defendant
G.R. Strathy J.
Released:
April 16, 2009
COURT FILE NO.: 07-CV-329711SR
DATE: 20090416
Citation: 2009 SKCA 92
Date: 20090819
Between:
Docket: 1576
Radio CJVR Ltd.
(Defendant) Appellant
- and -
Grant Schutte
(Plaintiff) Respondent
Coram:
Sherstobitoff, Richards and Smith JJ.A.
Counsel:
Lawrence J. Zatlyn, Q. C. for the Appellant
Mark R. Carson for the Respondent
Appeal:
From:
2007 SKQB 465
Heard:
June 17, 2009
Disposition:
Allowed
Written Reasons: August 19, 2009
By:
The Honourable Madam Justice Smith
In Concurrence: The Honourable Mr. Justice Sherstobitoff
The Honourable Mr. Justice Richards
2009 SKCA 92 (CanLII)
THE COURT OF APPEAL FOR SASKATCHEWAN
Page 1
I.
Introduction
[1]
The appellant, Radio CJVR Ltd., carries on business in Melfort,
Saskatchewan. Prior to December, 2001, it had operated a country music
formatted AM radio station. In the fall of 2001 it received license approval for
three
new
FM
stations
from
the
Canadian
Radio-television
and
Telecommunications Commission and decided to move the country music
format to one of the FM stations. As of March, 2002, the AM station was to
be reformatted to an “all hits”, or “oldies” format. To assist in the
transformation and the on-going operation of the AM station, the appellant
hired the respondent, Grant Schutte, who, at the time of his hiring, was
employed as an on-air personality with CKSW in Swift Current. Mr. Schutte
was hired by the appellant to act as program director, music director and
on-air morning show co-host for the newly formatted AM station.
[2]
At about the same time that the respondent was hired, the appellant also
engaged the services of Chris Byrnes of Byrnes Media Inc. to provide
consultation for the transition of the AM station.
[3]
From February, 2002 through July, 2003, Byrnes provided the appellant
with numerous reports based on frequent visits to the station and review of
tapes of the radio shows. These reports were lengthy and highly detailed in
terms of evaluations and recommendations. Many were explicitly critical of
the on-going work of Mr. Schutte, particularly in his capacity as program
Smith J.A.
Page 2
manager/music director, but also, to some extent, in relation to his
number of explicit suggestions for improvement and then contained follow-up
evaluations. Each of these reports was discussed with Mr. Schutte by the
station managers and each resulted in a plan of action.
[4]
The criticisms of Mr. Schutte’s performance were that he was not liked
by staff members and did not meet with them frequently to provide leadership
and guidance; that he gave insufficient attention to programming details; that
he neglected to meet to engage in planning with his morning show co-host
prior to going on air; that his energy level and overall effort seemed low; and
that he failed to implement specific suggestions for improvement. These
complaints are illustrated in the report of Chris Byrnes dated July 16, 2003,
following his fifth visit to the station:
This man remains a real concern. He is a nice guy and a good AM Drive host when
he applies himself but he appears to be failing when it comes to the important have
been Program Director [sic]. Some of the things I noticed during the visit were:
1. Grant set up the agenda for my visit but failed to make the first meeting
at 10 am. He arrived at 11:15 am., casually walked in and never said
anything about being late.
2. He is not leading and inspiring the air talent to greatness. In fact he
seems to have them scared to the point where they will not change the
log in any way even if this change will result in improving the sound of
the radio station.
3. Grant still does not know this music. Ken, Grant & I were looking at a
music log and making suggestions about the strongest song in the hour.
Grant always chose 80’s songs which were seldom the strongest song
for the target audience.
4. He is not paying attention to the small details and seems to be taking the
easy way out. A good example is the weekend specials, as they are
performance as morning show co-host. These reports invariably contained a
Page 3
5. When I asked him if all the suggestions from my previous visit report
were in place he said yes. However, as we looked at MusicMaster we
found that a number of basic functions had not been enacted.
6. I included a copy of our show prep sheet in the last visit report and
asked Grant to distribute it to all the talent and ensure they were using it.
When I showed it to each of your jocks on this visit they knew nothing
about it. I gave each one a copy and asked that they photocopy and use
it. (AB, vol. 1, at 237a)
[5]
Byrnes further indicated that it was his clear impression that Schutte and
his co-host of the morning show were still not meeting and planning their
show in advance, although he also commented that the two clearly had the
“chemistry” to create a good show.
[6]
The station manager, Gary Fitz, and assistant manager, Ken Singer, met
with Mr. Schutte on a number of occasions to discuss concerns about his
performance. In his oral performance evaluation of Schutte in August, 2002,
Schutte was advised that the managers were disappointed in his performance
and that improvement was needed. As a result, he would receive only half of
his promised salary increase to begin in September. A written performance
review in April, 2003 identified a number of programming changes that,
although earlier discussed and agreed upon, had not been implemented. It was
also critical of other areas of the respondent’s performance, including failure
to accept the guidance of Chris Byrnes, general lack of involvement as a
program director, and failure to engage in any meaningful pre-show planning
in relation to the morning show. That review concluded with this comment:
anything but special. Placing a splitter before a song once an hour just
doesn’t cut it.
Page 4
[7]
A performance review conducted by Ken Singer on June 26, 2003,
identified a number of concerns described as “serious deficiencies” under the
headings of leadership failure to provide any direction to other announcers),
innovation (failure to identify and correct programming deficits and failure to
implement suggestions for improvement provided by Byrnes), dedication and
effort (little effort given to correct identified deficiencies), administrative
duties (failure to look after administrative details), team work and on-air
performance (failure to institute and encourage pre-show planning). This
review itemized nine expectations for improvement, some very specific (e.g.,
“hold meetings one on one with each on-air personality at least once a week
to evaluate, teach and motivate”) and some more general (e.g., “accept the
guidance and suggestions of our consultant, Chris Byrnes”). It concluded with
official notice that if performance did not improve by August 12, the
respondent’s employment would be terminated.
[8]
Ultimately, Schutte’s employment with CJVR was terminated on
August 15, 2003. He was given $3,600 severance pay in addition to salary and
vacation pay owing.
[9]
The respondent then brought an action under Part 40 of the Queen’s
Bench Rules claiming damages for wrongful dismissal, and also claiming for
some contract benefits alleged to be outstanding as of the date of his firing.
If you feel you can incorporate the preceding suggestions and follow Chris’s
guidance, great. If not we have a huge problem that must be addressed immediately.
(AB, vol. 1, at 78a)
Page 5
employment had been for a definite term of five years and also his claim for
some specific outstanding benefits under the employment contract. However,
he concluded that the appellant had failed to establish just cause for
terminating the respondent’s employment and awarded damages to the
respondent equal to five months’ salary, less the severance pay he had already
received, for a total of $15,900 as pay in lieu of reasonable notice, plus
pre-judgment interest from the date of dismissal and taxable costs.
[11] The appeal is brought on the grounds that Foley J. erred in applying too
stringent a test for just cause when the alleged ground for dismissal of an
employee is incompetence, or deficient work performance, as opposed to
misconduct such as insubordination or dishonesty, and, alternatively that the
damages awarded were unreasonably high in the circumstances of this case.
II.
Analysis
[12] I am of the view that this appeal must succeed on the first ground
advanced by the appellant.
[13] In his judgment, Foley J. outlined the positions of the two parties and
then made these comments about the legal standard to be met to establish just
cause for dismissal:
[25] The concept of "just cause" in the context of termination of a common law
employment contract entails far more than employer dissatisfaction with an
[10] At trial, Foley J. rejected an argument raised by the respondent that his
employee's performance. The inability or failure to perform exhibited by an
employee subsequent to that employee being hired may well be more related to
inappropriate or inattentive hiring procedures on the part of the employer or a
change in employment climate rendering the employee less able to meet the
employer's shifting goal rather than employee intransigence or incompetence.
[26] In such events, and there are many more, the employee cannot be faulted for
the employer's dissatisfaction. To terminate without salary or notice in such event
would be inequitable and contrary to the public's interest in maintaining stable
work forces. The onus therefore lies on the employer to establish just cause on a
balance of probabilities and in so doing it must show legally recognized
incompetence or misconduct. Simple dissatisfaction with performance will not
usually suffice.
[27] Legally recognized grounds of misconduct include insolence,
insubordination, dishonesty, absenteeism, breach of rules and engaging in outside
activity. Although serious incompetency may be a ground for dismissal for cause,
the precondition to such a finding is that the "employee was incapable of meeting
the standards of this job."
[14] Justice Foley then noted that in his June 26, 2003 memorandum to
Schutte, Ken Singer, after having reviewed Schutte’s shortcomings and
warned that Schutte would be dismissed if there was no improvement, added
these comments:
I sincerely hope that you can meet our expectations as outlined. I enjoy working
with you, appreciate your talent and respect your experience. Now is the time to put
this tremendous talent and experience to work. You must take action now Grant.
We have been more than patient, we have had several meetings discussing our
dissatisfaction and we must move forward with or without you. We are relying on
you to apply yourself and become a strong member of our team. I sincerely hope
you will accept the challenge. (Quoted at para. 28 of the trial judgment, emphasis
added by the trial judge.)
[15] Foley J. then went on to say this:
[29] The notice, by its very terms, negates an inference of significant or overall
incompetence on the part of Schutte.
[30] In this case there was no evidence of such misconduct or of such
incompetence. CJVR wisely did not attempt to demonstrate such factors but rather
relied upon its request to have Schutte improve his performance and his failure to
Page 6
Page 7
[31] The performance reviews authorized by Byrnes are complex and detailed.
They were by no means wholly negative of Schutte's performance nor laid blame
solely at his feet. . . .
[32] The events leading to the termination namely reviews and warning may
well validate, from a procedural perspective, the decision to terminate Schutte's
employment. The process followed however provides no foundation for concluding
the presence or absence of just cause, that is, the failure by Schutte to satisfy
Singer's request for change did not of itself qualify as legal just cause.
[33] The types of complaints listed by CJVR and its agent, even if well founded,
do not in any significant way demonstrate legal just cause in the sense that it was
fair and reasonable to dismiss without notice. The complaints advanced may well,
from CJVR's perspective, render Schutte an unsatisfactory employee. Its remedy
lay in effecting termination on notice or pay in lieu thereof.
[16] In these comments, it seems clear that the trial judge was of the view
that, because the employer neither alleged nor proved that Mr. Schutte was
actually incapable of performing the duties of his employment, it could not
rely on “incompetence” to dismiss him for cause. He concluded that the
complaints in relation to Mr. Schutte’s job performance, even if well founded,
and even if sufficient to render him an unsatisfactory employee, could not
constitute just cause for dismissal, for they did not amount to the kind of
misconduct that would justify summary dismissal.
[17] In my view, this analysis places undue emphasis on the literal meaning
of “incompetence” and too little on the actual nature of the complaints in this
case in relation to Mr. Schutte’s job performance. Unfortunately, both the case
law and the appellant’s argument often fail to distinguish between complaints
that an employee is incapable of performing his job and complaints that,
do so by the end of the warning period. Such circumstances do not give rise to a
right on the part of the employer to dismiss without reasonable notice or with pay
in lieu thereof.
Page 8
although possibly capable of doing so, he is consistently failing to meet a
as the former is capable of constituting just grounds for dismissal, and it was
the real issue in this case.
[18] The failure to distinguish between incompetence in the sense of lack of
capacity and deficient work performance that may arise from lack of diligence
or, indeed, negligence, is evident in much of the jurisprudence. In Riehl v.
Westfair Foods Ltd., [1995] 8 W.W.R. 51 (SKQB), Klebuc J., as he then was,
summarized the law in this area, and applied it to the case before him, as
follows:
[16] The principles of law applicable to dismissal for just cause have been well
defined in numerous case authorities and fully canvassed by Howard A. Levitt, The
Law of Dismissal in Canada, 2d ed. (Aurora: Canada Law Book Inc., 1992), I.
Christie, G. England and W.B. Cotter, Employment Law in Canada, 2d ed.
(Toronto: Butterworths, 1993) and David Harris, Wrongful Dismissal, (Toronto:
Carswell, 1990). Mr. Justice Wimmer of this Court in Smith v. General Recorders
Ltd. et al. (1994), 121 Sask. R. 296, succinctly stated the general principles
applicable to dismissal for cause at p. 302:
There is no compendium of employment misdemeanours which alone
or in combination will justify the summary dismissal of an employee.
Each case stands to be decided according to its own facts. Clearly though,
it is not enough that an employer is displeased by the employee's
performance. There must be some serious misconduct or substantial
incompetence. The position is summarized in paras. 4.3 and 4.4 of
Butterworths' Wrongful Dismissal Practice Manual, volume 1:
"Given that dismissal for just cause is an exception to the
employee's usual rights, it is clear that summary dismissal can be
utilized only for serious misconduct or breaches of a fundamental
kind. The question whether misconduct is serious enough to
justify dismissal will be a question of fact to be assessed
individually in each case."
The onus of proving the existence of just cause falls upon the employer,
and it must be proved beyond a balance of probabilities.
reasonable standard of performance. In my respectful view, the latter as well
Page 9
... Generally, it has been said that to substantiate a non-disciplinary
termination in such circumstances, the employer must establish the level
of job performance it required, that such a standard was communicated to
the employee, that it gave suitable instruction and supervision to enable
the employee to meet the standard, that the employee was incapable of
meeting the standard of that job or other positions presumably within her
competence, and that it warned the employee that failure to meet the
standard would result in her dismissal. ....
[18] The performance of the employee, particularly, whose position is of a
management nature, must be gauged as against an objective standard: Matheson v.
Matheson International Trucks Ltd. (1984), 4 C.C.E.L. 271 at 275 (Ont. H.C.),
relying on Warren v. Super Drug Markets Ltd. (1965), 53 W.W.R. 25, 54 D.L.R.
(2d) 183 (Sask. Q.B.); and where the conduct of the employee is grossly deficient
and the likelihood of discharge should be obvious to the employee, warnings and
reasonable notice likewise are not required: Goldberg v. Natural Footwear Ltd.
(1986), 2 A.C.W.S. (3d) 130 (Ont. D.C.); Fonceca v. McDonnell Douglas Canada
Ltd. (1983), 1 C.C.E.L. 51 (H.C.J.).
[19] While it appears that the standard of incompetence necessary to warrant the
discharge for cause is a severe one, note must be made of the fact that the severe
standard only applies where the firing has been of an abrupt nature. In my view the
threshold of incompetence necessary to warrant dismissal for cause is significantly
lower where the dismissal is preceded by many warnings indicating the employee's
performance was unsatisfactory. See: Matheson v. Matheson International Trucks
Ltd., supra. I now turn to applying the law to the facts before me.
[20] While Mr. Riehl's performance was unsatisfactory in many areas, his
incompetence in the area of mandatory displays and maintenance of the pricing
system was of a very serious nature. The extent of his inadequacies in these areas
were communicated to him by the district manager and others. During his
testimony, Mr. Riehl claimed that he or one of his assistants would do mandatory
display checks but during cross-examination was unable to explain why the
deficiencies continued, or why he had failed to identify deficiencies as they arose.
I am satisfied that prior to May 26, 1993 he conducted very few, if any, checks to
determine whether mandatory display obligations were performed and to the extent
that he or the assistant managers conducted display checks, they did so in a
negligent manner.
[19] Although the phrase “incompetence” is used in this passage, it is clear
that the complaints about the employee’s performance were more of the nature
[17] The essential criteria for establishing just cause based on incompetence is
outlined by Brown and Beatty, Canadian Labour Arbitration, 2d ed., (Toronto:
Canada Law Book, 1988), at p. 412, as follows:
Page 10
of negligence or lack of diligence. Such complaints are not negated, as Foley
employee is capable of doing better, and urging him to apply himself more
diligently.
[20] While, at the same time, it is clear that the standard of deficiency
necessary to constitute grounds for summary dismissal is stringent where
there is no misconduct such as dishonesty or gross insubordination, it is also
true, in my view, that the standard is less stringent where, as in this case, the
employee has been given repeated notice that his performance is deficient,
considerable assistance to help him improve, and clear warning that failure to
do so will result in the termination of his employment.
[21] The test to be applied was stated by Klebuc J. (as he then was) in Graf
v. Saskatoon Soccer Centre Inc. 2004 SKQB 282, [2005] 4 W.W.R. 522 at
para. 28:
It is also well established that where an employer relies on a series of
inadequacies or inappropriate conduct short of dishonesty as grounds for
summarily dismissing the employee, the employer must have previously informed
the employee of his or her inappropriate conduct or inadequate performance and
have warned the employee that she or he must correct the noted problems within a
reasonable specified time or face dismissal. The essential elements of the requisite
warning are set out in Wrongful Dismissal Practice Manual….They essentially
provide for the following:
(a)
the employer must provide reasonable objective standards of
performance for the employee in a clear and understandable manner;
(b)
the employee must have failed to meet the employer’s reasonable
standard of performance;
J. asserts, by the employer’s contemporaneous expression of the view that the
Page 11
(d)
the warning must clearly indicate that the employee will be
dismissed if he or she fails to meet the requisite standard within a
reasonable time.
[22] In the instant case, the trial judge did not engage in an analysis of the
evidence, or make clear findings of fact, to determine whether the elements
of this test had been met, in light of his erroneous view that, in any case, the
deficiencies in job performance alleged by the employer falling short of
serious incompetence to do the job could not constitute just cause for
dismissal. However, in my view, the only one of these four requirements that
is reasonably in dispute in this case is the first: whether the employer’s
expectations of Mr. Schutte were reasonable.
[23] That Mr. Schutte failed to meet those expectations, and that he was
advised of these failings and warned of the potential consequences, cannot, on
the evidence, be denied. Indeed, the respondent, for the most part, did not
attempt
to
deny
his
deficiencies.
For
example,
when
asked
on
cross-examination whether he agreed with Chris Byrnes’ assessment of his
performance, Mr. Schutte replied:
A.
…When you are performing as a program director, as a morning show
person and as a music director, you’re not getting 100 percent of each.
There’s no way on God’s green earth that happens. What you’re getting is
30 percent of one job; 30 percent of another and maybe 40 of another.
Q.
So in other words you gave less than 50 percent?
A.
Well, if you have three jobs, yeah.
Q.
Okay. So that’s kind of like a failing grade then?
(c)
the employer must give the employee a clear and unequivocal
warning that she or he has failed to meet the requisite standard, including
particulars of the specific deficiency relied on by the employer;
Page 12
A.
Oh, it’s not a good way to be, no. (AB, Vol 2, p. 30, lines 7-17.)
general, was that the expectations of the appellant were unreasonable in that
it expected him to fill the position of morning show host in addition to the
positions of programming director and music director. The affidavit evidence
of the respondent’s supporting witness, Leonard Enns (former general
manager for CKSW AM 570 in Swift Current), was to the effect that hiring
one person to be both on-air host and program director, while cost effective,
“was not an efficient or realistic allocation of the Defendant’s human
resources under the circumstances.” In his view, the appellant:
12
To smoothly and effectively relaunch CK750, …ought to have hired a
talented program manager with a job description dedicating his or her
responsibilities solely to the purpose of establishing the new format for the station.
Once the format for the new station had been finally determined, because of the
relatively size of the small market (sic), it could then have been possible to
reallocate the available human resources and consolidate the program director’s
responsibilities with that of another position to save money. (AB at 264a, paras. 6
and 12)
[25] Foley J. appears to have accepted this argument, saying this, in the
context of his determination of the appropriate notice period for an award of
damages:
[37] A second major factor in determining the reasonable notice period lies in
my conclusion that CJVR’s expectations of Schutte changed significantly once
Byrnes was retained in February 2002. Over the next several months, the demands
on Schutte’s time shifted dramatically as he attempted to fill the three separate roles
referred to above. In particular, I accept the analysis given by Enns who, having
concurred with Byrnes’ opinion that the position of program director alone is a
“24/7 occupation”, opined that to hold Schutte responsible for the difficulties
which ensued in Melfort was unfair as it was a management decision to attempt to
use one individual to fill at least two full-tine positions while attempting to change
[24] Rather, the position of the respondent at trial, and on the appeal, in
Page 13
[26] The difficulty with this argument is that the evidence does not support
the assertion that Mr. Schutte’s duties changed dramatically, or at all, after the
time of his hiring. In his affidavit filed in the action, Mr. Schutte attached an
email to Gary Fitz, sent prior to his hiring, describing what he expected to be
doing:
In return, I will take charge of ALL programming aspects associated with “The
New Station” …setting clocks, formats, music, commercial avails, news, sports
and weather breaks. I will cover the morning show host duties, as well as staffing
the new station with great people. The PD position [will] report directly to you
Gary and work in tandem with Ken in sales. I would request that the ND report to
me, I’m not sure of the current situation but find it easier to control if the ND
reports to me instead of going and separately reporting to you. (Things get missed.)
As things settle down I would really be interested in being in charge of program
development for both the AM and FM in Melfort…I know, lets sign on one before
we get ahead of ourselves but I just want you to know I’m always looking out for
new opportunities within the company where I can be of a benefit.
Your (sic) getting a nice guy, full of ideas for promotions and sales who is
REALLY pumped about the upcoming year 2002. (AB 71a-72a)
[27] The uncontradicted evidence of Gary Fitz and Ken Singer is that
Schutte’s ability and willingness to function as both program director and
on-air host were fully explored with him in face to face meetings prior to his
hiring. In addition, he was told, prior to his hiring, that Chris Byrnes would
be engaged as a consultant to assist in the transition of the station’s format.
Finally, the evidence is that all of the specific plans of action and duties to be
performed by Mr. Schutte were fully discussed among Fitz, Singer and
Schutte after each of Byrnes’ reports, and that Schutte agreed to each of the
the Melfort format. This reflects Schutte’s own evidence that his ability to fulfil any
one function to CJVR’s satisfaction was compromised by its insistence that he
fulfil other distinct roles.
Page 14
plans of action that he then failed to implement. There is no evidence that he,
or expectations incorporated in those plans and discussed with him were
unreasonable, given his time commitments.
[28] For these reasons, it is my view that insofar as Foley J. found that the
employer’s expectations of Mr. Schutte were unreasonable, this finding must
be set aside as unreasonable and contrary to the evidence before him. I would
conclude that the employer clearly met the test to establish just cause to
terminate the respondent’s employment.
[29] I would allow the appeal with costs to the appellant here and below.
DATED at the City of Regina, in the Province of Saskatchewan, this
19th day of August, A.D. 2009.
___“Smith J.A.”______________________
SMITH J.A.
___“Sherstobitoff J.A.”________________
SHERSTOBITOFF J.A.
___“Richards J.A.”____________________
at any time prior to his dismissal, indicated to management that specific duties
Page 15
RICHARDS J.A.
COURT FILE NO.: 45958 (London)
DATE: 20081215
)
)
LAWRENCE JOHN SIMMONS and
)
ANCHORDALE HOLDINGS LIMITED
)
)
)
Plaintiffs )
)
- and )
WALTER WEBB, DANIEL VAN HOUTTE )
and SIMMONS GROUP REALTY
)
)
CONSULTING INC.
)
Defendants )
)
)
)
B E T W E E N:
C.F. MacKewn, for the Plaintiffs
Michel Castillo, for the Defendants
HEARD: February 4, 5, 6, 7, 8, 11, 12, 13,
19, 20, March 6 and 7, 2008
AND
DATE: 20081215
)
)
)
)
)
Plaintiffs )
)
)
- and )
CHRISTIAN J. HAMBER and HARRISON
)
PENSA LLP
)
)
Defendants )
)
)
)
B E T W E E N:
C.F. MacKewn, for the Plaintiffs
Russell Raikes, for the Defendants
HEARD: February 4, 5, 6, 7, 8, 11, 12, 13,
19, 20, March 6 and 7, 2008
ONTARIO
Pomerance J.
[1]
John Simmons was, for many years, a prominent and successful real estate broker and
appraiser. In 1983, he founded his own company, L.J. Simmons Group Ltd., (now known as the
Simmons Group Realty Consulting Inc). Simmons was well known in the industry and his
company attracted many clients. After a time, he decided to expand his enterprise. Walter Webb
and Daniel Van Houtte were among those that joined the company. In 1996, they, together with
Simmons, served as shareholders and directors of the corporation. Simmons was considered the
rainmaker; his talent and reputation attracted business to the firm. Webb took over managerial
responsibilities, and Van Houtte assisted with appraisal reports while working toward his own
accreditation.
[2]
Between 1997 and 2004, a series of events took place that stripped John Simmons of his
interest in, and control over, the corporation. His shares in the Simmons Group were purchased
for cancellation. He resigned as a director. A debt owed by the corporation to Simmons’ holding
company was converted to special non-voting shares. Eventually, following a dispute in 2004,
Simmons’ employment with the company was terminated.
[3]
As a result of these events, John Simmons launched two separate actions. The first is
against Walter Webb, Daniel Van Houtte and the Simmons Group. The claims against these
defendants fall into three broad categories:
1. Simmons claims that he is entitled to restoration of the common shares that he
previously owned, and to enforcement of the debt previously owed by the Simmons
Group to his holding company;
2. Simmons seeks an oppression remedy under s. 248 of the Ontario Business
Corporations Act; and
3. Simmons seeks damages for wrongful dismissal, including punitive damages and
damages for mental distress.
[4]
The second action is against Christian Hamber, the solicitor for the L.J. Simmons Group
Ltd., and the law firm Harrison Pensa (formerly Harrison Ellwood). It is alleged that Hamber
owed a duty of care to John Simmons and to John Simmons’ holding company and that this duty
of care was breached.
[5]
These actions were heard together before me and both were vigorously defended. I will
begin by outlining the salient features of the evidence and then turn to an analysis of each of the
claims.
-2-
-3-
THE EVOLUTION OF THE SIMMONS GROUP
[6]
John Simmons came to Canada from Great Britain in 1957. He was accredited by
several real estate bodies including the Appraisal Institute of Canada, (AACI) and the Real
Estate Institute, (FRI). In 1971, John Simmons helped to build the real estate appraisal firm
known as Ford, Gray, Simmons. Simmons held shares in Ford, Gray, Simmons through
Anchordale Holdings Ltd. (Anchordale) – a holding company that he incorporated for this
purpose. After becoming the senior official in Ford, Gray, Simmons, Simmons decided to create
his own company.
In 1983, John Simmons incorporated the L.J. Simmons Group Ltd.
(Simmons Group). Through Anchordale, Simmons owned all of the issued and outstanding
common shares. He owned 50 shares in his personal capacity and 50 shares through Anchordale
Holdings Ltd.
[7]
It was common ground at trial that the Simmons Group was not created for the purpose of
amassing wealth or assets. The corporation was designed to serve as a vehicle through which
real estate brokers and appraisers could conduct their business. Professionals who worked for
the firm were not paid a salary but rather received a commission. Appraisers would take a
percentage of the fees they generated (55 percent), and the balance (45 percent) would go to the
corporation to cover operational expenses.
[8]
In the fall of 1990, Simmons approached Walter Webb, whom he had known through
earlier business ventures. Webb was a successful entrepreneur and had hired Simmons to do
some appraisal work in the past. Simmons knew that Webb had recently returned to Ontario from
British Columbia. Simmons proposed to Webb that he do some work for the Simmons Group
and Webb agreed to do so.
[9]
Webb became actively involved in the company in early 1991. At that time, there was
discussion about restructuring the Simmons Group so that others could hold shares in the
company. The solicitor for the company was, at that time, Gordon Peterson of Harrison Elwood.
In a letter dated July 2, 1991, Peterson described the rationale for the change:
There is a possibility for substantial fees as a result of brokerage
activities and one objective in designing the corporate structure of the
Corporation is to ensure that brokerage fees can flow through to all
shareholders.
[10]
The letter also identified the following objectives:
1.
to provide incentive to shareholders to work harder by providing a financial
interest in the Corporation;
BACKGROUND FACTS
2.
to diversify the risk associated with the business of the Corporation amongst a
larger number of people; and
3.
to encourage managerial input by the shareholders.
[11] The letter referred to an earlier meeting at which Simmons had acknowledged “little
interest in the administrative details required in managing a larger operation.” Peterson wrote
that:
At the meeting, John Simmons’ expertise in the real estate and
consulting end of the business was recognized. However, it was
indicated that John’s abilities should not be focused on the
administration of the office.
[12] After the 1991 meeting, Walter Webb became increasingly involved in the management
of the corporation. His sphere of responsibility grew and, by 1993, he was chiefly, if not solely,
responsible for the financial and legal affairs of the company. Webb retained a new accounting
firm, transferring the company’s account from Ernst & Young to MacNeill Edmundson, where
Richard Ferris was the primary contact for the Simmons Group. Webb also retained a new law
firm. Historically, the firm of Brown Beattie had handled legal matters for John
Simmons`companies. Webb decided to switch law firms, and retained Harrison Elwood (now
Harrison Pensa) to represent the corporation. By 1996, Christian Hamber was the solicitor with
primary carriage of the company’s file.
[13] At trial, it was acknowledged that these decisions fell within the scope of Webb’s
authority. Simmons testified that he hoped that Webb would take over administrative matters,
leaving Simmons free to focus on his appraisal and brokerage work. Simmons specifically asked
Webb to oversee accounts receivable and payable, financial statements, corporate tax returns,
legal and other administrative matters. John Simmons trusted and respected Walter Webb and
the two enjoyed a cordial professional relationship.
[14] Daniel Van Houtte was recruited by Simmons to join the Simmons Group company when
he graduated from university. Initially, Van Houtte assisted in the preparation of appraisal
reports. He worked toward his own accreditation and eventually began contributing to the
brokerage and appraisal work.
[15] In 1994, Webb and Van Houtte became shareholders in the company. On February 25,
1994, Daniel Van Houtte, Walter Webb, Charles Abromaitis and William Warner each owned
37.5 shares in the company. These 150 shares supplemented the 50 shares owned by John
Simmons and the 50 shares owned by Anchordale Holdings.
[16] In February 1994, a further restructuring of the Simmons Group took place to promote
disbursement of shares. A statement of intention, signed by all shareholders on February 17,
-4-
1994, described how the capital of the Simmons Group was to be reorganized. It also stated the
following corporate objective:
The primary objective of inviting new shareholders into the
Corporation is to provide incentive to such shareholders to work
harder by providing a financial interest in the Corporation which
will, in turn, result in a financially stronger company.
[17]
Webb testified that, in 1994, the finances of the Simmons Group were fragile. The
company was plagued by indebtedness to Revenue Canada, delinquent GST accounts, source
deduction arrears, and overextended credit. Between 1994 and 1996, ownership of shares
changed again. On February 25, 1994, Warner’s shares were purchased for cancellation. On
April 2, 1996, Abromaitis’ shares were purchased for cancellation. On that same date, Walter
Webb and Daniel Van Houtte each purchased an additional 37.5 shares, leaving them in
possession of 75 shares each. Collectively, Webb and Van Houtte owned 150 shares, while
Simmons and Anchordale collectively held 100. Between 1996 and 1998 the Simmons Group
had three shareholders and directors: Simmons, Webb and Van Houtte. Simmons, as founder of
the company, retained the title of company President.
ANCHORDALE’S AFFAIRS
(i)
The Cancellation and Restoration of Anchordale’s Charter
[18] In February 1995, it was discovered that the corporate charter for Anchordale Holdings
Ltd. had been cancelled for failure to file corporate information returns. Webb instructed
Christian Hamber, the solicitor for the Simmons Group, to rectify the problem. Articles of
Revival for Anchordale. In order to do this work, Hamber required access to the corporate
minute book for Anchordale. Webb picked up the book from Simmons’ former law firm, Brown
Beatty, and delivered it to Harrison Elwood, where it remained until after these actions were
commenced.
[19] Christian Hamber prepared the necessary documentation for revival of the Anchordale
Charter and sent it to Webb so that Simmons could sign it. On April 22, 1996, the Ministry of
Consumer and Corporate Affairs issued the Articles of Revival.
(ii)
Ownership of Shares by Anchordale in the Simmons Group
[20] In 1996, another issue arose concerning share ownership by Anchordale. For licensing
purposes, the Real Estate Business Brokers Act required that more than 51% of the registered
equity shares in a corporation be held by registered brokers. At that time, Simmons and Webb
were the registered brokers holding shares in the Simmons Group. However, because Simmons
held 50 of his shares through Anchordale, the licensing requirement was not met. Christian
-5-
Hamber was instructed by Webb to remedy the situation, and a resolution of the Board of
Directors authorized the redistribution of shares.
[21]
In the result, 55 common shares were registered in the name John Simmons and 45 in the
-6-
name of Anchordale. By the end of 1996, the distribution of shares in the Simmons Group was as
follows:
Anchordale:
45 Commons Shares
Simmons:
55 Common Shares
Webb:
75 Common Shares
Van Houtte:
75 Common Shares
JOHN SIMMONS’ BANKRUPTCY
[22] In September 1997, John Simmons’ personal problems began to interfere with his
professional life. He developed rheumatoid arthritis, which caused him debilitating pain. His
outstanding debts led to a financial crisis. Simmons owed a great deal of money to Revenue
Canada, who was aggressively pursuing the payment of arrears. In 1998, Revenue Canada
garnished John Simmons’ wages. Simmons perceived that the only path out of financial
difficulty required him to declare personal bankruptcy.
[23] Simmons consulted with John Cameron Gilhula, a trustee in bankruptcy, initially meeting
with him on June 23, 1998. Simmons told Gilhula about his shares in Anchordale Holdings as
well as his shares in the Simmons Group, advising that his shares in the Simmons Group had no
real value. After the meeting, Simmons and his wife discussed the matter and decided that
Simmons would opt for a voluntary assignment in bankruptcy.
[24] The next day, Simmons approached Walter Webb at the office and told him about the
pending bankruptcy. According to Simmons, Webb expressed immediate concern about the
impact that the bankruptcy might have on the Simmons Group, and the possibility that Simmons`
creditors might target the corporation. Simmons testified that it was Webb’s idea to purchase
Simmons’ shares for cancellation in order to protect the company. Webb’s evidence was slightly
different. He testified that he did not react immediately to Simmons’ news, though he did express
concern in a later conversation. In either event, the evidence establishes both parties were
committed to protecting the company from any potentially adverse consequences. Simmons did
not object to Webb’s suggestion that he relinquish his shares in the corporation. He agreed that
the company should not suffer because of his own personal problems. He testified that he was
particularly concerned about the young people in the firm and that he did not want his own
difficulties to compromise their position.
[25] Simmons testified that it was during one of these discussions that Webb made a
representation to him about this future status. According to Simmons, Webb told him that, if his
bankruptcy was not challenged, his shares in the company would be restored. Simmons testified
that he had two private conversations with Webb about this. On both occasions, Webb told
Simmons that he and Anchordale would have their common shares restored after Simmons was
-7-
discharged from bankruptcy. Simmons testified that he trusted Webb. He regarded Webb as a
friend and a person in whom he had confidence. Simmons testified that he only agreed to
relinquish his shares because he was told, and believed, that he would be restored to his former
position.
[26] Walter Webb offered a very different account in his evidence. Webb steadfastly denied
making any such representation to Simmons. He insisted that he never extended any promise to
Simmons concerning future events. Webb testified that he never offered, nor contemplated, the
reinstatement of Simmons’ shares in the corporation.
THE ANCHORDALE DEBT
[27] Richard Ferris was the Chartered Accountant at MacNeill Edmundson who worked
directly with the Simmons Group. Ferris testified that, when he took over responsibility for
preparing the Simmons Group financial statements, he became aware of a “going concern” note.
This note had appeared for several years in the financial statements prepared by Ernst and
Young. It read as follows:
These financial statements have been prepared based on the assumption that the
company will be able to realize its assets and discharge its liabilities in the
normal course of business. The company has a working capital deficiency
resulting from dividends paid in prior fiscal years. The company requires
ongoing support from its shareholders in order to continue its operations.
These financial statements do not give effect to adjustments that would be
necessary should the company be unable to continue as a going concern and
therefore be required to realize its assets and liquidate its liabilities and
commitments in other than the normal course of business and at amounts
different from those in the accompanying financial statements.
[28] According to Ferris, “going concern” notes were relatively rare and usually caused banks
and other money lenders to harbour grave concerns about the company. In 1996, Webb asked
Ferris to consider how the company might improve the appearance of its financial status. Ferris
testified that he focused on a $54,389 debt that was shown as owing by the Simmons Group to
Anchordale, Simmons’ holding company. There had been a pay-out to Anchordale of $10,000,
leaving an outstanding debt of $44,389. Ferris set out to determine the source of the debt and
examined a number of financial statements. He believed that he had traced the debt back to
1989. The 1989 financial statement for the Simmons Group disclosed that the company had
declared excess dividends that year. Ferris thus believed that the origin of the Anchordale debt
was not one of substance; it was a reflection of dividends that had been declared and not paid.
He advised both Webb and the company’s solicitor Hamber that this was his conclusion.
-8-
[29] Webb and Ferris met to discuss the company profile. Ferris expressed concern over the
impact of the Anchordale debt on the financial statements of the company. He pointed out that
the debt was visually undesirable and would deter money lenders from offering future financing.
Ferris suggested that it was best to convert the debt to an instrument of some kind, perhaps a
preference share. This move would greatly improve the balance sheet and would obviate the
need for a “going concern” note.
[30] According to Ferris, he wrote a letter to Simmons setting out his proposal to convert the
Anchordale debt to shares. A letter to Simmons from Ferris, setting out the details of the
transaction was entered into evidence at trial as exhibit #35. Ferris testified that he handdelivered this letter to Simmons and that he discussed the content with him.
[31] In his testimony, Simmons denied that he had any face-to-face encounters with Richard
Ferris. Curiously, Simmons insisted that he never met Richard Ferris in person. This creates a
significant conflict in the evidence. Ferris testified that he and Simmons spoke in person about
various matters, including Simmons’ bankruptcy.
[32] While Simmons denied meeting with Ferris, he did acknowledge discussing this matter
with Webb. Simmons and Webb both testified that Webb expressed concern about the
appearance of the debt on the financial statements. Webb proposed that the debt be converted to
a different type of share structure. According to Webb, Simmons was in general agreement with
this proposal. Webb denied that there was any discussion about potentially restoring or repaying
the debt at some later point in time.
[33] At trial, there was some question over the accuracy of Ferris’ characterization of the debt.
Ferris concluded that it was not a debt of substance; that it was not “real”; that it was “bogus.”
Ferris did not believe that the debt was the product of an actual advance of funds by Anchordale
to the Simmons Group. Ferris acknowledged in cross-examination that, beyond looking at the
financial statements, he did not take any other steps to investigate the source of the debt. He did
not inquire into whether Simmons or Anchordale had actually advanced funds to the corporation.
He did not raise the issue with Ernst and Young, the accounting firm that first recorded the
Anchordale debt and that prepared the financial statement for 1989. Having seen the 1989
report, Ferris simply assumed that the debt was the product of excess dividends.
[34] At trial, Simmons insisted that the debt was genuine and that it reflected actual corporate
loans by Anchordale to the Simmons Group. In support of this position, Simmons produced three
cheques. The first cheque, dated February 3, 1992, recorded a transfer of $20,000 to the
Simmons Group from John Simmons’ personal account. The second cheque, written by
Anchordale to the Simmons Group, was in the amount of $12,000 and was marked “re corporate
loan.” The third cheque, also from Anchordale to the Simmons Group was in the amount of
$15,000 and had the hand-written notation: “loan from Anchordale.” When Ferris was presented
with these cheques in cross-examination, he acknowledged that he had never seen them before.
-9-
He insisted that the cheques did not change his view about the source of the Anchordale debt,
claiming that, in his view, they were irrelevant.
[35] On the basis of Ferris’ opinion and advice, Webb decided, on behalf of the corporation,
that the Anchordale debt would be converted to class A preferential shares – shares that were not
retractable, but redeemable at the option of the corporation. John Simmons agreed to this
proposed transaction.
LEGAL REPRESENTATION
[36] Christian Hamber was called to the Ontario bar in 1995. He articled with the firm
Harrison Ellwood, now known as Harrison Pensa. Hamber was hired back as an associate at the
firm in 1995 and became a partner in 2000 or 2001.
[37]
Hamber became the primary contact person in the firm dealing with legal and corporate
affairs of the Simmons Group. According to Hamber, all of his instructions came from Walter
Webb. He understood Webb to be the manager of the corporation, responsible for instructing
lawyers and accountants.
[38] In early 1996, Hamber was contacted by Webb and asked to take the necessary steps to
revive the Charter for Anchordale Holdings Ltd. Hamber did so, and articles of revival were
filed with the Ministry of Consumer and Corporate Affairs. Hamber also prepared the
documentation for the transfer of shares from Anchordale to Simmons, in order to secure
compliance with brokerage licensing requirements.
[39] At one point, Hamber was contacted to discuss the conversion of the Anchordale debt
into shares. He could not recall whether he first discussed this matter with Webb or Ferris, but
knew that he eventually discussed the matter with both of them. Hamber specifically recalled
Ferris telling him that the Anchordale debt was “bogus” and had no substance. Webb told him
the same thing. Hamber was aware that, because of the debt, it was difficult for the corporation
to secure financing. It was determined that it should be removed from the balance sheet.
Hamber understood that, by converting the debt to capital of the corporation, the corporation
would be able to more effectively move forward.
[40] In accordance with Webb’s express instructions, Hamber prepared legal documents that
would authorize a number of events. These included the purchase of Simmons’ shares for
cancellation by the Simmons Group, the purchase of Anchordale’s shares for cancellation by the
Simmons Group, the resignation of John Simmons as a Director of the Simmons Group, the
issuance of 44,389 preferential shares by the Simmons Group, Anchordale’s subscription to the
44,389 preferential shares, and Anchordale`s consequent agreement to cancel the outstanding
debt of $44,389.00.
- 10 -
[41] Hamber sent a list of the documents he had prepared to the Simmons Group, and the
parties agreed to meet at Hamber’s office on September 14, 1998 to discuss and sign the
documents.
[42] Hamber’s notes (Ex. 122) disclose that he took careful steps to ensure that the transaction
requested by the parties did not run afoul of the applicable bankruptcy legislation. According to
Hamber, no one ever told him that these transactions were going to be reversed or undone at
some later time. No one ever suggested to him that the Anchordale debt was to be restored or
that Simmons’ shares in the corporation were to be reinstated upon his discharge from
bankruptcy. I unconditionally accept Hamber’s evidence on that point.
THE MEETING AT HARRISON ELWOOD
[43]
Various witnesses testified about the meeting at Harrison Elwood on September 14, 1998.
[44] According to Hamber, Simmons, Webb and Van Houtte arrived together and sat down in
the boardroom. Hamber took out the document list that he had previously sent to the group for
review. He provided a verbal overview of the agreements and described the step-by-step process
by which the documents would be signed. Hamber asked if there were any questions. There were
none. The group indicated that it was ready to proceed. Hamber handed out pens and began
discussing the first document on the checklist. This document concerned the replacement of
share certificates believed to have been lost by Simmons.
[45] According to Hamber, Simmons asked: “So what am I signing?” Hamber recalled that
Webb and Van Houtte threw up their arms in apparent exasperation. Van Houtte muttered:
“Jesus Christ, John, we’ve been through this already.”
[46] Hamber asked if the parties needed to discuss matters any further. They said that they
did not. Hamber carefully took the parties through each document, explaining the purport and
effect of them one by one. Each document was read and signed by each of the parties. No one
raised any further questions and the group left the firm. The meeting took approximately an hour
or an hour and fifteen minutes.
[47] Hamber testified that Simmons behaved normally during the meeting and appeared no
different than Webb and Van Houtte in demeanour. It was Hamber`s impression that the parties
were comfortable. Hamber knew Simmons, having met him a few times at the corporate office.
He perceived Simmons to be a sophisticated businessman. He had no doubt that Simmons knew
precsely what he was signing at the meeting on September 14, 1993. In his own testimony, John
Simmons acknowledged that he read and understood each of the documents that he signed on
that date.
[48] In addition to reviewing each of the documents, Hamber took care to review the attributes
of the new special shares that were going to replace the Anchordale debt. Among other things,
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Hamber explained that they were “non-retractable”, that, in other words, they were not to be
redeemed at the option of or on demand by the shareholder. Hamber explained the attributes of
the shares in some detail to “make sure that everyone was quite clear.”
[49] In his evidence, Webb confirmed that Hamber spent a great deal of time explaining each
of the documents and its implications to those present. Webb recalled that Simmons read each
document before signing it.
[50] Simmons described a slightly different exchange at the beginning of the meeting.
Simmons testified that, before signing the documents, he asked: “What are my options?” Mr.
Van Houtte replied by saying: “That will depend on events in the future.” Simmons also testified
that, while Hamber was out of the room, he sought the assurance of Webb and Van Houtte that
his shares would be restored after his bankruptcy was discharged. Simmons testified that Webb
nodded his head and said yes, and that Van Houtte didn’t say anything at all.
[51] In their testimony, Webb and Van Houtte vehemently denied having any discussion with
Simmons at the meeting about the restoration of his shares or his position within the corporation.
SUBSEQUENT EVENTS
[52] Following the meeting at Harrison Elwood, Simmons met with Gilhula who prepared the
documents for his assignment into bankruptcy. He declared personal bankruptcy on December 4,
1998.
[53] For a time, it was business as usual. Simmons retained his corner office, his parking spot
and other corporate privileges. He continued to receive 55 percent commission on his billings.
His insurance, education and corporate expenses were paid by the company. Simmons felt that
he was being fairly treated and perceived that his relations with Webb and Van Houtte were
professional and cordial.
[54] During this time, Simmons’ ability to work was affected by his health difficulties,
including his arthritic pain, his restricted mobility, and his need for hip replacement surgery.
[55] Simmons received a certificate discharging him from his bankruptcy on September 5,
1999. He advised Walter Webb of this development the next day. According to Simmons, he
asked Walter Webb to honour the earlier promise to restore Simmons’ shares in the corporation.
Simmons testified that Webb “hemmed and hawed” and asked Simmons to wait until after year’s
end. Simmons testified that he asked Webb to restore his shares on another occasion, and was
told that the company did not have any money. Mr. Simmons testified that he raised the issue
with Mr. Webb at least once or twice a year. Simmons testified that he also raised the issue of
the Anchordale debt with Webb on the understanding that the debt would be repaid when the
company cash flow improved.
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[56] Webb adamantly denied that any of these conversations took place. He testified that he
never offered, promised, or suggested to Simmons that his position would be restored after his
discharge from bankruptcy. He testified that Simmons never asked him to restore his corporate
shares or the indebtedness to Anchordale after his discharge from bankruptcy.
THE ORC DISPUTE
[57] The relationship between the parties deteriorated significantly when a dispute arose over
an account with the Ontario Realty Corporation (ORC). Simmons had worked on this file along
with a co-worker, Suzanne Dujong. Simmons was the lead contact on the file, which involved
the Huron Industrial Park Airport Project. The original proposal contemplated a fee of $15,000
and a completion date within 8 to 10 weeks. The project was not completed in time and, for
various reasons, the contract was cancelled.
[58] Simmons sent an invoice to the ORC requesting payment of $24,000 for work that had
already been done, but had no success collecting on the account. Simmons turned the file over to
Webb, asking that he take carriage of collection.
[59] On September 21, 2004, Webb called a meeting to discuss the ORC file. Webb advised
those present that he had negotiated a fee from the ORC in the amount of $10,000. Webb
testified that he believed this to be a reasonable settlement, given, among other things, the
company’s desire to maintain good relations with the ORC, an important client. Webb felt that
he had exhausted settlement options and that the only remaining issue was how to distribute the
$10,000 within the Simmons Group.
[60] Simmons testified that he felt aggrieved that the matter had been settled for $10,000,
absent consultation of the persons who had worked on the project. Simmons also begrudged the
company for its insistence on receiving 45 percent of the fee.
[61] At the meeting, Dujong asserted that she had invested $6,000 worth of work into the
project. Simmons was asked to state how much of the $10,000 he felt he was entitled to. He
said that he would have to look at his file, but ultimately refused to answer the question. The
meeting became tense and acrimonious. Simmons, perceiving animosity from Webb and Van
Houtte, left the meeting while it was still in progress.
THE TERMINATION OF SIMMONS’ EMPLOYMENT
[62] Tensions continued to escalate after the meeting about the ORC account. After leaving
the meeting on September 21, 2004, Simmons wrote a letter to the Simmons Group on behalf of
Anchordale requesting repayment of the “corporate indebtedness and or the redemption of the
shares which were to have been issued as security for the amount owed of $44,389.03.”
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[63] On September 23, 2004, the Simmons Group responded to this letter, writing that the
shares held by Anchordale did not attract interest and/or repayment schedules and that the shares
were redeemable only at the option of the Simmons Group.
[64] On September 29, 2004, Simmons sent another letter on behalf of Anchordale, requesting
a “copy of the agreement wherein it states that the shares are redeemable only at the option of
Simmons Group Realty Consulting Inc.”
[65] During this period, Simmons retained legal counsel, and the Simmons Group was
directed to forward all future communications to his lawyer. It was apparent to all concerned that
relations had become very strained. Webb described the atmosphere in the office as tense and
“brittle.” He believed that the best solution would be for the company to separate itself from
John Simmons. It was decided that, because of the marked deterioration in the relationship
between Simmons and the partners in the Simmons Group, Simmons` employment would be
terminated.
[66] Webb delivered a letter of termination to Simmons’ office on November 29, 2004. He
briefly described the letter to Simmons and then left Simmons to consider it. The first paragraph
of the letter, which was signed by Walter Webb, read as follows:
Given the deterioration in the relationship between you and the
partners of the firm, it has been decided to terminate your employment
with the Simmons Group Realty Consulting and your association with
Buyers Choice Realty Inc.
The last paragraph of the letter directed Simmons to:
Please arrange to immediately remove any personal items from the
office.
[67] Simmons testified that he experienced depression and mood swings after his termination.
He did not actively seek employment with another company, because he was suffering from
debilitating arthritis and did not believe that anyone would hire him. He did, however, take steps
to start up a new business from his home. He testified that he did not have adequate supplies or
equipment and it took some time for his new company to get off the ground.
[68] Simmons had not taken any files with him when he left the Simmons Group, largely
because arthritis prevented him from carrying boxes. Simmons repeatedly asked Webb and Van
Houtte to send him materials from the office, including files relating to his ongoing projects.
According to Simmons, Webb and Van Houtte consistently refused to send him the material he
needed. They also withheld his personal effects. Simmons believed that Webb and Van Houtte
- 14 -
were deliberately trying to obstruct his efforts to resume work as an independent appraiser and
real estate broker.
[69] One item withheld by Webb was a dictionary that had been given to Simmons by his
mother when he was a teenager. This item had great sentimental value and Simmons specifically
asked that it be returned. It never was. Webb confirmed in his testimony that he had refused to
return the dictionary. Webb stated that there was no inscription or salutation in the book to
confirm its ownership. Webb testified that he could not really explain why he refused to return
the dictionary, save for the possibility that it might be company property.
[70] On October 28, 2005, Simmons began his own company named John Simmons Realty
Services. His first full year of operation was 2006. His health continued to deteriorate and he
applied for total disability benefits. On December 23, 2004, Mr. Simmons applied for Total
Disability from Great West Life. On December 31, 2004, Mr. Simmons applied to the Real
Estate Council of Ontario for a licence.
THE ISSUES
[71]
The following are the issues to be determined:
1. THE CLAIM FOR RESTORATION
a)
Did the Defendant Webb promise the plaintiff that his pre-1998 position in the
corporation would be restored?
b)
If so, is this promise enforceable?
c)
If so, what, if anything, is the appropriate remedy?
2. THE CLAIM OF OPPRESSION UNDER s. 248 of the OBCA
a)
Was the plaintiff oppressed or his interests unfairly disregarded by the
Defendants?
b)
3. THE CLAIM FOR WRONGFUL DISMISSAL
a)
What is a reasonable notice period?
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b)
d)
Is there any basis for aggravated, punitive, or other damages based on bad faith or
mental distress?
Was there a failure by the plaintiff to mitigate his loss?
4. THE CLAIM AGAINST CHRISTIAN HAMBER AND HARRISON PENSA?
a)
Did the defendants owe a duty of care to Simmons and Anchordale Holdings
Ltd.?
b)
If so, was the duty of care breached?
c)
ANALYSIS
1. THE CLAIM FOR RESTORATION
a) Did the Defendant Webb promise the plaintiff that his pre-1998 position in the
corporation would be restored?
[72] The plaintiff’s claim for restoration is based on factual allegations that are very much in
dispute.
[73]
Simmons alleges that, when he agreed to sell his shares in the Simmons Group and to
forgive the debt owing to Anchordale, he did so on the understanding that his position would be
restored after his discharge from bankruptcy. Simmons testified that Webb expressly offered
him this assurance; that he trusted Webb; and that he relied on this assurance when he signed the
documents relinquishing his interest in his corporate shares and the Anchordale debt.
[74] Walter Webb, on the other hand, adamantly denied offering any such assurance to
Simmons. Webb testified that he never, at any time, represented to Simmons that his shares in
the corporation would be restored, or that the Anchordale debt would be repaid. According to
Webb, this proposal was neither discussed nor contemplated. Webb insisted that Simmons never
asked to have his position restored following the discharge of his bankruptcy. On the evidence
of Webb, the first time any of this was mentioned was in Simmons` letter of September 21, 2004,
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in which he asked for repayment of the “corporate indebtedness” or the “redemption of shares
…issued as security for the amount owed of $44,389.03.”
[75] Clearly, the evidence of Simmons and Webb is diametrically opposed. It is always a
daunting task for a trial judge to make findings of fact based upon conflicting testimony,
particularly when the conflict stands to be resolved on issues of credibility. Several factors bear
on the credibility determination and I have considered a host of factors in this case. I have
attached little, if any, weight to the demeanour of the witnesses. First, both Simmons and Webb
testified in an apparently forthright and honest manner. Second, the courts have increasingly
recognized that demeanour is a notoriously unreliable indicator of credibility. Rather, in
assessing the conflicting testimony, I have, among other things, considered the extent to which
the evidence is consistent with undisputed evidence and objectively discernable facts. I have
considered the extent to which the witness`accounts are logically plausible, and to what extent
they accord with common-sense notions of human behaviour.
[76] Having carefully assessed the whole of the evidence, I accept Webb’s testimony that he
did not promise to restore John Simmons’ shares in the corporation or the debt owing to
Anchordale following the discharge from bankruptcy. I find, as a fact, that no such assurance
was given to Simmons before, during or after the signing of the corporate documents at Christian
Hamber’s office on September 14, 1998. The overwhelming weight of the evidence compels
- 17 -
the conclusion that there was never any agreement to restore Simmons’ position. In reaching this
conclusion, I have considered the following factors:
a)
There is no agreement in writing to evidence the alleged representation or
agreement;
b)
There is no other evidence of any kind to confirm the existence of the alleged
representation or agreement;
c)
The documents signed by the parties in September 1998 made no mention of the
alleged representation/agreement. There was nothing to suggest that the authorized
transactions were temporary, or that the agreements of the parties were contingent
or subject to reconsideration. If anything, the clear message conveyed by the
documents was to the contrary;
d)
Simmons acknowledged that he read and understood each of the documents that he
signed at the September 14, 1998 meeting;
e)
Simmons was an experienced and savvy businessman, who had entered into
professional contracts with clients throughout the course of his career. Having read
and understood the documents that he signed in Hamber’s office on September 14,
1998, Simmons must have appreciated that there was no provision in these
documents for restoration of his position;
f)
Simmons did not raise the issue of his restoration with the company solicitor,
Hamber, either at the meeting of September 14, 1998, or at any other time. This
was so, notwithstanding that Hamber took pains to explain each of the documents
at the meeting and the consequences of signing them;
g)
Simmons did not raise the issue of his restoration with Gilhula, his trustee in
bankruptcy, notwithstanding that restoration was allegedly contingent upon his
discharge from bankruptcy;
h)
The alleged agreement to restore Simmons` position was fundamentally
inconsistent with the objective underlying the September 1998 corporate
reorganization of the Simmons Group. The parties agreed to convert the
Anchordale debt to shares in order to improve the financial position of the
Simmons Group and to make its financial statements more appealing to lenders.
Future restoration of the debt would have undermined, if not completely frustrated,
this objective;
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i)
Simmons never issued a written demand to be restored to his former position in the
corporation. Even after termination, Simmons never asserted, in writing, that he
had been promised a restoration of his position in the company. This allegation
first appeared in writing in the statement of claim;
j)
Simmons did raise the issue of the Anchordale debt in writing, but not until after
the parties had entered into a heated disagreement over the ORC account. By his
own admission, Simmons felt aggrieved by the way the ORC account was handled.
By the time Simmons demanded repayment of the Anchordale debt, a significant
animus had already developed between him and the directors of the corporation;
[77] By accepting the evidence of Walter Webb, I do not mean to imply that Mr. Simmons
was deliberately untruthful in his testimony. It is important to remember that Simmons built the
Simmons Group from the ground up. It was, no doubt, very difficult for Simmons to accept that
he was no longer a driving force in the company. During the early years, he was not only the
president, but also the public face, of the corporation. It was his name that was known and
respected in the industry. It may be that it was easier for Mr. Simmons to accept the loss of his
interest in the company, if he believed that it would be restored at a later time. This notion might
have offered him some comfort and hope in his time of personal difficulty. In other words, it is
conceivable that Mr. Simmons was sincere in belief, even though he was mistaken in fact.
[78] One might ask why Simmons would have given up his shares in the company along with
his right to collect on a sizeable debt if there was no consideration offered in return. I have
carefully considered this question and have concluded that Mr. Simmons likely did this for the
very reason stated in his testimony: he cared about the corporation and the people that worked
there. He did not want his own personal affairs to affect the viability of the company or the
livelihood of its employees. If I am correct, it is to Mr. Simmons’ credit that he was able to look
beyond his own troubles and think of others in a time of some desperation.
b)
If so, is this promise enforceable?
[79] In light of my finding above, it is not necessary for me to consider whether the alleged
promise to restore Simmons’ position is enforceable as a matter of law. I have found, as a fact,
that no such promise was ever made.
[80] If I am wrong, however, I agree with the defendants that, if such a representation or
promise were made, it could not be legally enforced. The effect of the agreement would have
been to conceal or shield assets from the trustee and creditors during Simmons’ bankruptcy. As
it was put by counsel for Hamber in his written submission:
…if there was an agreement between John Simmons and Walter Webb
to restore the Anchordale debt after John Simmons was discharged
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from bankruptcy and the purpose of that transaction was to keep the
Anchordale debt from falling into the hands of John Simmons’
creditors, that agreement and the transfer would constitute a fraudulent
conveyance.
[81]
Section 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29, provides as follows:
Every conveyance of real property or personal property and every
bond, suit, judgment and execution heretofor or hereafter made
with intent to defeat, hinder, delay or defraud creditors or others of
their just and lawful actions, suits, debts, accounts, damages,
penalties or forfeitures are void as against such persons and their
assigns.
[82] Pursuant to s. 1 of the Fraudulent Conveyances Act, personal property includes “shares.”
Similarly, Section 91(1) of the Bankruptcy & Insolvency Act provides that any settlement of
property made within one year of the date of bankruptcy is void as against the trustee
(Bankruptcy & Insolvency Act, R.S.C. 1985, c. B-3, Section 91(1)).
[83] It is not the role of the courts to enforce an agreement that has, as its object, an unlawful
end. Such conduct is prohibited for reasons of law and such agreements are void for reasons of
public policy. It follows that a claim in negligence cannot succeed when it alleges a failure to do
that which is illegal or unethical. Given the provisions in the Fraudulent Conveyances Act and
the Bankruptcy & Insolvency Act, any alleged agreement to restore Simmons’ shares in the
corporation and the indebtness to Anchordale after his bankruptcy was discharged would be
contrary to law and public policy. Such an agreement could not be enforced.
[84] The claim for restoration is dismissed. There is no need to consider the issue of remedy
in this context.
2. THE CLAIM OF OPPRESSION UNDER s. 248 of the OBCA
a)
Was the plaintiff oppressed or his interests unfairly disregarded by the
Defendants?
[85] The plaintiff alleges that he is entitled to an oppression remedy under s. 248 of the
Business Corporations Act, R.S.O. 1990, c. B-16 [OBCA]. Section 248(2) provides as follows:
248(2)
Where, upon an application under subsection (1), the court is
satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates
effects or threatens to effect a result;
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(b) the business or affairs of the corporation or any of its
affiliates are, have been or are threatened to be carried on or
conducted in a manner; or
(c) the powers of the directors of the corporation or any of its
affiliates are, have been or are threatened to be exercised in a
manner, that is oppressive or unfairly prejudicial to or that
unfairly disregards the interests of any security holder,
creditor, director or officer of the corporation, the court may
make an order to rectify the matters complained of.
[86] If a court finds that corporate actions have been “oppressive” or have “unfairly
disregard[ed] the interests” of relevant parties, the court may make any interim or final order
thought to be fit, having regard to the specific remedies delineated in s. 248(3). The onus is on
the party claiming oppression to establish that intervention is warranted under s. 248 of the Act.
Duwyn v. Albert Duwyn & Sons Ltd., [2003] O.J. No. 293 (S.C.J.) [Duwyn] at para. 19.
[87] Section 248 seeks to remedy oppressive conduct as it relates to a security holder (e.g.
shareholder), creditor, director or officer of a corporation. It is not designed to provide a remedy
to employees. To that extent, it will not generally apply to claims of wrongful dismissal, unless
the termination of employment is part of a pattern of oppressive conduct aimed at a shareholder,
officer or director of the company.
[88] While “oppression” is not defined in the statute, the Courts have interpreted the term as
referring to conduct that is “burdensome, harsh, and wrongful,” and usually accompanied by
bad faith. In determining whether a party’s rights have been unfairly prejudiced, the court is to
consider whether the impugned conduct has resulted in injury, detriment or damage, apart from
minor inconvenience. Stapleton v. Fleming Feed Mill Ltd. [2001] O.J. No. 417, paras. 36 – 40.
[89] There is an inherent tension in cases involving allegations of oppression. On the one
hand, the courts must be empowered to intervene where a corporation has acted in an oppressive,
unfair, or prejudicial manner. On the other hand, the courts must exercise an appropriate degree
of caution and deference when reviewing business decisions made by, and on behalf of, a
corporation. As it was put by Anderson J. in Re Brant Investments Ltd. v. KeepRite Inc., 60 O.R.
(2d) 737 (S.C.J.):
On the one hand, the minority shareholder must be protected from
unfair treatment; that is the clearly expressed intent of the section. On
the other hand, the court ought not to usurp the function of the board
of directors in managing the company, nor should it eliminate or
supplant the legitimate exercise of control of the majority.
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[90] In order to reconcile these competing interests, courts apply a test based on the
reasonable expectations of the minority shareholder. This is sometimes referred to as the
“business judgment rule.” This rule recognizes that the courts should not intervene in business
decisions made honestly, prudently, in good faith, and on reasonable grounds. Judicial
assessment of business decisions must look to protect wronged parties while also preserving the
right of businesses to effect their own decisions. As summarized in C.W. Shareholdings Inc. v.
W.I.C. Western International Communciations Ltd. (1998), 39 O.R. (3d) 755 at 774 (Gen. Div.).
[91] The business judgment rule also recognizes that the question is whether the directors
made a reasonable decision, not a perfect decision. See Maple Leaf Foods Inc. v. Schneider
Corp. (1998), 42 O.R. (3d) 177 at p. 192. If the decision taken was within the range of
reasonableness, the court is not to substitute its own decision. This principle recognizes the
autonomy and integrity of a corporation and the fact that its directors are in a far better position
than the courts to guide the affairs of the company. See UPM-Kymmene Corp. v. UPM-Kymmene
Miramichi Inc., [2002] O.J. No.2412 (S.C.J.); aff’d [2004] O.J. No.636 (C.A.).
[92] I find that, in this case, Webb and Van Houtte, acting as directors of the L.J. Simmons
Group, exercised careful and reasoned judgment that is entitled to the usual standard of
deference. Both directors believed that they were acting in the best interests of the corporation,
and that belief was objectively reasonable in the circumstances. The decisions made by Webb
and Van Houtte were also consistent with the reasonable expectations of Simmons, the minority
shareholder. These expectations are perhaps best evidenced by the written agreements of the
parties. See Itak International Corp. v. CPI Plastics Group Ltd., [2006] O.J. No. 2637. In this
case, Simmons expressly agreed to each of the corporate decisions that now ground the
allegation of oppression (save for the termination of his employment). Simmons read,
understood and signed each document presented at the September 14, 1998 meeting. He signed
each document freely and voluntarily. The decisions implemented through these documents
clearly fell within the scope of his reasonable expectations.
[93]
More specifically, I find as follows:
a)
The decision to purchase Simmons` shares for cancellation was done in the best
interests of the corporation, to shield it from a potential attack by Simmons`
creditors;
b)
Simmons agreed that this step was in the best interests of the corporation. This step
was taken with his knowledge, approval, and written consent;
c)
The conversion of the Anchordale debt to special, non-voting shares was also done
in the best interests of the corporation. The Anchordale debt was an obstacle to
financing and the genesis of the going concern note on financial statements. Webb
and Van Houtte were advised by Richard Ferris, the company accountant, that the
- 22 -
debt to Anchordale was not a “real” debt of substance, but rather, a “bogus” debt
based on declaration of excess dividends in 1989. Webb and Van Houtte were
entitled to rely upon Ferris’ professional opinion. On this basis, they were entitled
to conclude that the Simmons Group did not actually owe $44,389.00 to
Anchordale. The conversion of the Anchordale debt to special shares and its
removal from the financial statements was reasonably perceived to be in the best
interests of the corporation. This was a valid decision made in good faith and on
cogent grounds.
d)
John Simmons agreed that the conversion of the Anchordale debt to special shares
was in the best interests of the corporation. This step was taken with his
knowledge, approval, and written consent;
e)
The events following the restructuring of the corporation do not support a finding
of bad faith. Between September 14, 1998 and September 2004, Simmons retained
his professional privileges within the company, including his corner office, his
parking spot, and his entitlement to a percentage of fees. Relations over this period
were professional and cordial. Simmons had no complaint about his treatment over
this six-year period. It was common ground that he was not harassed, mistreated, or
unfairly prejudiced at any time during this period. Employees of the firm enjoyed
harmonious relations until September, 2004.
f)
Relations with the company began to break down when Simmons expressed
displeasure over the settlement of the ORC account. While Simmons thought that
the settlement was inadequate, he had asked Webb to take over the account and
Webb had done so. At the meeting, Simmons was offered a share of the $10,000,
but refused to discuss the issue;
g)
The corporate decision to settle the ORC account was neither oppressive nor unfair.
Webb explained that he settled the account in a manner thought to be in the best
interests of the corporation. Webb considered, among other things, the importance
of maintaining good relations with a client as important as the ORC. This decision
was not made in order to prejudice the interests of Simmons, but to advance the
interests of the corporation.
[94] The crux of the plaintiff’s allegation is that Webb and Van Houtte embarked upon a
deliberate course of conduct calculated to oust Simmons from the corporation that he founded
and once had exclusive control over. However, this allegation is not borne out by the evidence.
It is true that the cumulative effect of events was to sever Simmons` ties with the company. He
relinquished his financial interest in the corporation as well as his decision-making authority. He
forgave a sizeable debt. He became a mere employee and his employment was then terminated.
However, an analysis of each of the transactions belies the notion that Simmons was treated in an
- 23 -
unfair or oppressive manner. The plaintiff has failed to establish that any of the decisions made
by Webb and Van Houtte on behalf of the corporation were motivated by malice, bad faith, or a
desire to unfairly undermine Simmons’ interests as a director or shareholder.
[95] Nor has any nexus been established between the corporate decisions made in September
1998 and the much later termination of Simmons` employment. The oppression remedy is not
available to rectify a wrongful dismissal, unless the dismissal is part of a broader pattern of
oppressive conduct. In this case, more than six years passed between the corporate restructuring
in 1998 and Simmons’ dismissal from the company. During those six years, Simmons was
treated as an active and valued participant in the firm. He enjoyed the same working conditions
and privileges that were available to him as president of the company. Simmons himself testified
that he was treated cordially, with fairness, and respect. This six-year period stands in stark
rebuttal to the claim of oppression. Had there been a subversive plot to remove Simmons from
the corporation, one might have expected his dismissal to follow more closely on the heels of his
surrender of his corporate shares and directorship. His termination raises a host of other issues,
to be discussed below. It does not, however, engage the terms of s. 248 of the OBCA.
[96]
The claim for an oppression remedy is dismissed.
3.
THE CLAIM FOR WRONGFUL DISMISSAL
a)
What is a reasonable notice period?
[97] By all accounts, Mr. Simmons is entitled to some quantum of damages for wrongful
termination of his employment. The defendants do not allege any cause for dismissal. It is
common ground that no notice was given of the pending termination. Simmons was told of his
dismissal on November 29, 2004, and was instructed to leave the office that day. There was no
employment contract between Simmons and the company.
[98] The central issue to be determined is the period of reasonable notice that Simmons was
entitled to prior to his dismissal. By determining a reasonable notice period, the court is able to
compensate an employee for the amount of time that would reasonably be required to find
alternate employment. This determination is not subject to any fixed formula. It is highly factspecific, though guidelines are found in the case law. While there is no upper limit or `cap`, a
notice period of more than 24 months will only be ordered in exceptional circumstances. See
Lowndes v. Summit Ford Sales Limited, [2005] Docket C4276, Ontario Court of Appeal.
[99] The factors governing determination of a reasonable notice period in any given case are
many, and include the following:
a)
b)
the character of the employment;
the length of service of the employee;
- 24 -
c)
d)
e)
the age of the employee;
the availability of similar employment, having regard to the training, experience,
and qualifications of the employee; and
the extent to which an employee’s disability or incapacity may reduce his/ her
chances of re-employment.
These factors are to be applied on a case-by-case basis, and no one factor should be weighed
disproportionately. See Honda Canada Inc. v. Keays 2008 SCC 39; Bardal v. Globe & Mail
Ltd. (1960), 24 D.L.R. (2d) 140 (ON HJC); Veer v. Dover Corp (Canada) Ltd. [1997] O.J. No.
3821, paras. 28 and 31 Trudeau-Liney v. Plummer Memorial Public Hospital [1993] O.J. No.
2272, para. 44; Noseworthy v. Riverside-Buick Ltd., Birnie and MacMillan [1998] CanLII 2751,
paras. 21 and 25.
[100]
In this case, the plaintiff was dismissed when he was 64 years of age, after over
20 years of service. While he was an employee at the time of termination, he had been much
more than that in the earlier days of the corporation. In those days, he was the key and central
player, indeed the very founder of the group which took his name. It was his vision that brought
the Simmons Group into being, and it was through his talent that the company initially grew and
prospered. Simmons devoted a substantial portion of his working life to the corporation. As he
stated more than once in his testimony, the company “was [his] life.” As a senior executive,
and, for many years, the senior executive, he was a primary source of business and revenue. On
any estimation, his value and contribution to the company was substantial. These factors all
point toward a lengthy period of notice.
[101]
So too do other factors. At the time of Simmons` termination, he was not a prime
candidate for re-employment. His age and health difficulties made it unlikely that he would
qualify for a position with another real estate appraisal company.
[102]
Having regard to all the relevant factors, I find that a reasonable notice period is
one of 24 months.
[103]
I must now decide whether the plaintiff is entitled to an award of “moral”
damages for the distress caused to him by the bad faith activity of his employer in the manner of
his dismissal. Prior to the recent decision in Honda v. Keays, the rule was that bad-faith conduct
by an employer in the manner it carried out a dismissal would be remedied by extending the
employee’s notice period. Following Honda v. Keays, the Wallace-styled “ bump up” of the
notice period has been eschewed in favour of an award of “moral” damages upon a finding that
the employer engaged in bad-faith conduct.
[104]
In this case, various factors are relevant to this issue. First, the manner of
dismissal was insensitive, to say the least. After serving the company as a key employee for
more than 20 years, Simmons was simply handed a letter informing him of his termination and
- 25 -
directing him to remove himself and his personal effects immediately from the premises. The
manner of the dismissal could hardly have been more insensitive. Employees are most vulnerable
at very moment of their termination. Given especially the plaintiff’s precarious state of health
and his valuable, long-term contribution to the company, he was entitled to some degree of
courtesy, respect and compassion upon his termination. These elements were notably absent.
Webb and Van Houtte made no effort to cushion the impact of their decision to remove Simmons
from the company.
[105]
The conduct of the corporation after the termination also suggests that it was at
best indifferent to its obligation to treat its former employee in good faith and with fair dealing.
Simmons testified that he repeatedly asked Webb and Van Houtte to provide him with material
needed for his new business, such as ongoing client files. He also asked on many occasions to
have his personal effects returned. But Webb and Van Houtte consistently failed to comply with
these requests. Webb and Van Houtte, in their testimony, denied that they were trying to thwart
Simmons’ efforts to carry on business outside of the company. They testified that they did their
best to comply with the requests for material.
[106]
In assessing this issue, I find the dispute over Simmons’ dictionary to be both
striking and illuminating. Simmons asked to have his dictionary returned, explaining to Webb
that it was a gift from his mother when he was a teenager and that it had great sentimental value.
Webb acknowledged that he refused to return this item to Simmons, because it did not contain
any salutation or other marking to confirm Simmons` ownership. The refusal to return such an
intensely personal item to Simmons – one that could not have had any significant value to the
company – was mean-spirited and impossible to justify. The incident suggests that the
corporation, at least on that occasion, treated their former colleague with a measure of pettiness
and insensitivity which, in my view, falls below the standard of good faith required of an
employer in such circumstances.
[107]
The incident also lends some credence to Simmons’ other allegations that
following his termination he was unfairly refused material he had requested to assist his
mitigation efforts. Relations between Simmons and the directors of the corporation had certainly
deteriorated by the time of dismissal. Despite this fact, Webb and Van Houtte had a duty to set
aside or rise above personal animus when dealing with Simmons at the moment of and after the
termination. In my view, they did not treat Simmons fairly in the manner of his termination and
acted out of motives that fell short of good faith. For the breach of its obligation to Simmons of
good faith and fair dealings, I find that Simmons is entitled to additional damages in the sum of
$20,000.
[108]
Mr. Simmons introduced evidence of his average monthly income over the course
of four years prior to termination. Taking into account deductions for disability payments,
Simmons established an average monthly income of $4,122.00. I accept the accuracy of this
calculation. On that basis, I order that the plaintiff is entitled to pay in lieu of notice in the total
- 26 -
amount of $98,928.00, calculated as $4,122.00 x 24 months=$98,928.00. In addition, I order
that the employer shall pay additional damages for breach of the implied obligation of good faith
and fair dealings in the amount of $20,000.00
b)
Is there any basis for aggravated, punitive, or other damages based on bad
faith or mental distress?
[109]
Simmons relied on various factors to support his claim for aggravated damages. I
have already taken many of these factors into account in assessing moral damages. The plaintiff
has failed to establish that this is one of the rare cases justifying an award of punitive or
aggravated damages. Generally, this head of damages requires that there be some indication of
acts that were malicious, cruel, or abusive. This standard has not been met in this case. The
conduct of the corporation and its directors, while wanting in many respects, was not so
egregious as to amount to an independent, actionable wrong.
[110]
Simmons claimed damages for mental distress. While Simmons testified that he
was extremely depressed following his termination, no medical evidence was called to
substantiate this diagnosis, or the impact that it had on his daily life. Loss of a job may well
affect one’s fundamental sense of dignity and self-worth. Not surprisingly, therefore, termination
may produce deep and lasting consequences, including in some cases varying degrees of
depression. In this case, the plaintiff was confronted not only with termination but also with the
limitations posed on his life by his physical condition. His arthritis was debilitating, causing him
regular pain and interfering with his ability to work. Still, the plaintiff has failed to establish
through the evidence that his level of mental distress was such as to justify a separate award of
damages.
[111]
I dismiss the claim for aggravated, punitive or other damages above and beyond
compensation for the reasonable notice period of 24 months and $20,000 in moral damages.
c)
Was there a failure by the plaintiff to mitigate his loss?
[112]
The defendants argued that the plaintiff could have and should have taken steps to
mitigate some of loss claimed for wrongful termination.
[113]
While it is true that the plaintiff made no formal applications for employment
with other firms, I am of the view that the steps that he did take were entirely commensurate with
his circumstances. A plaintiff is not required to conduct a fruitless job search as a pre-condition
to a damages award. See Veer v. Dover at para 55.
[114]
In this case, it is important to focus on what Simmons did do, as opposed to what
he did not do. Determined to remain in the business that he loved, he took active steps to start up
a new business, working from his home in less than ideal circumstances, with little in the way of
- 27 -
office supplies. He tried to pick up work on previous files and maintain relations with former
clients. While I have declined to find bad faith on the part of Webb and Van Houtte, the fact
remains that Simmons was not provided with the information that he requested and needed from
the corporation. It would be anomalous if the individuals who failed to provide him with the
material he needed on files could turn around and claim that he did not do enough work after his
dismissal. Following his termination, Simmons conducted himself with an admirable degree of
diligence, professionalism, and determination. There is no evidence that, had Simmons taken
other or additional steps, he would have mitigated his loss.
[115]
The defendants have failed to establish that the plaintiff failed to mitigate his loss
and I decline to reduce the award of damages on this basis.
THE CLAIMS AGAINST CHRISTIAN HAMBER AND HARRISON ELWOOD
[116]
I intend to be brief in my discussion of the claims against Christian Hamber and
the law firm of Harrison Elwood. The reason for this is simple. I find that these claims are
entirely lacking in merit. Whether or not Hamber owed a duty of care to Simmons and
Anchordale, he discharged his obligations in a proper, prudent, responsible and highly
professional manner. Hamber acted on the instructions that he was given by Webb, the
representative of the corporation who had the requisite authority. Hamber independently
confirmed that his instructions were not contrary to the law. He drafted the documents to effect
the corporate transactions. At the meeting of September 14, 1998, he took pains to ensure that
all present read and understood the content and consequences of what was to be signed. He
reported in a prompt and responsible fashion to the designated representative of the corporation. .
[117]
Christian Hamber acted throughout with competence and professionalism. While
no expert evidence was adduced on the standard of care in this context, I am hard pressed to
imagine what else Mr. Hamber might have done in the proper discharge of his duties.
[118]
entirety.
The claims against Christian Hamber and Harrison Elwood are dismissed in their
CONCLUSION
[119]
In conclusion, the plaintiff, John Simmons, is entitled to damages in the amount
of $98,928 to compensate him for the lack of reasonable notice of his termination of employment
with the L.J. Simmons Group. In addition, having regard to the manner of dismissal, I award an
additional $20,000 in “moral damages.”
[120]
All other claims are dismissed.
- 28 -
[121]
If the parties cannot agree on costs, a date for argument of the issue can be
arranged through the trial coordinator.
__”original signed by Justice Pomerance”__
Renee M. Pomerance
Justice
Released:
December 15, 2008
- 29 -
ONTARIO
B E T W E E N:
Plaintiffs
-
and –
WALTER WEBB, DANIEL VAN HOUTTE and
SIMMONS GROUP REALTY CONSULTING
INC.
Defendants
AND
Plaintiffs
- and CHRISTIAN J. HAMBER and HARRISON
PENSA LLP.
Defendants
Pomerance J.
Released:
December 15, 2008
DATE: 20081215
31
In the Court of Appeal of Alberta
Date: 20100827
Docket: 0901-0309-AC
Registry: Calgary
Between:
Merrill Lynch Canada Inc.
Appellant
- and Kurt G.J. Soost
Respondent
Corrected judgment: A corrigendum was issued on October 13, 2010; the
corrections have been made to the text and the corrigendum is appended to
this judgment.
_______________________________________________________
The Court:
The Honourable Mr. Justice Jean Côté
The Honourable Mr. Justice J.D. Bruce McDonald
The Honourable Madam Justice Adele Kent
_______________________________________________________
Reasons for Judgment Reserved of The Honourable Mr. Justice Côté
Concurred in by The Honourable Mr. Justice McDonald
Concurred in by The Honourable Madam Justice Kent
Appeal from the Judgment by
The Honourable Mr. Justice C.S. Brooker
Dated the 13th day of October, 2009
Citation: Merrill Lynch Canada Inc. v. Soost, 2010 ABCA 251
Reasons for Judgment Reserved of
The Honourable Mr. Justice Côté
_______________________________________________________
A.
Issues
[1]
In addition to damages for one year’s notice period, can a trial judge award significant
damages for the mere fact of an employee’s dismissal, or for the stigma that that dismissal
brings? Or for the employer thereafter competing with the ex-employee for the clients, before
the ex-employee has got a new job?
B.
Basic Facts
[2]
This is an appeal from 2009 ABQB 591, 473 A.R. 254.
[3]
Usually a judgment recites facts before law. But some of the facts here have no visible
significance until one knows what law and issues were argued in this case. So I will give only
general facts at the beginning, and defer detail about loss of customers to Part G.2 when
discussing that topic.
[4]
The respondent was a very high-performing investment adviser employed by the
appellant, a national brokerage and investment firm. After not quite three years’ employment,
he was dismissed without notice. (He had more seniority than that because of a merger of
employers.) The appellant employer believed that it had about half a dozen grounds (cause)
to dismiss. The trial Reasons later found that most of them existed, but that they were not bad
enough to justify dismissal.
[5]
It took the respondent about three weeks to find a new job, and that was with a lesser
employer. Many of his former very desirable retinue of clients did not follow him. In this
results-based industry, his income dropped drastically.
[6]
The trial Reasons awarded a year’s pay in lieu of notice, $600,000. No one appeals
that. Instead, the employer’s appeal centres on a second award of an extra $1.6 million in
damages, being the amount which the Reasons gave the respondent. The Reasons said that was
for what they called damage to his reputation and book of business or goodwill, which would
not be compensated for by an award of damages in lieu of notice.
C.
Employers’ Right to Dismiss
[7]
Like the factums, I will start with first principles.
[8]
The contract of employment here was the most common kind: a hiring for an indefinite
period.
(2009 ABQB 591, Docket: 0101-19156)
_______________________________________________________
[9]
Under such contracts, the common terminology is sloppy, even misleading. We speak
of “wrongful dismissal”, or damages for that. But there is no such thing there as wrongful
dismissal (apart from federal legislation). Under such a contract, either side may validly end
the contract at any time. The employee neither has tenure, nor is indentured. The employee
and the employer both have the right to end the contract, and ending it is not a breach of
contract, nor a tort: Wallace v. Utd. Grain Growers [1997] 3 S.C.R. 701, 735, 219 N.R. 161,
152 D.L.R. (4th) 1, 27-28 (paras. 75-76); Desforge v. E-D Roofing (#1) (2008) 69 C.C.E.L.
(3d) 115 (Ont.) (para. 80); Marchen v. Dams Ford Lincoln Sales, 2010 BCCA 29, 282
B.C.A.C. 120, 315 D.L.R. (4th) 728 (para. 38). There is no right to be allowed to resign
instead of being dismissed.
[10] And we speak of “reasonable notice”. But all that need be reasonable is the length of
the notice. The dismissal (or resignation) need not be reasonable; it may be whimsical, or
inexplicable: Wallace v. U.G.G., supra.
[11] No cause whatever is needed for the employee to resign or for the employer to dismiss,
and such resignation or dismissal cannot be legally upset (unless a collective agreement or
certain federal legislation applies).
[12] However, it is implied in the contract that the party terminating the contract without
cause will give notice of reasonable length. All that need be reasonable is the amount of time
which it affords. So an employer wishing to dismiss an employee without cause must either
give long enough advance notice, or pay salary corresponding to that period of time: cf.
Farber v. Royal Tr. Co. [1997] 1 S.C.R. 846, 858, 210 N.R. 161, 145 D.L.R. (4th) 1, at p. 8
(para. 23).
[13] I emphasize the word “or”. No employee has a right to work after dismissal. Every
employee can be dismissed at once with no notice and without any grounds. That will not be
a breach of the employment contract, provided that the employer gives pay in lieu of notice.
[14] Why do we ever discuss just cause for dismissal? The only reason is that just cause
obviates the need for notice or pay in lieu. See for example Dowling v. Workplace Safety &
Ins. Bd. (2004) 192 O.A.C. 126, 246 D.L.R. (4th) 65 (C.A.); Poliquin v. Devon Can. Corp.,
2009 ABCA 216, 454 A.R. 61. However, cause or lack of it is irrelevant to the effectiveness
and the finality of resignation or dismissal. And cause is irrelevant to whether the employee
gets working notice instead of pay in lieu of notice.
[15] Therefore, in ordinary circumstances, damages because of dismissal with neither
reasonable notice nor pay in lieu cannot exceed what pay in lieu would have been. Cf. Jean
v. Pêcheries Roger L., 2010 NBCA 10, 354 N.B.R. (2d) 300 (para. 55). Indeed the damages
will be less, if the dismissed ex-employee mitigated his or her loss (or should have) by getting
Page: 2
a new job. There is but one exception to that rule, which the Supreme Court of Canada has
now clarified in Keays v. Honda Can., 2008 SCC 39, [2008] 2 S.C.R. 362, 376 N.R. 196.
D.
Honda Damages
1.
What Are They?
[16] The Honda case says that when dismissing an employee, an employer has a duty not
to use methods which are unduly unfair or insensitive (paras. 57-60). I stress that the
unfairness or insensitivity must be in the methods used, not in the mere fact of dismissal. One
thinks of examples; one is a boss who tells all the fellow employees, or the employee’s spouse
and children, that the dismissed employee is stupid or incompetent. It is hard to think of
circumstances where there would be any need to do that. Another example might be
dismissing the employee within a day or two of a daughter’s wedding, or of the death of a
parent. Another example would be insincerely alleging to others embarrassing or demeaning
(but unfounded) reasons for the dismissal (whether or not they would be just cause if true),
when the employer does not honestly believe those grounds exist.
[17] Mere sloppy conduct by the employer does not suffice for such extra damages; it takes
something akin to intent, malice, or blatant disregard for the employee: Gismondi v. Toronto
(City) (2003) 64 O.R. (3d) 688, 226 D.L.R. (4th) 334 (para. 32) (C.A.); Desforge v. E-D,
supra (para. 82); McNevan v. AmeriCredit Corp., 2008 ONCA 846, 94 O.R. (3d) 458 (paras.
58-59).
[18] So these Honda damages are not an automatic enhancement of all “wrongful
dismissal” damages. They are not like sales tax or overhead charges. If Honda damages were
triggered by the mere fact of dismissal, or it were very difficult to dismiss anyone without
triggering them, then they would be an automatic surcharge. The Supreme Court of Canada
shows in Honda that that is not the law: Honda at paras. 50, 57; and see Wallace v. U.G.G.,
supra (para. 103).
[19] Honda damages are limited to compensating loss, and are not punitive: Honda (at
para. 60).
2.
Cause and Good Faith
[20] The trial Reasons expressly found that mental suffering was not the ground for the
impugned second head of damages here (para. 191). I am not certain what the trial Reasons’
precise grounds for that ($1.6 million) head of damages were, as those grounds are less exact
than other parts of the Reasons. The respondent interprets them (in various places, including
pp. 23 and 24 of his factum) as two overlapping grounds. The respondent expresses his first
interpretation of the grounds for this head of damages in two different ways. Either
Page: 3
(a)
the appellant employer alleged that it had had cause when it dismissed
the respondent employee,
or
(b)
“stigma”: the appellant employer telling the clients that the respondent
was gone, but not why (see reasons paras. 113, 119, 122, 123), thereby
impugning his reputation (respondent’s paras. 43, 48, 51, 69).
I discuss this first reason in this Part D, and in Part F. The second interpretation (ground)
advanced by the respondent is unfair competition for clients (see the Reasons, paras. 134-75),
which I discuss in Part G below.
[21] It is notorious that what is just cause to dismiss in a given case is often very difficult
to say. It is hard to predict trial results. Many trial decisions on “wrongful dismissal” (like this
one) find the employee guilty of misconduct or poor performance. However, most of those
also find that it was not quite bad enough for summary dismissal; or that more warnings or
constructive suggestions should have been given; or that there was some sort of apparent
condonation. (Whether such near cause can reduce damages directly or indirectly was not
argued on this appeal.) In few cases can any solicitor advise an employer that it has ironclad
grounds for dismissing a certain employee without notice.
[22]
Here, after much consideration, the Reasons found
(a)
breach of the employer’s rules,
(b)
but that it was not bad enough to dismiss,
(c)
excuses for lack of enforcement of the rules,
(d)
partial abruptness or prematurity (paras. 56, 65, 70, 82, 94, 97, 103,
112-16), and
(e)
the employer had good faith belief in cause to dismiss (paras. 162,
204).
That good faith belief was well founded. For example, the respondent violated express rules
found in the employment contract and the appellant’s written policy (Extracts, pp. A6-A7, and
A10-A12).
Page: 4
[23] Honest belief, especially with arguable grounds, bars Honda damages for alleging
cause: Honda at paras. 37-38, 45; Desforge v. E-D Roofing, supra (paras. 82, 84, 92);
Mulvihill v. Ottawa, 2008 ONCA 201, 90 O.R. (3d) 285 (paras. 49-51).
[24] What if courts imposed heavy and almost automatic penalties on any defendant who
alleged cause in good faith, but then failed to convince a judge or jury that it was bad enough?
That would be most unfair to employers. It would deter alleging cause, so that employers with
cause would instead have to give pay in lieu of notice (to avoid a second set of damages). This
would be the slacker’s charter. It would significantly increase the expenses of hiring staff, and
hence increase prices charged to innocent customers. I wish to stress that policy consideration.
[25] The respondent’s counsel argue here that the second head of damages was proper
because it compensated the stigma of dismissal. But, as noted, dismissal is never breach of
contract in an indefinite hiring. Only want of reasonable notice may be (if there is no cause);
and that is a separate head of damages which was awarded here, paid, and no longer disputed.
A dismissed employee gets no damages for any prejudicial effect (even on reputation) of the
dismissal itself. See Honda, paras. 50, 57, citing with approval Peso Silver Mines v. Cropper
[1966] S.C.R. 673, 684, 56 W.W.R. 641. The latter decision is exactly on point here. The
Honda case says that a second head of damages is confined to a bad manner of dismissal, not
for dismissal itself: see paras. 48, 50, 56.
[26] The respondent does not allege that the appellant told lies about him, nor otherwise
improperly made the respondent look like a dishonest or unsavoury person. Indeed, the
Reasons find that no such conduct occurred: para. 133. The evidence supports that fact
finding. (On “stigma”, one may note an analogy in the costs decision in Man. Keewatinowi
Okimakanak v. McIvor, 2007 MBCA 134, [2007] 12 W.W.R. 63, 220 Man. R. (2d) 240
(paras. 12-15).)
E.
What is Compensation For?
[27] One consideration which motivated the trial Reasons here was their conclusion that
the respondent ex-employee would be grossly undercompensated by getting only $600,000
damages representing estimated earnings for one year (i.e. for lack of a year’s notice)
(Reasons paras. 192, 197). The trial Reasons said that in the wake of the dismissal, the
respondent lost most of his customers to the appellant and other brokerages (investment
firms).
[28] If one assumes that the proper legal question is damages for loss of a job, undercompensation sounds plausible. But that is not the proper legal question. As noted, an
employee with the usual contract of indefinite hiring has no right to keep the job, only a right
to reasonable notice or pay in lieu (absent cause to dismiss). It is arguable that some
significant part of the respondent’s loss of customers came from his dismissal (a point
Page: 5
discussed in more detail below in Part G). But the dismissal itself was not a wrong (even
without cause), and there can be no compensation for it. See Desforge v. E-D, supra (para.
95). Economic loss from being dismissed does not fall within Honda damages: Mathieson v.
Scotia Cap. [2010] CLLC ¶ 10-002, 78 C.C.E.L. (3d) 76 (Ont.) (paras. 82-83).
[29] The wrong was lack of reasonable notice. Damages must be for lack of reasonable
notice (which was compensated here and not appealed): Jean v. Pêcheries Roger L., supra
(at para. 55). Or for unduly unfair or insensitive manner of dismissal.
[30] It is common for dismissed employees to suffer losses going well beyond lack of
reasonable notice (or pay in lieu). Various factors may prevent ever getting other comparable
employment: a bad economy; a small, shrinking, or obsolescent occupation, industry or set
of skills; or age of the employee. Or the employment itself may produce prestige, business
contacts, or opportunities, from non-parties, which will not survive a layoff or dismissal, no
matter how honorable the circumstances or how positive the letter of reference. For example,
a full professor at a prestigious university, or a famous television news commentator, or a
member of a famous sports team, might get research grants or consulting or speaking
opportunities or endorsements, worth much more than his or her salary – but only so long as
he or she keeps the job.
[31] Many employees’ rates of pay depend heavily on how many sales they make. Some
are paid on a commission basis; others’ salaries are adjusted regularly and based largely on
sales. When a salesperson or similar employee changes jobs, even voluntarily, not all
customers follow. Some customers will always stay behind (or go elsewhere). That is inherent
in any change, even a mere change of business address. Goodwill is partly simple customer
inertia. (On this industry, see paras. 137, 170, and 192 of the Reasons.)
[32] Therefore, when such an employee is dismissed, it is probable that some of the
employee’s future earning potential will disappear. That disappearance may be temporary, or
permanent. Either way, for quite some time after the notice period, the salary from the new
employer is likely to be smaller. If that continues beyond the notice period, that discrepancy
is not compensated. Counsel for the respondent frankly admitted that the few somewhat
similar reported cases which they had found are not really helpful precedent.
[33] The respondent makes this extra damage award sound more plausible by treating the
loss more or less as a capital item, using the industry term, a “book of business”. (And see the
trial Reasons, para. 192.) It is true that such a “book” is sometimes “sold” between brokers.
But brokers are also free to compete for customers (as noted below in Part G).
[34] And the value of a “book of business” is partly based upon an estimate of how many
trading fees those customers are likely to generate each typical year, using a multiple of a few
years. Though the two competing experts here differed on the ratio of annual commissions,
Page: 6
they agreed on the method to value the “book” here. The total market value of clients’
investments was not their basis for the value of the “book” (to a brokerage or a
representative). They agreed that value came from a calculation of annual commissions from
customer trades. (See transcript pp. 583, 603, 604, 622, 633, 1731).
[35] So at the outset, there is double counting in the Reasons’ second damage award here.
Courts must avoid that: Honda, para. 60. Two names represent more or less the same thing:
(a)
awarding lost future income (the first head of damages), and
(b)
awarding the present capital value of future income (the value of the
“book”) (the second head of damages).
[36] The appellant employer paid the respondent employee a large annual commission or
salary, because of the valuable fees from trades which he induced his flock of customers to
make. Similarly, on dismissal without notice, the respondent got an amount based on an
estimate of that same amount (as damages or as pay in lieu) during the one-year notice period.
Then this trial judgment gave him an additional sum (equal to about a further 2-2/3 years’
salary) to compensate for future lack of earnings from most of those same customers (paras.
180, 186, 197).
[37] The only way to avoid double counting is to do all the calculations consistently on the
same basis. It could all be done on a capital basis; but it is more easily done on an income
basis. What is that income-basis calculation here? The trial judgment here in effect gave lost
income, but in total (both heads) equivalent to a notice period of 3-2/3 years. That could not
possibly be justified from case law. One year was sufficient on all the facts.
[38] Besides, if one ignores the causes of action and heads of damage which were properly
rejected by the trial Reasons, this second award seems inextricably tied to lack of notice. See
for example paragraphs 192, 197.
F.
Hadley v. Baxendale
[39] The respondent’s counsel has an alternative argument to support the extra $1.6 million
in damages. He argues that it could also be based on foreseeability of loss, under the wellknown old case, Hadley v. Baxendale (1854) 9 Ex. 341, 156 E.R. 145, 23 L.J. Ex. 179. The
Supreme Court of Canada refers to that case in Honda (paras. 54, 55). A few recent cases do
indeed speak of Hadley as though it were a new head of damages. (Whether the Reasons here,
para. 192, imply that is not clear.) As noted, the respondent also suggests that it is a new head
of damages.
Page: 7
[40] But it is no such thing, and never has been. Hadley v. Baxendale is a limit on damages,
not even a floor for calculating damages, let alone a ground for awarding them. It merely
excludes damages which are too remote, typically because they were not foreseeable. See
Anson’s Law of Contract 600 ff. (28th ed. 2002); Cheshire, Fifoot and Furmston’s Law of
Contract 751 ff. (15th ed. 2007); Treitel, The Law of Contract 1045-46 (12th ed. 2007).
[41] More significantly, Hadley is a case about damages. It does not regulate what is a
breach of contract and what is not: Mathieson v. Scotia Capital, supra (paras. 82-83, 87).
Even clearly foreseeable losses are not compensated unless they are caused by a breach of
contract (or a tort): Anson, op. cit. supra, at 601; Treitel, op. cit. supra, at 1055-56. Therefore,
foreseeable losses from the fact of dismissal are not compensable, because dismissal is not a
breach of contract. Only those flowing from lack of reasonable notice (or true Honda
misconduct) are compensated.
G.
Unfair Competition
[42] Another plausible suggestion in the respondent’s factum is that the appellant employer
was guilty of “extremely unfair competition” (para. 42), by setting up the manner and timing
of the respondent’s dismissal so as to sequester the respondent’s clients.
1.
Law
[43] But there is a legal problem with that suggestion. Interference with contractual
relations, and conspiracy, and intentional infliction of harm, can all be (overlapping) torts.
However, here the respondent plaintiff has not proved all the necessary elements of any of the
three torts. The Reasons properly find that no tort was committed here (see paras. 141, 147,
156, 171, 175); that finding is not challenged on appeal. So there cannot be damages for such
a tort.
[44] The trial Reasons concluded that on all the facts here, the customer lists here belonged
to the appellant employer (Reasons, para. 170). No one challenges that finding.
[45] But that is not the end of the topic. As soon as an employer and employee part ways,
they are free at once to compete with each other for clients, if there was no confidential
information or relation, nor express restrictive covenant. Such competition cannot itself create
Honda damages: RBC Dom. Securs. v. Merrill Lynch Can., 2008 SCC 54, [2008] 3 S.C.R.
79, 380 N.R. 166 (paras. 18-19). Cf. Whitehouse v. RBC Dom. Securs., 2006 ABQB 372, 400
A.R. 209 (para. 44). Indeed the Reasons say that too (para. 160).
[46] So I cannot see how in law such competition could itself be “undue unfairness” in
mode of dismissal under Honda, and so could ground a second head of damages.
Page: 8
[47] The trial Reasons criticize some acts by the appellant employer, but never suggest that
they were infected by bad faith (see for instance paras. 113, 114).
2.
Facts
[48] In any event, whatever the law is, the facts here do not bear out the respondent
plaintiff’s theory. (See Honda at para. 19; cf. Desforge v. E-D, supra, at para. 84.) I am not
questioning the trial Reasons’ fact findings; indeed many of the 12 points below are supported
by the Reasons’ express fact findings. The respondent’s hypothesis is that the appellant
planned and carried out the dismissal to unfairly wall the respondent off from his clients. The
facts refute that 12 different ways.
[49] First, the respondent plaintiff alleges that the appellant deliberately delayed and then
structured the dismissal, all in order to get the clients. The Reasons properly find the opposite
(paras. 160-71, 175). And the internal e-mails of the appellant which the respondent relies
similarly say the opposite. The appellant’s fear was that without advance preparation, the
respondent would induce some of his fellow investment representatives to quit and accompany
him (transcript, p. 1790). One of them had followed him from his former employer. So the
appellant’s motives had to do with competition for employees, not customers. What the
appellant intended (rightly or wrongly) was not unfair competition against the respondent;
it feared his unfair (even illegal) competition. Whether his competition for employees would
actually have been illegal does not matter, as it never occurred.
[50] Second, the appellant employer honestly believed that it had just cause to dismiss the
respondent: breach of various industry regulations and non-disclosures, and disobediences.
The Reasons accepted that evidence of good faith, and rejected the respondent’s argument
(paras. 136, 171, 204). So this was the real and sincere motive for dismissal (maybe combined
with failure to police credit-margins), not a trumped-up excuse to steal clients. That bars
Honda damages for the reasons for dismissal: Honda at paras. 37-38, 45.
[51] Third, whether the respondent was at the appellant’s offices, or at home on the day of
dismissal or thereafter, made little difference. At home he had full names and contact
information for all the clients with whom he dealt (Reasons, para. 173).
[52] Fourth, the respondent’s own evidence was that he knew that he was going to be fired.
He said that he had realized for at least two days (more likely four or five) that the upcoming
Friday meeting at a hotel was to dismiss him (trial evidence, pp. 116, 118-19). Indeed a few
weeks before, there had been many big straws in the wind from and after a Toronto meeting
with his employer (the appellant) (trial evidence, pp. 115, 117).
[53] Fifth, the number of clients was not so large that lack of his former assistants to help
would be a serious impediment to contacting clients. And temporary help could have been
Page: 9
hired or retained to assist with the clerical aspects. (And on purity of the appellant’s motives,
see the Reasons, para. 167.) Furthermore, right after his dismissal, the respondent met outside
with his team (see his trial evidence, pp. 116, 118).
[54] Sixth, the appellant employer did not contact any of the clients before the dismissal.
Indeed, most clients did not hear about the departure of the respondent until the following
Monday or later. Letters were sent out by Canada Post. As the respondent’s counsel points
out, the document called “agreed facts” (office consolidation of admissions) does say that the
appellant contacted some clients on Friday afternoon (Extracts, pp. R12, R14); but little turns
on Friday afternoon vs. Monday morning.
[55] Seventh, industry regulations required the appellant brokerage to contact the clients.
There could be no gap in availability of an investment adviser, and clients might want to make
trades; some inevitably would. Delay in executing a trade on an exchange can have grave
consequences. The Reasons accepted expert evidence to that effect (paras. 164-166). (See also
the transcript, p. 688.) Furthermore, in the wake of the previous month’s stock market
collapse, clients were extremely concerned generally (oral evidence, p. 689).
[56] Eighth, the appellant’s staff contacted clients in a fair way. Clients were told that the
respondent had left, not that he was dismissed, and not why. That was fair (Reasons, paras.
113, 119, 122-23). Maybe it was more than fair. The appellant instructed its employees that
any client who wanted to leave the appellant brokerage should be allowed to do so. There is
no suggestion that any client was deterred, nor told anything untrue or unfair. (Reasons, paras.
163, 164).
[57] Ninth, the respondent argues that prospective employers might have thought that the
respondent “may have been involved in something improper” because he had been dismissed
(factum, para. 40, and cf. Reasons, paras. 192, 197). But he was so involved, and the trial
Reasons so found (paras. 47, 67-69, 81, 92-94, 112). Nor can the appellant be responsible for
assumptions by customers and strangers not arising from any act by the appellant.
[58] Tenth, the respondent was licensed only as a representative employee (salesman and
adviser), and not as a broker. It was illegal for him to do anything for the clients until he was
again employed by a licensed broker. (See Extracts, Tab C, p. A15, transcript, p. 688, and
respondent’s factum, para. 16.)
[59] Eleventh, the respondent could have contacted the clients merely to say that he had not
forgotten them, and hoped to be with another broker soon, or to explain the circumstances.
Neither law nor logistics prevented any of those three things. But the respondent chose not to
say anything. He thought (probably reasonably) that it was better to wait until he had positive
definite news. And he did not want to have to answer questions, his counsel told us.
Page: 10
[60] Twelfth, in cross-examination, the respondent admitted that a number of his clients had
lost money under his stewardship, and were disappointed, and that that was a factor in their
not following him. He was dismissed in mid-May 2001; April 2001 had witnessed a
substantial collapse in the stock market, and clients were very concerned (transcript, p. 689).
[61] So the respondent plaintiff’s hypothesis about the appellant’s motives and their
consequences is not factually correct.
[62] The respondent’s big problem was that it took about three weeks to find another job
in the industry, and that was in a second-tier firm with fewer advantages, e.g. little or no
research department (see respondent’s factum, para. 20). Counsel for the respondent also made
that very point in oral argument. But that detriment was a product of dismissal, not caused by
want of pay in lieu of notice. The law gives no right to such working notice (as noted in Part
C).
H.
Conclusion
[63] The second damage award of $1.6 million has no basis in law: it purports to
compensate for matters which the law does not recognize as compensable. And it lacks a
factual basis. Furthermore, it appears to contain an element of double counting for the lack of
reasonable notice; that has already been compensated for by the award of $600,000. The extra
$1.6 million award cannot stand, and so must be quashed.
[64]
I would allow the appeal accordingly.
[65] I would reduce the appellant’s costs by $500 because of the very poor copy of the key
document, the trial Reasons, in the Appeal Record .
Appeal heard on June 3, 2010
Reasons filed at Calgary, Alberta
this 27th day of August, 2010
Côté J.A.
I concur:
McDonald J.A.
Page: 11
I concur:
Kent J.
Page: 12
Page: 13
F.R. Foran, Q.C.
J.G. Hopkins
L.Y. Pan
for the Appellant
K. McGuigan
B. Nelson
for the Respondent
Appearances:
Page: 14
Corrigendum of the Reasons for Judgment Reserved of
The Honourable Mr. Justice Côté
________________________________________________________
In para. [17], the neutral citation of McNevan v. AmeriCredit Corp. has been corrected to
read 2008 ONCA 846.
_______________________________________________________
Court of Queen’s Bench of Alberta
Date: 20091013
Docket: 0101 19156
Registry: Calgary
Between:
Kurt G. J. Soost
Plaintiff
- and -
Merrill Lynch Canada Inc.
Defendant
_______________________________________________________
of the
Honourable Mr. Justice C.S. Brooker
_______________________________________________________
I.
INTRODUCTION
[1]
This is an action by Kurt Soost [“Soost” or the “Plaintiff”] against his former employer,
Merrill Lynch Canada Inc. [“Merrill Lynch” or the “Defendant”] for damages for wrongful
dismissal. The Defendant has defended the action pleading just cause for the dismissal and
counterclaiming for monies it alleges are owing to it under a loan.
[2]
The trial proceeded over four weeks during which I heard from 19 witnesses and
numerous volumes of documents were entered as exhibits.
[3]
A general over-view of the case is useful to appreciate the context in which the various
issues are raised.
2009 ABQB 591 (CanLII)
Citation: Soost v. Merrill Lynch Canada Inc., 2009 ABQB 591
Page: 2
GENERAL OVERVIEW
[4]
The Plaintiff is 41 years old. He holds a Bachelor of Commerce degree (Hon.). At the
time of his dismissal, he was employed by the Defendant as a financial consultant or financial
advisor or stock broker — the terms seem to be used interchangeably. For ease of reference I
will simply use the term “financial advisor”.
[5]
As a financial advisor, the Plaintiff was paid on a straight commission basis. The
commissions were earned from the trading business of the financial advisor’s clients. Each
financial advisor had a “book of business” which consisted of the accumulated asset base of
various clients that had accounts with the brokerage house and which accounts the financial
advisor administered.
[6]
The Plaintiff commenced his career in the investment industry in 1993. At that time he
was employed by RBC Dominion Securities [“RBC”]. He enjoyed a successful career at RBC,
quickly becoming one of its top performers and building a large book of business.
[7]
In August 1998, the Plaintiff was recruited by Midland Walwyn, another investment
dealer/brokerage. At that time, the Defendant had announced that it was buying Midland
Walwyn and therefore the Plaintiff knew that his ultimate employer would be the Defendant
once the takeover was completed. As part of the incentive to move, Midland Walwyn offered
him a forgivable loan of $870,000, a $50,000 business development account, the title senior
vice-president and director, two paid assistants and other benefits. The Plaintiff joined Midland
Walwyn on September 8, 1998. At that time his book of business was between $100 million and
$110 million. Shortly thereafter, Midland Walwyn became Merrill Lynch Canada Inc. The
employment contract was subsumed into Merrill Lynch. Therefore, hereinafter in respect to
contractual obligations a reference to Merrill Lynch or the Defendant includes Midland Walwyn.
[8]
When the Plaintiff moved over to Midland Walwyn, he brought his team with him. He
also brought his personal client database with him. He was successful in having between 70 and
80 per cent of his clients transfer their accounts over to Midland Walwyn. The value of his book
of business when he started with the Defendant was between $70 and $80 million.
[9]
On May 18, 2001, the Plaintiff was called to a meeting at the Westin Hotel where he was
summarily dismissed by the Defendant. Immediately thereafter, his entire team was suspended
with pay for one week.
[10] During his time at Merrill Lynch, the Plaintiff continued to obtain new clients and add to
his book of business. By the time of his dismissal, his book of business was in the range of $150
million. His efforts were acknowledged by the Defendant in a number of ways, including being
recognized as one of the firm’s top performers resulting in his being chosen as one of five
individuals in Canada to be part of the “Ultra High Net Worth Program” of the Defendant, and in
March 2001 he was selected by the Defendant as one of its seven or eight financial advisors to
go on the “Society of Eagles” recognition trip to South Africa.
II.
[11] Following his termination, the Plaintiff made efforts to find other employment in the
industry. He was eventually successful, joining Lightyear Capital about three weeks after his
termination. Only about $10 million of his book of business followed him over to Lightyear
Capital and he had a major drop in income such that he could no longer afford to remain in the
industry and therefore left it December 31, 2001.
III.
FACTS
[12]
When the Plaintiff commenced his employment with Midland Walwyn, he signed an
employment contract1, one term of which provided:
You are expected to comply with all regulatory authorities governing the conduct
of your business. This includes Midland Walwyn’s compliance policies which
may exceed the minimum requirements established by the various regulatory
authorities. A failure to comply with any of these, including the levels of
professionalism expected from our Financial Advisors, may result in the
termination of your association with the firm.
[13]
The Conduct and Practices Handbook (“Handbook”) provided:
The responsibility for knowing the current securities legislation, regulations and
policies lies with the security house and the registered representative.2
[14]
The Policy manual of Midland Walwyn provided:
It is the responsibility of every financial advisor to be aware of the policies, rules
and regulations (internal and external) which govern his or her business conduct.3
[15]
The Merrill Lynch policy manual4 stated:
Private client branch office employees are expected to read and be familiar with
the contents of this manual.
1
Exhibit 1, Tab 6
2
Exhibit 5.
3
Exhibit 6.
4
Exhibit 16.
Page: 3
Page: 4
The Investment Dealers Association handbook provided at page 20:
The standard is clear in that the RR must not trade in securities other than through
the firm employing the RR, and the firm must have knowledge and give consent
for these business dealings.
[17]
The Merrill Lynch manual provided further at section 1.2.2:
Compliance denotes adherence to the laws and regulations that govern our
industry. At Merrill Lynch, it also means adherence to our own policies to protect
the interests of our clients and the Firm.
Supervision is a key concept in the regulatory and self-regulatory structure of the
securities industry and a fundamental responsibility of management personnel.
[18]
The Merrill Lynch manual further provided at page 462:
A private purchase of stock, oil leases, or interest of any kind in another business
or enterprise without the prior approval of the Compliance Department is a
violation of this policy.
[19] Midland Walwyn also had a formalized policy with respect to private placements. A
compliance monitor, Exhibit 42, stated that Glen Buckley and Brad Doney were required to preapprove any new issues, including private placements.
[20] The Plaintiff admitted that he reviewed the Midland Walwyn manual after he commenced
employment with the Defendant and he also admitted that he reviewed the Merrill Lynch manual
when it was issued.
[21] Between February of 1998 and approximately September of 2000, the Plaintiff
participated in 17 private placements, the details of which are set out in Exhibit 7. Prior to
participating in these private placements, the Plaintiff did not seek nor did he receive approval
from the Defendant to participate in any of these private placements. His excuse was that he was
not aware that he had to.
[22] It is difficult to understand the Plaintiff’s position that he did not know that he had to
obtain prior approval. On March 9, 2000, Sam Collins sent an e-mail to the Plaintiff (amongst
others) saying:
In order for myself and Jim to properly supervise all trading activities within our
branch we (particularly myself) need to be kept up to speed with your private
placement activities. Please forward all requests for participation and private
placements to me for approval. I will make sure everything is in order and will
forward all relative materials to both Jim and Brad Doney for their respective
[16]
Page: 5
[23] In an e-mail dated October 24, 2000 from Sam Collins to Kurt Soost5, Collins asks the
Plaintiff to use a shell, included in the e-mail, to be used for approval of all private placements
going forward.
[24] In an e-mail sent to all employees on March 8, 2001 by Jim Sorensen6 he states that
private placements must receive prior approval from the Regional Vice-President as well as
compliance, and further that a person with a private placement must answer “yes” to Question
4A on the Employee Activity Review System (“EARS”) form.
[25] In addition, Brad Doney issued two compliance memorandums on behalf of Merrill
Lynch addressing the issues of private placements. These were addressed to a variety of people
including all financial consultants. The first was dated April 4, 2001;7 the second was issued on
May 4, 2001.8 Both compliance memorandums specified that financial advisors wishing to
participate in private placements must complete an “Outside Interest Questionnaire” prior to
making the investment and that the questionnaire must be reviewed and approved by the
appropriate specified person in the Merrill Lynch organization.
[26] Kirsten Lamont/Finn [“Lamont”] had a variety of e-mail exchanges and correspondence
with the Plaintiff with the object of having the Plaintiff disclose his private placements as well as
the reasons for the policy for requiring such disclosure.9
[27] On April 26, 2001 when the Plaintiff attended a meeting in Toronto, he was asked to
provide a complete list of all private placements that he had participated in as well as a Rated
Offering Memorandum for each. While the Plaintiff, through one of his assistants, did provide
the Calgary branch with a partial list of his private placements, the Plaintiff admitted that prior to
his dismissal on May 18 he never did provide the Defendant with a complete list of his private
placements that he had participated in or an Offering Memorandum with respect thereto.
[28] Despite the foregoing, it would appear from the evidence of Soost, Collins, Milan, Cacic
and others, that the private placement policy was not rigorously or evenly enforced prior to the
arrival of Lamont to the Calgary office in late February 2001. Thereafter, Lamont and Soost had
5
Exhibit 1, Tab 33.
6
Exhibit 1, Tab 51.
7
Exhibit 1, Tab 67.
8
Exhibit 1, Tab 89,
9
See Exhibit 1, Tab 59 and Exhibit 11.
sign-offs. ... Can I please get copies of all outstanding private placements that you
are currently working on?
Page: 6
[29] It is also clear from the evidence that Soost was a strong believer in a company called
Oncolytics Biotech [“Oncolytics”], a biotech company developing a retrovirus for cancer
treatment. He held a significant amount of Oncolytics stock personally and a significant number
of his clients owned substantial amounts of the stock as well. This caused a “concentration” issue
in Merrill Lynch’s Calgary office. The concentration issue was more problematic due to the
speculative nature of the Oncolytics stock.
[30] The meeting of April 26, 2001 was a pivotal point in the Soost/Merrill Lynch
relationship. Soost was called to the meeting in Toronto. He was not provided with an agenda
nor the specific purpose of the meeting. He assumed it had to do with Oncolytics. The meeting
was attended by Modesto Moya, Merrill Lynch’s manager of surveillance, Bill Lyons, Randy
Ambrosie, District Director for Merrill Lynch, and Nick McClanahan, Merrill Lynch’s National
Sales Director. Ultimately, it would be Ambrosie’s decision as to whether to keep Soost or
terminate him. At the end of the April 26th meeting, Ambrosie felt that Soost was out of sync
with the firm’s policy and direction and he questioned his trustworthiness. Nevertheless, while
no formal decision was then taken about Soost’s employment at that meeting, the general
consensus of those at the meeting was that Soost would have to leave.
[31] By early May a firm decision had been taken to terminate Soost. In an e-mail dated May
3, 200110, Ambrosie advised Sue Dabarno, CEO of Merrill Lynch Canada and Nick McClanahan
that a decision had been taken earlier that day that Soost should no longer be with the firm. He
should be terminated either for cause or he should be asked to leave on his own. Ambrosie
planned to be in Calgary on May 14th to deliver the news to Soost. Of significance is the fact that
at least as of May 4th, Sue Dabarno and Randy Ambrosie favoured allowing Soost to resign on
his own.11 It would appear that Doney and Moya disagreed, Ambrosie changed his mind and
Dabarno agreed to terminate for cause. Strangely, despite the importance and unusualness of the
decision to terminate such a significant producer in the organization, Ambrosie could not recall
what transpired in terms of conversation, conference calls or meetings and cannot even recall the
precise time when the decision to terminate for cause was made. I infer from all of the evidence
that the decision to terminate for cause was made within a day or two of May 4, 2001. Despite
that decision, it was not executed until May 18th.
[32] On May 18, 2001 Soost was called to a meeting with Ambrosie and Soresnson at the
Westin Hotel in Calgary. There Soost was told he was being terminated and given a letter of
termination. He was told not to return to the office. That same day, Soost’s team was given a
week off with pay. Soost clients were assigned to other financial advisors and thereafter letters
10
Exhibit 1, Tab 90
11
Exhibit 1, Tab 90
a number of discussions and e-mails concerning the application and interpretation of the private
placement policy, particularly in relation to private placements already done. It does not appear
that Soost had particular difficulty with the policy on a go-forward basis.
Page: 7
[33] Soost began to look for alternative employment very quickly. He contacted Walter
Wiltzen, the manager of TD Evergreen’s office in Calgary. Wiltzen had tried unsuccessfully to
recruit Soost to TD Evergreen about a year previously. When Soost approached him after being
terminated, Wiltzen testified that Soost looked horrible – like “he had been dragged through a
knothole” and Soost was unclear as to why he had been let go from Merrill Lynch . The fact that
he had been let go gave Wiltzen cause for concern that there might be something improper.
Consequently, Wiltzen declined to recommend Soost be hired.
[34] Eventually Soost found employment at Lightyear Capital. However, he was not
successful there, having lost most of his clients or book of business between his abrupt
termination from Merrill Lynch and his obtaining employment at Lightyear Capital. He left the
industry at the end of 2001 to pursue other work.
IV.
ISSUES
[35]
The evidence and arguments of the parties raise the following issues:
1. Was there just cause for dismissal?
2. Was the Plaintiff defamed by the Defendant?
3. Did the Defendant intentionally interfere with the Plaintiff’s economic relations?
4. What, if any, damages is the Plaintiff entitled to?
5. What, if anything, must the Plaintiff repay to the Defendant on the forgivable loan?
6. If successful, should the Plaintiff be awarded special costs?
V.
ANALYSIS
1.
Was there just cause for dismissal?
[36] The law recognizes the right of an employer to summarily dismiss an employee thus
terminating the employment contract, in certain circumstances. Those circumstances were
described by Mr. Justice Schroeder, dissenting, in Port Arthur Shipbuilding Co. v. Arthurs,
[1967] 2 O.R. 49 (C.A.), (appeal allowed by Supreme Court of Canada [1969] S.C.R. 85) where
he said at paragraph 11:
were sent out by the Defendant to Soost’s clients advising that Soost was no longer with Merrill
Lynch and that a new financial advisor, named, had been assigned to their file and would be
happy to assist.
If an employee has been guilty of serious misconduct, habitual neglect of duty,
incompetence, or conduct incompatible with his duties, or prejudicial to the
employer's business, or if he has been guilty of wilful disobedience to the
employer's orders in a matter of substance, the law recognizes the employer's
right summarily to dismiss the delinquent employee ...
[37] An employer may rely on one significant breach or on cumulative acts of an employee to
justify his summary dismissal. In Lowery v. Calgary (City), (2002) ABCA 237, Berger J.A.
speaking on behalf of the court said at paragraph 3:
Summary dismissal for incompetence is justified by significant breach of contract
on the part of an employee. Where the employer alleges cumulative cause for
such dismissal, it must prove on the authority of Atkinson v. Boyd, Phillips & Co.
Ltd. (1979), 9 B.C.L.R. 255 (B.C. C.A.), with which we respectfully concur on
this point, that:
1. The employee was given express and clear warnings about his
performance.
2. The employee was given a reasonable opportunity to improve his
performance after the warning was issued.
3. Notwithstanding the foregoing, the employee failed to improve
his performance.
4. The cumulative failings “would prejudice the proper conduct of
the employer's business.”
[38] An employer’s decision to dismiss an employee summarily for cause is a drastic step
which may have significant consequences for the employee. In McKinley v. BC Tel, [2001] 2
S.C.R. 161 at paragraph 53 the court observed as follows:
Underlying the approach I propose is the principle of proportionality. An effective
balance must be struck between the severity of an employee’s misconduct and the
sanction imposed. The importance of this balance is better understood by
considering the sense of identity and self-worth individuals frequently derive
from their employment, a concept that was explored in Reference Re Public
Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313, where Dickson C.J.
(writing in dissent) stated at p. 368:
Work is one of the most fundamental aspects in a person’s life,
importantly, a contributory role in society. A person’s employment
is an essential component of his or her sense of identity, self-worth
and emotional well-being.
Page: 8
This passage was subsequently cited with approval by this Court in Machtinger v.
HOJ Industries Ltd., [1992] 1 S.C.R. 986, at p. 1002, and in Wallace, supra, at
para. 95. In Wallace, the majority added to this notion by stating that not only is
work itself fundamental to an individual’s identity, but “the manner in which
employment can be terminated is equally important.”
[39] Thus in McKinley, the Supreme Court of Canada mandated a contextual approach. While
the court in that case was dealing with dishonesty, I think the principle of proportionality
espoused therein is equally applicable to all acts of misconduct relied upon by an employer to
justify dismissal for cause. The comments at paragraph 54 of McKinley are instructive:
Given this recognition of the integral nature of work to the lives and identities of
individuals in our society, care must be taken in fashioning rules and principles of
law which would enable the employment relationship to be terminated without
notice. The importance of this is underscored by the power imbalance that this
Court has recognized as ingrained in most facets of the employment relationship.
In Wallace, both the majority and dissenting opinions recognized that such
relationships are typically characterized by unequal bargaining power, which
places employees in a vulnerable position vis-à-vis their employers. It was further
acknowledged that such vulnerability remains in place, and becomes especially
acute, at the time of dismissal.
[40] In the case at bar, the Defendant submits that it had just cause to dismiss the Plaintiff
because of various actions of the Plaintiff which were in contravention of, and went to the very
root of, the employment agreement between the Plaintiff and the Defendant. It argues that the
Plaintiff was employed as a financial advisor pursuant to the regulations and guidelines of the
security industry in Alberta and the Investment Dealers Association. This industry is heavily
regulated because of the inherent possibility for financial advisors to abuse their position of trust
with their clients. Consequently financial advisors are required to comply with relatively strict
requirements for disclosure of outside activities, personal financial conduct and trading in client
accounts. Those requirements are necessary to ensure that the Defendant could properly
supervise the Plaintiff’s activities and ensure that there was no abuse of the Plaintiff’s position.
[41] The Defendant submits that the Plaintiff’s conduct demonstrated that he was unwilling or
unable to comply with the Defendant’s requirements for proper conduct. This refusal or inability
to comply, which was demonstrated through a number of breaches of industry and company
policy, amounts to insubordination and went directly to the nature of the employment
relationship between the Plaintiff and the Defendant. Consequently the Defendant submits it had
just cause for dismissing the Plaintiff summarily.
[42] Specifically, the Defendant alleges that the Plaintiff committed the following acts which
constitute just cause for his dismissal:
(i)
he failed to get approval for his private placement activities;
Page: 9
Page: 10
once the breach of the private placement policy was brought to the
Plaintiff’s attention, he failed to make full disclosure of all of his private
placement activities even though he was repeatedly requested to provide
disclosure;
(iii) he failed to make appropriate disclosure of his outside interests on his
EARS form, even when asked directly for such disclosure;
(iv)
he solicited clients to make purchases of Oncolytics after having been
specifically directed by the Defendant not to do so;
(v)
he failed to use margin in his own accounts in an appropriate manner;
(vi)
he failed to appropriately supervise unlicensed staff under his direction;
(vii) he inappropriately contacted other investment dealers and criticized
research of Oncolytics; and
(viii) he engaged in discretionary trading.
[43] The Defendant claims that the foregoing acts and conduct of the Plaintiff demonstrated
the Plaintiff’s failure to adhere to the minimum standards required in the brokerage industry and
constitute breaches of the employment agreement which destroyed the root of the employment
relationship. It says the Plaintiff’s conduct demonstrated a failure to adhere to the standards of
his profession such that the fundamental requirements of trustworthiness, honesty and integrity
were violated.
[44] The Plaintiff disagrees and challenges the Defendant’s position in this regard. He
suggests that the decision to terminate the Plaintiff was based on erroneous information and
assumptions based upon incomplete and inaccurate information. He argues that the reasons now
used by the Defendant to justify a dismissal are contrived through the application of a double
standard, inconsistent application of company policies and misinformation. Moreover, the
Plaintiff suggests that the Plaintiff was terminated in order to allow Merrill Lynch to address a
concentration issue with Oncolytics and client accounts. Finally, the Plaintiff submits that none
of his actions justified the extreme remedy of summary dismissal and that the Defendant, at its
senior management level (Mr. Ambroise and Ms. Dabarno), had concerns that there was a
sufficient basis to justify summary dismissal.
[45] The Plaintiff, in his written argument, points out that many of the acts which the
Defendant now relies on to support its position that there was just cause for dismissal, are new
reasons. Some, it says, were raised for the first time during the course of trial. However, in my
view, that is no answer. Nothing turns on it. Just cause can be proved by facts ascertained
subsequent to dismissal: Lake Ontario Portland Cement Co. Ltd. v. Groner [1961] S.C.R. 553 at
para 28. Indeed, that case makes it clear that dismissal can be justified at trial on grounds
different from those alleged at the time of dismissal.
[46]
I will now consider, in turn, each of the eight causes for dismissal relied on by the
Defendant.
(ii)
Page: 11
Plaintiff’s failure to obtain approval for his private
placements
[47] It is clear on the facts before me that the Plaintiff did not obtain prior approval for his
private placements. But it is equally clear that this failure was not unique to him. Milan Cacic,
who I find to be a credible witness, was a co-worker of the Plaintiff. They had worked together
at RBC. Cacic then joined Midland Walwyn and introduced the Plaintiff to Midland as a
prospect for it to recruit. Both he and the Plaintiff participated in many private placements
together at the Defendant. When the Plaintiff was dismissed, Cacic was assigned many of the
Plaintiff’s client files.
[48] Cacic testified that prior to the arrival of Lamont, the Defendant’s private placement
policy was not very clear and was not enforced. He and the Plaintiff did private placements
together. Cacic did not get approvals in advance for all of his private placements. When Lamont
arrived at the Calgary office in late February of 2001 she asked Cacic about his private
placements and he disclosed them.
[49]
I find Cacic to be a credible witness and accept his evidence in this regard.
[50] Michael Collins’ evidence is also of interest on this point. He worked for the Defendant
from October 1999 to May 2001. His position was complex administrative manager and cobranch manager. The complex consisted of the Calgary, Lethbridge and Medicine Hat offices. In
February 2001 Collins was transferred to Abbotsford but continued to commute to the Calgary
office once per week until April 2001. One of Collins’ responsibilities at the Calgary complex
was compliance.
[51] In chief, Collins testified that private placements were part of the culture of doing
business at Midland Walwyn. Private placements were very prevalent in the Calgary office and
several of the financial advisors who Collins supervised in the Calgary office did private
placements. In chief he testified that there were no standards to regulate nor monitor private
placements in the Calgary branch but that when he did his regular reviews of financial advisors’
pro accounts, he would see the private placements sitting in those accounts. He said he was never
given any directions from his superiors about financial advisors doing private placements. When
Collins discussed these private placements with his co-branch manager, Jim Sorenson, he was
told not to worry about it. Collins also explained that the Merrill Lynch accounting system
differentiated private placements by putting them under a safekeeping category which meant that
they sat in Merrill Lynch’s vault but were not ready to trade.
[52] Collins testified that at the end of September 2000, a compliance team from Toronto
spent two or three days at the Calgary branch conducting a compliance audit. During that time
this team reviewed files and process, conducted interviews and considered the compliance
posture of the Calgary office, to see if they were up to the Defendant’s standards. At the end of
(i)
Page: 12
The Compliance posture of the Calgary Branch was found to be satisfactory and
therefore the Branch will not require a re-visit for approximately one (1) year.
With respect to Operations, this branch was also found to be satisfactory.
...
At this time, we would like to note that both Mr. Collins and Ms. Mitchell are
carrying out their responsibilities in an exemplary fashion.
[53] On cross-examination, Collins admitted that he was subsequently terminated by Merrill
Lynch and commenced a lawsuit against them as a result. In that lawsuit, Merrill Lynch has
pleaded just cause. Also, Collins admitted that he is a friend of the Plaintiff and indeed they
worked together at Lightyear Capital after both of them left the Defendant’s employment. He
admitted that the Defendant “rolled out” a policy manual in September 2000 and that according
to that policy manual, if one wished to do a private placement one would have to get prior
approval from the compliance department. Before that, at least, Collins said he was not aware
that prior approval was necessary. Nevertheless, by March of 2000 he was aware of this
requirement because in an e-mail of March 9, 200013 directed to the Plaintiff, Cacic and Wayne
McNeil, Collins asked that all requests for participation in private placements be directed to him
for approval.
[54]
I accept Collins’ evidence as described above.
[55] Nevertheless, it appears that there was still some confusion in the Calgary branch about
the application, interpretation or enforcement of this policy of obtaining advance approval before
doing a private placement. This is evident from Brad Doney’s evidence and reminder
memoranda about the policy sent April 4, 2001 and May 4, 200114, the evidence of Cacic as well
as Sorenson’s e-mail15 to Doney of March 21, 2001 seeking his help with respect to “a few
‘reluctant’ FC’s who feel it is not important to disclose this information...”.
[56] On the whole of the evidence, I am satisfied that whatever the policies regarding private
placements, they were honoured in the breach. The Defendant was aware that prior approvals
12
Exhibit 18
13
Exhibit 1, Tab 24
14
Exhibits 1, Tab 67 and Exhibit 1, Tab 89 respectively
15
Exhibit 55
this audit, the compliance officer provided Randy Ambrosie, the district manager, with a written
report12 which stated in part:
Page: 13
[57]
I am not satisfied that this ground justifies dismissal.
(ii)
Once the breach of the private placement policy was brought to the
Plaintiff’s attention, he failed to make full disclosure of all of his
private placement activities even though he was repeatedly
requested to provide disclosure
[58] The Defendant claims that the Plaintiff failed to make full disclosure of all his private
placements even after the private placement policy was brought to his attention and despite
repeated requests that he do so. In support of that argument, the Defendant refers to a number of
e-mails and memoranda as discussed hereafter. Counsel for the Plaintiff contends, however, that
the Plaintiff was not asked to disclose all private placements until the meeting in Toronto on
April 26, 2001.
[59]
In his e-mail of March 9, 200017 Collins asked Soost for copies of all outstanding private
placements “ that you are currently working on.” I interpret this e-mail as a request with respect
to ongoing or future private placements; not past ones. By e-mail of October 24, 200018, Collins
requested Soost to use an attached shell for seeking approval of a private placement in Adherex
Pharmaceuticals and said “This shell should be used for approval of all private placements going
forward.” I do not interpret that as a request for disclosure of past private placements.
[60] By e-mail dated March 8, 200119 sent by Sorenson to all staff in the Calgary, Lethbridge
and Medicine Hat offices of Merrill Lynch , he states that private placements must receive prior
approval and that “you must answer YES to question #4a”. I do not regard that e-mail, standing
by itself, as very informative of the requirement of having to disclose prior private placements.
[61] Two memoranda were sent by Brad Doney on April 4 and May 4, 2001 (referred to
above). There is nothing in either of these memorandum specifically calling upon financial
advisors who have already concluded a private placement to disclose those past private
placements.
16
Exhibit 7 indicates Soost’s last private placement was September/October 2000
17
Supra
18
Exhibit 1, Tab 33
19
Exhibit 1, Tab 51
had not been obtained by the Plaintiff as well as a number of other financial advisors and did
little (if anything) to enforce such requirement until Lamont’s arrival in late February 2001. The
Plaintiff did not do any private placements after that date.16
[62]
The evidence of Lamont supports the Defendant’s argument that Soost had been asked to
disclose his past private placements. She testified, and I accept, that she discussed with him his
EARS form, that he told her he had outside interests or investments and therefore she asked
him20 around April 28, 2001 to complete an Outside Interests Questionnaire.
[63] The Plaintiff admits that he was asked at the Toronto meeting of April 26th to provide a
complete list of all of the private placements he had participated in and to supply the related
offering memoranda. The following day Patti Wagg sent Lamont an e-mail21 containing a partial
list of the private placements that Soost had participated it. By the Plaintiff’s own admission, he
had not provided the Defendant with a complete list of his private placements before he was
terminated. He testified he was still working on it at the time of his termination. Nor does it
appear that he provided the Defendant with all of the offering memoranda in respect to his
private placements. However, the e-mail exchange22 between Lamont and Soost on this issue is
instructive. On May 3rd Lamont e-mailed Soost as follows:
I have confirmed with Modesta Moya that he did ask you for the Offering
Memorandums for the Private Placements that you have participated in.
Kindly forward these to my attention at your earliest opportunity. If you only
have the partial list right now, it would be appreciated if you could forward me
what you have while you are working on obtaining the remaining documents.
Soost responded by e-mail dated May 9th:
In our meeting with Jim on Monday ... he said that all colleagues in the Calgary
office have a complete private placement documentation signed off with
compliance. I do not believe that there was any private placement that I was
involved in without one of my colleagues. I believe that compliance should have a
complete list of offering memorandums for the private placements I gave you a
list of. Please call me if you have any further questions regarding this matter.
[64] This response does not seem unreasonable if Merrill Lynch already had the offering
memoranda on the companies Soost had a private placement in.
[65] In any event, the evidence does not prove to my satisfaction that the Plaintiff had , as
claimed by the Defendant, been repeatedly asked to disclose his past private placements before
the April 26th meeting in Toronto. Thereafter, he had made a partial disclosure and was still
“working on it” when he was terminated on May 18th. Moreover, given that the decision to
20
See her e-mail to Soost Exhibit 1, Tab 83
21
Exhibit 72
22
Exhibit 1, Tab 91
Page: 14
Page: 15
[66]
On balance, I am not persuaded that this ground justifies dismissal.
(iii)
He failed to make appropriate disclosure of his outside interests on
his EARS form, even when asked directly for such disclosure
[67]
Merrill Lynch had an Employee Activity Review System (“EARS”)form. Copies of the
1999, 2000 and 2001 EARS forms are Exhibit 1, Tabs 3,4 and 5 respectively. The Defendant
argues that the Plaintiff failed to declare his private placement holdings on his EARS forms for
the years prior to 2001. The actual completed EARS forms for those years were not put in
evidence. The Defendant relies on the answers in Soost’s cross-examination that he had not
answered “yes” to the question 4A “ Do you have any outside employment, directorships,
business interests or investments or trusteeships?”. However, his explanation for not answering
“yes” to this question was because “I didn’t know that I had to”. When Soost initially completed
his EARS form for 2001 he also did not answer “yes” to this question. However, Lamont knew
that Soost had some private placements and explained to him that if he had private placements,
the correct answer to question 4A was “yes”. He corrected his 2001 EARS form accordingly.
[68] Francine Gough testified. From September 1998 to the end of 2001 she was employed at
Merrill Lynch in Toronto as the administrator of the firm’s EARS program. She reported to Brad
Doney. She said that instructions for how to complete the form were provided along with the
form. This was done on-line from 2000 onwards. She agreed in cross-examination that the term
“private placements” was not used in the EARS form. She testified that there was a high
percentage of employees who completed the EARS form. Given that every employee was
supposed to complete one, I infer from her evidence that not everyone in fact completed an
EARS form. Further, I note her evidence that there were some issues in 2000 with employees
disclosing their outside interests on their EARS forms.
[69] I do not accept Soost’s argument that the EARS form question 4A is unclear. The
instructions accompanying that form explain that 4A includes (but is not limited to) “holdings in
securities (5000 or more shares) not at MLPF&S or reported in Question 3". Someone with
Soost’s education and experience should have been able to understand that question 4A called
for the disclosure of private placements. However, I am also mindful of the evidence of Cacic,
Collins and others that compliance matters seemed not to have had a high priority in the Calgary
office prior to Lamont’s arrival, as well as Gough’s evidence that not everyone even completed
an EARS form, at least in 1999.
[70] In the circumstances, I am not persuaded by the Defendant that the Plaintiff’s failure to
properly complete his EARS forms prior to 2001 is sufficient cause for his termination.
terminate him was taken by the Defendant at the beginning of May, the Plaintiff had not had a
reasonable opportunity to comply before the decision was taken, and probably not even before
the decision was executed.
Page: 16
He solicited clients to make purchases of Oncolytics after having
been specifically directed by the Defendant not to do so
[71]
As previously noted, the Calgary office of Merrill Lynch had developed a concentrated
position in respect to the shares of Oncolytics. This fact, according to Doney, raised concerns
about the pricing of the security, fairness of the auction market and market manipulation. It
would also appear that significant amounts of this stock were held on margin which further
raised the issue of pricing in the event of sales to reduce margins in a falling market. Therefore,
Merrill Lynch decided that no further shares of Oncolytics would be solicited.
[72] A meeting took place about January 10, 2001 in the Calgary office. In attendance were
Sorenson and Collins, the branch co-managers, and Soost, Cacic and Frank Haika, the three
financial advisors who, between them and their clients, held the vast majority of the Oncolytics
shares at Merrill Lynch. The three financial advisors were advised and instructed that there
would be no more solicitation of Oncolytics stock. On January 15th a letter23 was sent to Soost,
Cacic and Haika confirming that “all solicited purchase orders of Oncolytics Biotech are
prohibited”.
[73] At the meeting, Soost raised a concern about clients or prospects that he had who might
want to purchase Oncolytics. It was decided that Soost would put together a list of clients or
prospects that might be in the process of purchasing or considering purchasing Oncolytics and he
could sell Oncolytics to them on an unsolicited basis. The understanding reached is best
described in Soost’s own words from his cross-examination:
Q. Well, let’s be clear about that, sir. The list you put together wasn’t a group of
people that you could go and solicit, was it sir?
A. That’s true. Yes.
Q. Okay. It was a list that you said you were going to put together of clients you
had approached and potentials you had approached, and if unsolicited, might be
allowed to buy some stock but it had to be unsolicited; right?
A. That’s fair.24
[74] Collins testified he received a lengthy list of clients and prospects from Soost and that he
gave it to Sorenson. Collins testified that when he gave the list to Sorenson, Sorenson reviewed it
and said it was okay. Collins kept a copy of the list and reviewed it when he did his daily
commission review. This evidence is not consistent with Sorenson, who testified that when
Collins gave him this lengthy list he gave it back to Collins and told him it had to be more
23
Exhibit 1, Tab 42
24
Trial Transcript pp. 406-407
(iv)
Page: 17
[75] On January 11, 2001, Sorenson sent an e-mail25 to Doney reporting on this meeting and
what had been agreed to.
[76] Cacic testified that he subsequently heard Soost or his team soliciting Oncolytics. I put
no reliance on that evidence because it is conclusory . Cacic did not testify as to what words he
heard in order that I might decide whether or not such words were, in fact, solicitation of clients
or prospects into Oncolytics.
[77] However, there is evidence that Soost and his team did solicit Oncolytics. Despite
Soost’s evasiveness when questioned on this area, upon being confronted on cross-examination
with his evidence from examinations for discovery, he admitted that he or members of his team
had solicited further trades in Oncolytics after January 15th on a limited basis. As well, he
admitted that his team, with his awareness or instructions, sent out a Lightyear Capital research
report dated January 29, 200126 to a large number of people27. Similarily, an e-mail dated April 3,
200128 with a Lightyear report on Oncolytics was sent to a number of clients. Both of these
reports rated the Oncolytics stock as a “Strong Buy” and indeed the e-mail stated “ ...we see this
as a buying opportunity”.
[78] I reject any effort by Soost to disassociate himself from responsibility for these send- outs
and the e-mail. His assistant, Marnelle Pollock, was acting on his behalf. He should have told her
that soliciting Oncolytics was not allowed. His failure to do so amounts to wilfull blindness.
[79] I find the nature and tenor of this information, its dissemination to such a large group of
clients and prospects, and its description as a “buying opportunity” or its recommendation of
Oncolytics as a “strong buy” to be a clear attempt by the Plaintiff at soliciting persons to buy
Oncolytics stock. Further, I reject as disingenuous, at best, Soost’s denial that this was not
solicitation, it was simply a matter of keeping people informed about the Oncolytics “story”. If it
was simply a matter of keeping people informed, why would he not send out the negative report
on Oncolytics?
[80] As to Plaintiff counsel’s reliance on the fact that all trades in Oncolytics after January
15th were recorded as “unsolicited” according to Sorenson’s evidence at trial, even if accepted,
25
Exhibit 1, Tab 41
26
Exhibit 102
27
See distribution list in Exhibit 1, Tab 47
28
Exhibit 1, Tab 94
specific and to give it back to Soost to refine it. Collins, on the contrary, testified that he never
saw or heard anything more about the list once he had given it to Sorenson. In the view I take of
this case, while nothing turns on this discrepancy, I prefer the evidence of Collins on this point.
Page: 18
[81] In the result, I find that Soost engaged in soliciting Oncolytics stock, contrary to the
prohibition and agreement made on January 10, 2001. The seriousness of the breach can be
gauged by the view taken by Merrill Lynch as evidenced by the penalty it advised Soost and the
others would be exacted for breach of the prohibition. In the letter advising of the prohibition,
Merrill Lynch stated: “Please be advised that any failure to adhere to this restriction will result in
reversed commissions”29. No commissions were reversed.
[82] In the result, I do not regard this breach to be sufficient in and of itself to justify Soost’s
dismissal.
(v)
He failed to use margin in his own accounts in an appropriate
manner
[83] The Defendant availed himself of the privilege of buying stock on margin through his
personal accounts at Merrill Lynch . The Midland Walwyn Handbook30, with which the Plaintiff
was or should have been familiar, provided as follows:
3.1.7
... Employees of the firm are expected to be held to a higher standard than
the clients with whom they deal, ... By this it is intended to mean that
delinquencies of any kind, where a grace period might be allowed for a
client, will not be tolerated for employees. If the firm and its employees
are to advise clients on the proper management of their funds, they must
be able to handle their own accounts on an exemplary basis.
3.1.7.2 Employees are reminded that all margin accounts are subject to a
minimum $2,000 of equity to be maintained. All maintenance calls must
be met immediately. Any employee margin account which is undermargined on settlelemt date may be sold out immediately without a
margin call being issued to the employee. It is the employee’s
responsibility to monitor his or her accounts and make sure that they are
onside at all times.
29
Exhibit 1, Tab 42
30
Exhibit 6
that is contrary to the Plaintiff‘s own evidence that he did some solicited trades in Oncolytics
after January 15th and in any event, does not answer the allegation that Soost engaged in
soliciting.
Page: 19
As part of our self-regulatory responsibility, we are required to supervise and
control our employees’ margin transactions with a high degree of diligence. In
this regard, certain additional margin restrictions, which are not normally applied
to clients, must be placed on employee margin accounts:
1. Employee margin accounts must be fully margined at all times, and margin
calls must be met immediately.
2. A daily review of trades, maintenance calls, liquidations, and buy-ins must be
made by the RVP/RM.
[85] Sorenson testified as to his involvement with Soost’s margin account issues. While he
was not personally involved with the management and collection of the margin deficiencies in
Soost’s margin account, Sorenson was kept apprised of it. I accept his evidence that Soost
carried a very substantial amount of margin and that he was more involved in being kept
apprised of Soost’s margin account than any other financial advisor in the complex from about
October 2000 until May 18, 2001.
[86] Collins testified, and I accept his evidence in this regard, that one of his responsibilities
was to monitor margin accounts in the branch. While other financial consultants would have
volatility in their margin accounts from time to time, none had the type of volatility that Soost
had such as to require Collins to monitor his margin accounts on an ongoing daily basis. This
was due to the volatility of the highly speculative type of stocks that Soost held in his account. In
fact, Collins kept Hartman, Sorenson and Ambrosie advised of what he was doing with Soost’s
margin account on a daily basis via e-mail.
[87] When Lamont took over at the branch in late February 2001, Soost’s margin problems
continued. She testified, and I accept, that:
The number of margin calls for Mr. Soost were a lot greater in number than they
were for any other broker in the office, so he took up a great deal of my time and
my assistant’s time in dealing with any of the margin situations that were there.32
[88] The ongoing efforts of Lamont to get Soost’s margin on side were complicated by the
fact that Soost, as a means of meeting margin calls, would on occasion try to deposit private
placement stock into his accounts. One example of this is in regards to the stock in Vertical
31
Exhibit 16
32
Trial Transcript, p. 1435
[84] The Merrill Lynch Manual31, another document with which Soost was or should have
been familiar, lays down the following policy in respect of employee margin accounts at section
02.2.13:
Page: 20
[89] Ambrosie was asked in chief how Soost’s margin issues compared with others he was
aware of in the fall of 2000. His response is illustrative of the problem Soost had with his margin
accounts. Ambrosie said:
I – I think it would be fair to say that for me, personally, Mr. Soost’s margin
situation was far more significant than any other advisor that I can recall during
that – during that time frame. And I certainly was, you know, witness to and
involved in more discussions around his personal situation than any other advisor,
again, that I can recall during that period.33
[90] The problem with Soost’s margin account was so significant that Nick McClanahan
telephoned Soost personally about it in 2001. McClanahan was then the national Sales Director
for Merrill Lynch Canada and Ambrosie’s supervisor. McLanahan testified34 that he telephoned
Soost to talk to him about his margin account and his trading activities. He asked Soost to make
a better effort to do a better job at his own personal finances and to reduce the speculative nature
of his stock and the size of his margin. McLanahan recalls this call because it was unique. He
could not recall another case where he has made such a call. I find McLanahan to be a credible
witness and I accept his evidence.
[91] The Plaintiff argues that the decision to grant margin and the amount of margin granted
to him was not his decision but rather that of Merrill Lynch. He says that Merrill Lynch could
have unilaterally acted at any time to sell his stock in order to alleviate the margin position. He
also points out Collins’ evidence that other financial consultants had margin calls in this period
as it was a time when the stock market was falling with the bursting of the “tech bubble”. And
finally, the Plaintiff submits that, relying on Lowery v. Calgary 2002 ABCA 237, margin issues
cannot be cause for dismissal because he was never warned that he might be dismissed for
margin issues.
[92] I do not find the Plaintiff’s argument persuasive. Of course the granting of credit
(margin) was the Defendant’s decision. But when and how the margin was used was up to Soost.
He chose to use it for speculative stock subject to potential volatility. It is no answer to say that
Merrill Lynch could have sold Soost out of his position to cover margin calls. No one suggests
that the Defendant lost money on the Plaintiff’s margin. To the contrary, it is clear that the
Plaintiff eventually covered all of his margin calls. The point is the unprofessional manner in
which the Plaintiff managed his margin. Further, the fact that other financial consultants had
margin calls is not determinative of anything. All the evidence indicates that the magnitude,
33
Trial Transcript, pp.1759-1760
34
Trial Transcript, pp.2645-2647
Builder. Before such a deposit could be made, Lamont required confirmation that the private
placement had been approved by Merrill Lynch. This gave rise to further argument over the
private placement policy of Merrill Lynch between Soost and Lamont.
Page: 21
[93] Finally, as to the lack of warning, I accept the Defendant’s argument in this regard. The
Merrill Lynch manual and the Midland Walwyn clearly stipulate that it was Soost’s
responsibility to keep his margin account on-side at all times. That was company policy. The
Terms of Employment35 accepted and signed by Soost state that breach of company policy is
cause for dismissal. As well, the discussions with McLanahan, Ambrosie, Sorenson and Lamont
telling him to get his margin account on-side surely could be viewed as warning that his
continued employment was at risk if he did not do so. In fact, Cacic testified that Soost told him
he thought he was going to be fired because of private placements and margin issues.36
[94] In the result, while I do not regard the manner in which the Plaintiff managed his margin
accounts to be sufficient cause on its own to justify his dismissal, I find that it is a valid
consideration in determining if the Defendant ultimately had just cause to terminate the Plaintiff.
(vi)
He failed to appropriately supervise unlicenced staff under his
direction
[95] This claim is based on the evidence of Sorenson. He testified that in April 2001 he heard
Ryan Lailey, an unlicenced staff member on Soost’s team, discussing with the Plaintiff client a
research report on Oncolytics and telling the client that the report was wrong and that something
else was coming out. At that time, Lailey, as an unlicenced staff member, was supposed to be
using an approved script but was not doing so. Sorenson reported the matter to Lamont who
issued a Memorandum37 on April 3, 2001 to Lailey advising him that he was prohibited from
giving investment advice and was restricted to scripts pre-approved by management.
[96] Lailey worked on the Soost team and therefore Soost was responsible for him. There is
no evidence suggesting that Lailey was doing this on a regular basis or with the knowledge or
consent of Soost. Moreover, at the time of this incident Soost was in South Africa attending a
conference of Merrill Lynch top producers.
[97] I do not find that this single incident constitutes a “failure to supervise” such as to justify
being considered a factor to dismiss Soost for cause.
(vii)
He inappropriately contacted other investment dealers and
criticized research of Oncolytics
35
Exhibit 1, Tab 6
36
Trial Transcript, p.787
37
Exhibit 71
degree and continuing nature of Soost’s margin problems was unique and far beyond anything
else being experienced in the Calgary Branch.
[98] The Defendant alleges that Soost twice contacted other investment dealers and “made
complaints about the research those dealers had made into Oncolytics”. The first of these calls
was made in late 2000. Cacic testified that he and Soost contacted Ms. Vera Belahoff. It was a
joint call. Cacic was there participating in the call. Belahoff was in a small firm in Toronto and
had put out a research report on Oncolytics recommending it as a sell. Soost asked her to do
more due diligence on the stock.
[99] Nothing came of this. Neither Soost nor Cacic was disciplined. The evidence suggests
that this call never came to the attention of anyone in a supervisory role at Merrill Lynch.
[100] With respect to the second incident, the only direct evidence as to the call is that of the
Plaintiff. He testified that a client called him and asked him to contact D.J. Harris to see if they
had any Oncolytics stock to sell. Soost denied ever talking to any analyst at D.J. Harris. He said
he called D.J. Harris to size up a trade in Oncolytics. He denied questioning their research. The
account found in Sorenson’s e-mail dated April 20, 200138 is accurate according to Soost’s
recollection.
[101] Soost explained that he did not know that he was not supposed to contact the trading desk
of another firm to size up an order. He and Sorenson agreed that he would not do so in the future.
[102] Counsel for the Plaintiff submits that these two contacts cannot be cause for dismissal
because before the decision to dismiss the Plaintiff was taken, the parties had resolved the issue
by the agreement referred to in Exhibit 90. There is merit to that submission.
[103] Moreover, given the explanation given by Soost, which I accept, I do not view these
contacts to be serious or significant breaches of the employment relationship. I do not believe
they should carry much, if any, weight in deciding whether or not the Defendant had cause to
terminate the Plaintiff.
(viii) He engaged in discretionary trading.
[104] The Defendant also relies on an alleged discretionary trade made by Soost on Terrence
Hawett’s account, to justify terminating the Plaintiff.
[105] Terrence Hawett is 78 years old and an experienced entrepreneur. He testified that he had
opened an account at Merrill Lynch because he was interested in purchasing Oncolytics..He had
other stock in the account as well. Soost was his financial advisor. Upon receiving a margin call
on his account, Hawett said he telephoned someone at Merrill Lynch and instructed that his
Oncolytics stock be sold to cover his margin. Hawett’s memory on who he gave instructions to
regarding the sale of Oncolytics is vague and unclear. However, it does not appear that he spoke
to Soost directly. Later, Hawett discovered that, contrary to his instructions, his Sun Life shares
38
Exhibit 90
Page: 22
had been sold, not his Oncolytics shares. He then telephoned Soost and spoke directly to him
about this. He described Soost as being very arrogant in this conversation and advised Hawett
that he [Soost]39 had made the “right decision” and that Hawett should go to one of the
Oncolytics meetings and hear more about the future of the company.
[106] On May 23, 2001 Hawett faxed Merrill Lynch40 outlining this complaint. He wrote
Lamont on June 26, 200141 again outlining his complaint. She responded to him by letter, which
although undated, appears from another document in this exhibit to have been couriered to
Hawett on July 26, 2001. In that letter, Lamont indicated that Hawett’s complaint is out of time
as Merrill Lynch’s policy is that if a trade is not questioned within 10 days, it is deemed to be
valid. Hawett seems to have acknowledged he was out of time and did not pursue the matter
further.
[107] Soost testified that he did not deal with Hawett directly. Yet he testified that Hawett’s
instructions were to sell his Sun Life shares. Although he does not have a recollection about it,
Soost does not deny that he may have told Hawett to go to an Oncolytics meeting. Soost
admitted at trial that if he had sold Hewitt’s Sun Life shares without his authorization to do so, it
would be discretionary trading.
[108] The Plaintiff argues that the evidence does not prove that Soost engaged in discretionary
trading. Moreover, he submits that alleging this trade, only at trial, as a cause for termination is
contrary to the Defendant’s admission at Undertaking #15 in that discretionary trading is not
mentioned there as one of the grounds for dismissal.
[109] In reviewing Undertaking #15 as set out by the Plaintiff in his material submitted to the
court, I cannot agree that it constitutes an admission that prevents the Defendant from relying on
this trade.
[110] I find the evidence on this allegation somewhat troubling. Although Hawett did not place
the order to sell Oncolytics with Soost directly, it appears from Soost’s own evidence that he was
aware of the sale of the Sun Life shares. His comments to Hawett that he [Soost] had made the
right decision to sell the Sun Life shares and that Hawett should go to an Oncolytics meeting
(which he did) can be regarded as being consistent with Soost being responsible for the sale of
the Sun Life shares contrary to Hawett’s instruction. On the other hand, Soost’s comment that he
had made the “right decision” to sell the Sun Life shares is also consistent with an interpretation
with the “right decision” being the “right instruction” to sell the Sun Life shares. The fact that
39
In Exhibit 76 Hawett describes the conversation thus: “...Mr. Soost, who indicated in
his opinion he had made the right decision, and that I should go to the forthcoming Oncolytics
annual meeting. (Emphasis added)
40
Exhibit 75
41
Exhibit 76
Page: 23
Hawett did not challenge the sale until much later adds weight to this interpretation. If Soost had
acted contrary to instructions, one would have expected Hawett to react immediately. Further, an
experienced entrepreneur would be expected to review his trade slips promptly. Finally, this is
the only allegation of a discretionary trade made against Soost. If he was, in fact, engaged in
discretionary trading, one could reasonably expect that there would be a number of complaints of
it.
[111] In the final analysis, it is the Defendant who has the burden of proving discretionary
trading. For the foregoing reasons, it has not satisfied me that Soost engaged in this one
incidence of discretionary trading.
CONCLUSION ON JUST CAUSE
[112] In the final result, I have found some merit or substance to some of the grounds for
dismissal alleged by the Defendant but not others. The question then becomes whether, having
regard to the authorities cited earlier, the Defendant has proved there was sufficient basis to
summarily dismissal the Plaintiff . After much consideration, I have concluded that it has not.
[113] In my opinion, none of the defaults which I have found either singly or in combination,
are sufficient to justify summary dismissal of someone in Soost’s position. To terminate for
cause someone in Soost’s position in the financial industry would foreseeably have the effect of
mortally wounding that persons’s ability to successfully carry on as an investment advisor.
Merrill Lynch knew or ought to have known that. There was no good reason why, once Merrill
Lynch had decided to let Soost go, it could not have done so with some minimal notice or
allowed Soost to resign of his own accord. The suggestion by the Defendant that they had some
sort of duty or obligation to the industry to fire Soost rather than to let him resign is not
persuasive. The reasons given in the Uniform Termination Notice are brief and not very
informative for a regulator. Further, there is no suggestion that the Defendant ever
communicated its reasons for termination to others in the industry for whom the Plaintiff might
seek to work.
[114] But most significantly, in my view, is the fact that despite having reached a consensus
after the April 26th meeting that Soost had to go, and within days to dismiss for cause on May 4th,
the Defendant waited until May 18th to execute its decision to terminate. That delay suggests to
me that whatever faults the Defendant thought Soost had, they were not sufficient to justify
immediate action. And if that is so, there is no reason why the Defendant could not have given
Soost some notice of his termination. The suggestion by Merrill Lynch that it could no longer
trust Soost or had questions about his honesty were clearly not so profound or pressing as to
cause it to immediately terminate him once it had reached its decision. Instead, it waited almost
two weeks to do so.
[115] Also, it is worth noting that there was no evidence that any client suffered any loss as a
result of any of the matters of cause which I have found above. Nor did Merrill Lynch suffer a
loss as a result of Soost’s management of his margin account.
Page: 24
[116] Furthermore, having regard to the authorities cited above, and in particular the concept of
proportionality as discussed in McKinley, I am of the view, given Soost’s position and years of
service in the industry, that before purporting to terminate him for the defaults it alleged, the
Defendant should have given him a specific warning to fix these defaults by a certain date failing
which he would be terminated. For example, that he must provide the list of his private
placements and supporting documents by a certain date otherwise he would be terminated. Or,
that any further solicitations of Oncolytics would result in immediate termination.
[117] In the result, I find that there was not just cause for Soost’s dismissal.
2.
Was the Plaintiff defamed?
[118] The Plaintiff claims that “...by advising the industry and Mr. Soost’s clients that Mr.
Soost was terminated, that was effectively defamation.”42 More specifically, he submits: “When
Merrill Lynch alleged that Mr. Soost was dismissed for cause, and if the Court determines that is
not true, that is inherently defamation. And it is defamation because the allegation made has
maligned a person’s reputation in an industry where reputation is integral to success”.43 He seeks
$500,000 general damages for loss of reputation as a result.
[119] The Plaintiff bases his claim of defamation on various actions of the Defendant which it
took after his termination. Specifically: it sent letters to Soost’s clients; it failed to comment
when clients inquired as to why Soost was no longer employed at Merrill Lynch, thereby giving
rise to an implication of wrongdoing; it sent an internal memorandum to staff indicating that
Soost had been terminated for cause; there were vicious rumours spreading around the office
about what Soost had allegedly done; and it sent a different warning letter to the Alberta
Securities Commission (“ASC”) than it had sent to Soost.
[120] The Defendant argues that the Plaintiff has failed to prove the elements of defamation
and refers to Liboiron v. Majora, 2005 ABQB 952; aff’d 2007 ABCA 18.
[121] I accept that Liboiron accurately sets out the elements of a cause of action for defamation
as follows: (1) that the words are defamatory, (2) that the words refer to the Plaintiff and (3) that
the words were published to a third party. For the reasons which follow, the Plaintiff has not
proved a cause of action against the Defendant for defamation.
[122] Following Soost’s termination, Merrill Lynch admitted that it sent letters to Soost’s
clients. Examples of these letters were introduced as Exhibit 1, Tab 106 being drafts of letters
sent by Cacic and Lamont. At most these letters simply advised that “Kurt Soost is no longer
42
Plaintiff’s Written Argument at page 32
43
Plaintiff’s Written Argument at page 33
Page: 25
employed at Merrill Lynch” or “ Mr. Kurt Soost is no longer a Financial Consultant at Merrill
Lynch Canada Inc.”. I do not find those words are defamatory. They merely state the fact that
Soost is no longer employed by Merrill Lynch. I adopt the following statement from the Nova
Scotia Supreme Court in Greyrideg Investments Ltd. v. T.C. Welding & Automotive Ltd. (1994)
129 N.S.R. (2d) 23 at paragraph 52:
There is no doubt that Goldstone Property Services sent the letters containing the
statement that Bowser was no longer employed by it. But that statement is not a
defamatory comment. It is not an attack upon Bowser’s moral character, and it
does not bring Bowser into ridicule or contempt. The statement in the letter are
simply statement of fact which do not necessarily give rise to the inference that
Bowser was fired for cause. It would be equally possible to draw an inference
from those statement that he had been fired without cause, had been laid off, had
resigned, or had caused his employment to be terminated. If such statement were
to give rise to a right of action for defamation, no employer could ever notify
customers or suppliers that a particular employee was no longer employed for fear
that it would be liable for defamation.
[123] I also reject the Plaintiff’s argument that the Defendant’s failure to comment on, or give
reasons for, termination thereby gives rise to a defamatory implication or inference. Silence
cannot be defamation because the essence of defamation is the communication of words to a
third party.
[124] On May 23rd, five days after the termination, an internal e-mail44 was sent from Rena AlSamadi, of the Private Client Group Finance of Merrill Lynch in Toronto, to a large number of
persons. It advised that Soost had left the firm and the reason stated was “Terminated-Cause”.
Doney testified that this was a routine format e-mail that was produced to provide general
notification to the people in Merrill Lynch that were providing services or information respecting
financial advisors. He said it was sent out whenever a financial advisor left the firm. None of the
addressees was a financial advisor. Doney said that all internal correspondence is confidential. I
accept Doney’s evidence in this regard.
[125] Ambrosie confirmed in his evidence that this e-mail was administrative in nature. It was
sent to a discrete group in Merrill Lynch who, for the purposes of their duties, needed to know
that the person was no longer with the firm. It was done with every departure. I accept this
evidence.
[126] The Defendant argues that even if this e-mail can be viewed as defamatory, it was not
published and even if it had been it was subject to qualified privilege.
44
Exhibit 1, Tab 108
Page: 26
[127] I am not satisfied that this e-mail is defamatory. I am satisfied that it was “published” by
virtue of having been distributed to the addressees within the Merrill Lynch organization. There
is no specific evidence that it was ever distributed elsewhere. But even assuming that the e-mail
was defamatory, I would conclude that it was subject to qualified privilege.
[128] Qualified privilege, as the Supreme Court of Canada has stated45, attaches to the occasion
upon which the communication is made and not to the communication itself. Citing an English
case, the Supreme Court went on:
...a privileged occasion is ... an occasion where the person who makes a
communication has an interest or a duty, legal, social or moral, to make it to the
person to whom it is made, and the person to whom it is so made has a
corresponding interest or duty to receive it. This reciprocity is essential.
[129] Here, it is noted that this e-mail was not sent to all employees of Merrill Lynch
indiscriminately. It was, as I have found, an administrative communication sent only to those
who, because of their duties, had an interest and needed to receive it. I find, therefore, that were
the e-mail, in fact, defamatory, it is subject to the defence of qualified privilege.
[130] As to the “vicious rumours flying around the office”, Ms. Kutrowski gave no evidence as
to what exactly was being said and by whom. Such nebulous evidence cannot found an assertion
of defamation by the Defendant.
[131] Finally, despite counsel for the Plaintiff’s argument, I fail to see how the forwarding of a
different warning letter to the ASC than that given to Soost can be defamatory. A letter of
January 15th, 200146 addressed to Soost, Cacic and Haika prohibits soliciting purchase orders of
Oncolytics and advises that failure to adhere to this restriction will result in “reversed
commissions”. An unsigned letter47, similar to that, was apparently delivered to the ASC
allegedly by the Defendant during the course of an investigation. The only difference between
the letters is that the version given to the ASC says that failure to adhere to this restriction will
result in “reversed commissions and/or more severe sanctions”. The Plaintiff argues that the
investigation and complaint resulting in the investigation was defamation.
[132] There is no merit to this argument. Sorenson explained how the two different versions
came to be. Exhibit 17 was a draft which was never sent to its addressees. The original version,
Exhibit 1, Tab 42, had by that time already been sent. I accept Sorenson’s explanation in that
regard. Besides, there is nothing defamatory about either version. Further, there is no evidence
45
Hill v. Church of Scientology of Toronto [1995] 2 S.C.R. 1130 at paragraph 146
46
Exhibit 1, Tab 42
47
Exhibit 17
Page: 27
Page: 28
[133] In the result, the Plaintiff has failed to prove that the Defendant defamed him.
3.
Did the Defendant intentionally interfere with the Plaintiff’s
economic relations?
[134] The Plaintiff contends that the manner in which the Plaintiff was terminated was intended
to deprive him of his book of business and thus constitutes the tort of intentional interference
with the Plaintiff’s economic relations for which he is entitled to damages.
[135] Both parties concede that this tort has three essential elements: (1) an intent to injure; (2)
interference with business by illegal or unlawful means; and (3) a loss as a result of that
interference48.
[136] The Plaintiff argues that these three elements are proved. He refers to the manner in
which he was terminated and the efforts made by the Defendant to keep his book of business —
his clients — as evidence of that intention. With respect to the second element, the Plaintiff
argues that the Defendant conspired to keep his book of business weeks in advance of his
termination. He points to various Admitted Facts and the termination check-list as evidencing a
deliberate and calculated plan to ensure that the Defendant kept the Plaintiff’s clients or book of
business. He also points to the fact that the Defendant instructed his team to take a week off with
pay immediately upon his termination. Soost also suggests that the decision to terminate him for
cause as opposed to with notice was done to create suspicion and undermine client loyalty to him
in order to make it easier for Merrill Lynch to persuade Soost’s clients to stay with them.
[137] As to the third element, the Plaintiff points to the size of his book of business at about
$145 million at the time of his dismissal, the evidence of Sorenson indicating that 70 to 80% of
clients follow their advisor when he leaves for a new brokerage house, Soost’s evidence that
only about $10 million of his book followed him to his new brokerage house, Lightyear Capital,
and finally, that because of his loss of client base, he could not succeed as a financial advisor
after his termination and eventually, on December 31, 2001 he left the industry.
[138] On the other hand, the Defendant denies that it has committed this tort. It points out that
it is the Plaintiff who has the burden of proving this separate tort. It is not sufficient to simply
prove wrongful dismissal. He must prove all elements of this separate and actionable wrong.
[139] The Defendant submits that if this court finds that the Defendant had just cause for
terminating the Plaintiff then the tort of wrongful interference with economic relations must fail
48
Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada (2003) 65
O.R. (3d) 30 (C.A.).
that the Defendant made any complaint to the ASC nor is there any evidence of what the
Defendant said to the ASC (if anything) during the investigation.
because the Plaintiff would have failed to prove the second element of this tort — a wrongful or
illegal act since the dismissal would have been lawful. It argues further that even if there was no
just cause for dismissal, the Plaintiff has failed to prove the other two elements of this tort.
Specifically, there was no intention to injure the Plaintiff. It denies there was a deliberate and
calculated plan to injure the Plaintiff and points to various evidence showing that Merrill Lynch
had no desire to keep Soost’s book of business because of the number of his clients holding
Oncolytics stock, many on margin. Further, while it admits that it did put a plan in place to
assign the Plaintiff’s clients to new financial advisors, it did so because of its obligation to
ensure that the clients had someone to immediately turn to if they wanted to buy or sell stock. In
any event, the Defendant argues, it had a proprietary interest in the client information and was
entitled to solicit their business and try and persuade them to remain with Merrill Lynch after
Soost’s termination.
[140] Finally, the Defendant submits that the Plaintiff has failed to prove any causal
relationship between the alleged interference of the Defendant and the financial loss claimed by
the Plaintiff. Any financial loss he suffered was as a result of his own failure to act in an
appropriate and timely manner to secure employment with a new investment dealer.
[141] For the reasons which follow, I find that the Plaintiff has failed to prove the Defendant
intentionally interfered with his economic relations.
[142] I agree that the Plaintiff must prove the three elements of this tort as set out in Reach and
adopted by the Alberta Court of Appeal in Conway v. Zinkhofer, 2008 ABCA 392 at paragraph
41.
[143] As to the first element, Reach makes clear that in order to satisfy this element the
predominant purpose of the defendant’s actions need not be to cause injury to the plaintiff. The
predominate purpose may be, as it was in Reach, to advance its own interests and that of its
members. Thus, quoting from John G. Fleming, The Law of Torts, 9th ed.(1998), at p.769, the
court in Reach said at paragraph 46:
The Defendant’s manoeuvre must have been targeted against the plaintiff,
although its predominate purpose might well have been to advance his own
interests thereby rather than to injure the plaintiff.
[144] Here, if one uses the Reach definition of intent, there would be no doubt that both the
termination and the actions taken by the Defendant immediately thereafter to keep the Plaintiff
and his team out of the office while they advised the Plaintiff’s clients that Soost had left Merrill
Lynch and that a new financial advisor had been assigned to their account, satisfied the first
element of the tort as interpreted in Reach above. Clearly the Plaintiff was the target of the
actions and whilst the actions may well have been taken to preserve or advance Merrill Lynch’s
own interests and discharge its responsibilities to its clients who had accounts with it and needed
to have a financial advisor assigned to them at least until the Plaintiff had established and
Page: 29
Page: 30
[145] However, the law is unclear as to whether or not the minimalist view of intent as set out
in Reach is correct. In Cheticamp Fisheries Co-Op Ltd. v. Canada, (1995), 139 N.S.R. (2d) 224,
the Nova Scotia Court of Appeal, after carefully considering the issue of intent and reviewing a
number of cases from various jurisdictions, held at para.35:
...there is a requirement that the purpose or intention of the unlawful conduct at
issue must be to inflict injury upon the plaintiff. It must be more than just an
incidental or foreseeable result of the conduct.
The Court went on to comment at paragraphs 42, 44 and 46:
What the case law requires is an intention to cause the damage. Mere knowledge
of D.F.O. officials that their actions were unlawful or recklessness as to whether
or not they were unlawful is not, in itself, sufficient evidence of intention to do
harm. I have already referred to the fact that the purpose or intention of inflicting
injury is an essential element of the tort. The courts have stopped short of
substituting for an intention to cause damage to the plaintiff a mere foreseeability
that such damage may result from the unlawful conduct. A constructive intent to
injure or foreseeable injury may have a place in the tort of conspiracy but not in
my opinion in the tort of interference with economic relations. ... If any lesser
standard were required, it still seems clear that the offending conduct must be
“directed at” the plaintiff.
...
The tort of unlawful interference with economic relations has developed largely
in the context of the private business world, particularly with respect to trade
disputes. It has been developed with hesitancy - witness the very clear
requirement that a plaintiff must establish on the defendant’s part an intent to do
injury. ... The tort is an intentional tort, that is one where the wrongdoer desires to
bring about injury to another.
...
Accepting that this is a finding that D.F.O. was “reckless” as to whether or not its
scheme was authorized, the evidence does not support the inference that it
intended to harm the respondents or even, to use the term found in some of the
authorities that its actions were “directed at” the respondents. They were directed
at the proper management of the fishery, in the context of the various crises faced
by it.
[146] I prefer and adopt the Nova Scotia Court of Appeal’s interpretation of the intent
requirement in Cheticamp to that of the Ontario Court of Appeal’s in Reach. The tort is that of
registered himself in another investment house, the minimal interpretation of intent as set out in
Reach is met.
Page: 31
[147] In this case, I am satisfied that there was no such intent on the part of Merrill Lynch to
injure Soost in respect of his book of business. While it was certainly foreseeable that Merrill
Lynch’s actions in contacting the clients would result in some of those clients electing to stay
with Merrill Lynch rather than to follow Soost, I see nothing in that which proves an intent to
cause injury. In other words, the purpose or intent of the action was not directed at causing injury
to Soost. While Merrill Lynch’s actions could be said to have been “directed at” Soost in the
sense that it was his clients who were at issue, I agree with the Nova Scotia Court of Appeal that
more is required to make out an intentional tort.
[148] The second element of the test is even more problematic. To satisfy it, the Plaintiff must
prove that the Defendant interfered with the Plaintiff’s business by illegal or unlawful means.
[149] The meaning of “unlawful” for purposes of this tort has been the subject of discussion in
a number of cases. In his text, The Law of Torts, 3d ed. (Toronto: Irwin Law Inc., 2007), Philip
H. Osborne states that Reach is the leading case. In Reach, the Ontario Court of Appeal held that
the concept of “unlawful” goes beyond contravention of a law or statute, stating as follows at
paras. 49 and 50:
The case law reflects two different views of “illegal or unlawful means”, one
narrow, the other broad. The narrow view confines illegal or unlawful means to
an act prohibited by law or by statute. ...
The broader view, however, extends illegal or unlawful means to an act the
defendant “is not at liberty to commit” - in other words, an act without legal
justification. Lord Denning espoused this broader view in Torquay Hotel Co. Ltd.
v. Cousins, [1969] 1 All E.R. 522, [1969] 2 Ch. 106 (C.A.) at p. 530 All E.R.:
I must say a word about unlawful means, because that brings in
another principle. I have always understood that if one person
deliberately interferes with the trade or business of another, and
does so by unlawful means, that is, by an act which he is not at
liberty to commit, then he is acting unlawfully, even though he
does not procure or induce any actual breach of contract. If the
means are unlawful, that is enough.
[150] Nevertheless, the same Court was not prepared in Drouillard v. Cogeco Cable Inc.
(2007), 86 O.R. (3d) 431, 2007 ONCA 322 to extend the concept of unlawful to an act by a
corporation in contravention of its own internal policy. The Court, after referring to its decision
in Reach, made these comments at paras. 20-25:
intentional interference with economic relations. It is not one of negligent interference. Thus it
seems to me that the crux of the tort is that of a specific intention or desire to bring about the
economic injury to another.
In the present case, the trial judge found that Cogeco had an internal policy to the
effect that if it wanted to prevent a contractor from using a certain individual on a
Cogeco project it could so instruct the contractor if there was reasonable cause to
do so. ...
In my view, on the facts of this case, the trial judge erred in concluding that the
breach by Cogeco of what appears to be an unwritten internal policy amounts to
an unlawful act. Nothing in the record suggests that either Cogeco or its
employees were “not at liberty” to act contrary to the company’s internal policy
or that Mastec or Drouillard had relied on this policy such that they could require
that Cogeco respect it.
...
In the present case, however, Cogeco’s unwritten internal policy was not put in
place to protect the interests of Drouillard or Mastec. It does not appear that
Drouillard or Mastec were aware of or relied on this policy. Further, there was no
indication that Cogeco and the employees involved in the decision regarding
Drouillard were “not at liberty” to suspend or simply disregard this unwritten
policy.
Although the limits of this tort have yet to be set, it would be inappropriate, in my
view, to extend the application of this tort to breaches of a corporation’s internal
policies in circumstances such as those found in this case.
Drouillard argued that Cogeco’s actions were arbitrary and in bad faith and that
this provided an alternate basis for a finding of illegal or unlawful conduct. While
such conduct is not to be encouraged, I do not consider that such conduct, which
can be viewed as distasteful, constitutes on the facts of this case unlawful or
illegal means.
[151] I would adopt the broader interpretation of this phrase to include “ any act the defendant
is not at liberty to commit – in other words, an act without legal justification.”: Reach paragraph
49.
[152] The crux of the interference with economic relations claim is the fate of the Plaintiff’s
book of business. Yet the Plaintiff claims that the unlawful means employed by the Defendant
was the Plaintiff’s dismissal itself. The Plaintiff states as follows in his brief:
Merrill Lynch conspired to keep Mr. Soost’s book of business weeks in advance,
and terminated Mr. Soost with the intended result of maintaining his book of
business.
Page: 32
Page: 33
The Defendant also submits that it is not sufficient for the Plaintiff to successfully
show he was wrongfully dismissed to succeed on this ground. He must show that
the Defendant had committed a separate actionable wrong.
[154] The Defendant cites in support of its position the judgment of the Ontario Superior Court
in King v. Merrill Lynch Canada Inc. [2005] O.J. No. 5028. In that case, R. Smith J. held at
paragraphs 155 and 157 that the book of business remained the property of the employer, but that
its loss to the employee might form the basis of greater damages for wrongful dismissal:
A financial consultant is in a vulnerable position, if after working for many years
and building up a large book of business and earning commission income based
on a percentage of the book of business, he or she cannot transfer the book of
business to another investment broker, as the client lists and charts remain the
property of the former employer. In these circumstances, if the employment was
wrongfully terminated and the financial consultant loses his or her income and
must start over, as if he or she were just beginning to work as a financial
consultant, then I find that an additional notice period would be justified to
account for the loss of income suffered, which would depend on the
circumstances of each case.
...
In addition, if an employee could demonstrate that an employer engaged in bad
faith or unfair dealing in the course of dismissal, given the special, unique
circumstances involving the book of business that had been developed over many
years, it would be open to the Court to award an additional notice to compensate
for the special circumstances.
[155] In light of his finding that the book of business in that case belonged to the employer,
Justice Smith was able to deal with the plaintiffs’ claim for interference with economic relations
claim quite briefly in paragraphs 179 and 183:
The plaintiffs allege that the defendants committed independent, actionable torts
against them in addition to breaching the terms of the employment contract. The
decision of Wallace v. United Grain Growers, supra, held that the courts could
award damages beyond compensation for breach of contract for failure to give
reasonable notice, if such conduct is found on separately actionable tortious
conduct. All of the actionable torts listed above, loss of economic opportunity,
interference with economic relations and unjust enrichment, all rely on the
underlying premise that the book of business was the property of King and that
King and Crook had a right to transfer all of the clients’ business with them, to
the new investment broker when Merrill Lynch terminated his employment.
[153] The Defendant, for its part, asserts that the dismissal, even if wrongful, cannot found a
claim under this tort, saying as follows in its brief:
Page: 34
I have found that Merrill Lynch did not compete unfairly or interfere with King and
Crook’s business, as Merrill Lynch had a proprietary interest in the clients’ charts and
clients’ list. It is not necessary for me to decide whether King and Crook also had a
proprietary interest sufficient to use lists, as that issue is not before me. No evidence was
called to show that Merrill Lynch intended to injure King or Crook or that Merrill Lynch
interfered with King and Crook’s business by any illegal or unlawful means.
[156] I have found above that Soost was wrongfully dismissed from his employment with
Merrill Lynch. I am in agreement with the view of R. Smith J. in King that any economic loss
arising from the wrongful dismissal should be dealt with as part of the damages arising
therefrom. In my opinion, liability for interference with economic relations requires actionable
conduct separate from the dismissal itself.
[157] However, it is with the Defendant’s actions subsequent to the actual dismissal that the
Plaintiff devotes the majority of his argument on this element. The essence of this is that the
Defendant conspired to keep Soost’s book of business. In support of that allegation, the Plaintiff
refers to various admissions49, the termination checklist50, Lamont’s preparation of a review of
Soost’s book and the act of telling the Soost team at Merrill Lynch to take the week off with pay
after Soost was terminated.
[158] Using the broad definition from Reach, I see nothing illegal or unlawful in any of these
actions.
[159] As noted by McLachlin, C.J.C. for the majority in RBC Dominion Securities Inc. v.
Merrill Lynch Canada Inc. [2008] S.C.R. 79 at paragraphs 18 and 19:
The majority of the Court of Appeal, by contrast, held that once the investment
advisors left RBC, they were no longer under a duty not to compete with it. The
view of the Court of Appeal on the law for the purposes of this issue may be
summed up as follows. Generally, an employee who has terminated employment
is not prevented from competing with his or her employer during the notice
period, and the employer is confined to damages for failure to give reasonable
notice.(South in J.A. for the majority). To this general proposition Rowles J.A.
may be read as adding the qualification that a departing employee might be liable
for specific wrongs such as improper use of confidential information during the
notice period. This appears to be consistent with the current law, which restricts
post-employment duties to the duty not to misuse confidential information, as
well as duties arising out of fiduciary duty or restrictive covenant: see G.
49
Schedule “A” Admitted Facts, Plaintiff’s Written Argument
50
Exhibit 1, Tab 102
...
Page: 35
For the purposes of this case, the law may be accepted as summarized by the
preceding paragraph. The contract of employment ends when either the employer
or the employee terminates the employment relationship, although residual duties
may remain. An employee terminating his or her employment may be liable for
failure to give reasonable notice and for breach of specific residual duties. Subject
to these duties, the employee is free to compete against the former
employer.[emphasis added].
[160] I conclude that this proposition of law applies equally to an employer as well as an
employee. Thus, subject to the duties described above, an employer is free to compete against its
former employee upon the termination of the employment relationship.
[161] I see nothing untoward with Lamont preparing and Moya reviewing Soost’s book of
business before he was terminated. Soost and his clients’ participation in, and exposure to,
Oncolytics in their portfolios was a significant issue for Merrill Lynch and the subject of the
April 26th meeting in Toronto. It was natural and prudent for such a review to be conducted
before a final decision was taken to terminate Soost.
[162] Clearly, the admissions and evidence of the Defendant demonstrate that it had decided to
terminate Soost’s employment with it. I accept Doney’s evidence that he believed the Defendant
had just cause to do so. The decision to terminate Soost was taken in early May of 2001. There
were discussions as to who would be the best financial advisor to allocate the various Soost
clients to when he was terminated. The admission is clear that by May 17, 2001 the client
relocation plan was in place, scripts for the newly assigned financial advisors had been prepared
and approved and other administrative details arranged for dealing with the clients upon Soost’s
dismissal.
[163] I accept Cacic’s evidence that he was never given any directions to keep Soost’s clients
at Merrill Lynch. In fact, he was told that if clients wanted to transfer out of Merrill Lynch , to
let them go. His mandate was to clean up the margin accounts. Also, he testified that he did not
commence contacting Soost’s clients until the Monday or Tuesday following Soost’s
termination.
[164] This evidence is consistent with that of Lamont, which I accept, to the effect that at the
time that Soost was being terminated, she was meeting with Cacic and Brian Melhoff to tell them
that they would be receiving Soost’s accounts and would be responsible for servicing them. She
explained that it was necessary to assign Soost’s accounts to other brokers because in the interim
period between a financial advisor leaving an investment firm and setting up somewhere else, the
client must be serviced if he calls in to effect a trade, or if there are margins calls, as well as
other administrative functions. She instructed Cacic and Melhoff that if a client wanted to go
with Soost they should go.
England, Employment Law In Canada (4th ed. (Loose-leaf)), vol.2, s.11.141.
Neither of the latter duties is at issue here.
Page: 36
You [the firm] have a legal responsibility to the client. Whether that particular
broker is there or not, the client must have a way of continuing his or her financial
affairs in good order. You must provide service.52
Therefore, when a financial advisor is terminated, the other financial advisors in the firm would
be allocated some portion of the departing financial advisor’s accounts in order that the financial
advisors could contact the clients so the clients would know that their investments were being
looked after.
[166]
Merrill Lynch’s expert, Lorne Levy, testified to the same effect:
...whether a registered representative leaves voluntarily or is dismissed for cause,
there has to be a continuity of service to the client. To provide this continuity of
service the regulations in the industry require the firm to immediately assign a
new representative so that if the client wishes to sell or buy securities he has
someone to contact...
...you appoint somebody immediately to handle that account, make sure that he’s
available, make sure that he, in time, if the client wishes to stay with him, gets the
appropriate documentation redone so that the new representative knows the
client’s investment objectives and goals. So that’s an industry requirement.53
[167] As to Merrill Lynch’s action of sending Soost’s team home for a week with pay, that
seems appropriate in the circumstances. What were they to do? Soost, the man for whom they
worked and who directed them, had been terminated. Obviously, he was no longer in any
position to direct them nor could they work for him at Merrill Lynch. Presumably the remaining
financial advisors to whom Soost’s clients had been assigned had their own staff or “teams” to
handle the work. Therefore Merrill Lynch would need some time to sort out its requirements and
re-assign those on the former Soost team who wished to remain with Merrill Lynch.
[168] With regard to the arguments concerning Soost’s book of business and “ownership of
clients”, the Plaintiff refers to the testimony of Ambrosie and McClanahan as to whom they
51
Who, at the request of the Plaintiff, was qualified as an expert in standard broker
practices and management
52
53
Trial Transcript p.1034
Trial Transcript pp.2030-2031
[165] I also accept the evidence of Jeanne Kaufman51 that once a financial advisor is
terminated, his firm has a responsibility to contact the client. She said:
Page: 37
Client lists are the sole property of Midland Walwyn ... Following the termination
of an employment contract, whether voluntary or involuntary, client lists and
information that you have had access to, or come in contact with, remain the
property of Midland Walwyn.54
[169] Ms. Kaufman testified that even though the clients are basically clients of the firm, their
actual contact is the financial advisor and thus the relationship between the client and the
financial advisor is the crux of the brokerage business.
[170] It is clear that the brokerage firm has the proprietary interest in the client lists and the
client information attached thereto.55 Nevertheless, I am satisfied that the financial advisor is the
primary contact with the client and that he creates the “goodwill” in the dynamic. That is selfevident from the efforts made to recruit financial advisors to a firm and the amount of pay and
other incentives offered. It is expected that these financial advisors will bring “their” book of
business with them. In my opinion both the brokerage house as well as the financial advisor are
entitled to compete to keep/attract the client. Indeed, the evidence before me demonstrates that a
significant percentage of clients follow their financial advisor to his new brokerage house. Both
the brokerage and the financial advisor are “free to compete” for the clients.56
[171] The actions and instructions given by Merrill Lynch management to Merrill Lynch
personnel dealing with Soost’s files do not prove that Merrill Lynch was deliberately trying to
deprive Soost of his book of business. On the evidence before me, there was no “conspiracy” to
deprive Soost of his book of business. I cannot find that there was an illegal or unlawful act as
required in order to satisfy the second element of this tort.
[172] The final element of this tort which the Plaintiff must prove is that he suffered economic
loss as a result of this interference. In that regard, the Plaintiff points to the fact that at the time
of his termination his book of business was $145 million and that he was only able to move
about $10 million to his new investment house, Lightyear Capital, and even lost that when he
was unable to succeed at Lightyear Capital and left the industry on December 31, 2001. These
figures are not determinative of this issue. It is not the amount of loss but the fact and causation
54
Exhibit 1, Tab 6, Terms of Employment for Financial Advisors, page 7
55
See, for example, King v.Merrill Lynch Canada Inc. 2005CarswellOnt 6775 (Ont.
Superior Court of Justice) at paragraphs 67 and 181;
56
RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. [2008] 3 S.C.R. 79 at
paragraph 19
thought the clients “belonged”. I do not find that evidence determinative of the issue because
who “owns” the client is essentially a legal issue. I note the following. The Terms of
Employment signed by Soost state:
Page: 38
[173] Admittedly the evidence proves that Soost had a copy of his client list and book of
business on his personal computer which he had at home. He could have contacted his clients to
advise them he had left the Defendant and why. However, he had not yet established himself at
another firm and therefore he would have been unable to advise his clients where he would be
and he would be unable to execute any trades they required. One could speculate that contacting
his clients before he was established at another firm might have caused more problems than it
would solve. Common sense suggests, however, that some economic loss was suffered by the
Plaintiff as a result of the way in which he was terminated and by the actions of those financial
consultants at Merrill Lynch who contacted Soost’s clients to advise that he was no longer there.
As Ms. Kaufman testified [referring to clients following their financial advisor from one firm to
another]:
However, you know when you move that your clients will have to be persuaded
all over again that they really want to continue working with you. Therefore that
client-broker relationship is very important over time. Clients who are satisfied
and confident in you and feel that they can trust you will probably chose to stay
with you. But if they don’t know where you are or feel that the circumstances are
murky, their first inclination is to be concerned about their money. How safe is
their money? And that’s enough to make anybody hesitate or change their
opinion.57
[174] Accordingly, I am satisfied that it is reasonable to infer on the evidence that when Merrill
Lynch’s representatives contacted Soost’s clients to advise them that he was no longer with the
firm and that they were unable to explain why he was no longer with Merrill Lynch, at least
some of his clients would have elected to change over to the new financial advisor assigned to
them by Merrill Lynch and that resulted in some economic loss to the Plaintiff. Therefore, I find
that the third element of this tort is proved.
[175] As the Plaintiff has proved only one of the essential elements of the tort of intentional
interference with his economic relations, this cause of action must be dismissed.
4. What, if any, damages is the Plaintiff entitled to?
[176] I have found that the Defendant did not have just cause to terminate the Plaintiff. He is
therefore entitled to damages assessed below.
57
Trial Transcript p.1007
of economic loss that is germane to this element. In that regard, the Defendant contends that the
Plaintiff has not proved causation.
Page: 39
[178] The Plaintiff addresses the issue of damages under six headings: (1) pay in lieu of notice,
(2) length of service, (3) bonuses, (4) loss of the book of business, (5) loss of reputation and (6)
punitive damages. Because length of service may be conveniently and logically considered in the
analysis of pay in lieu of notice, I will combine them and deal with damages under the remaining
headings. I will also address the Defendant’s claim of failure to mitigate.
(1)
Pay in lieu of notice
[179] There is no particular formula to decide what is reasonable notice. As our Court of
Appeal has said in Bagby v. Gustavson International Drilling Co. (1980), 24 A.R. 181 each case
must be determined by its own facts. Factors to be considered include the character of the
employment, the length of service, the age of the employee and the availability of employment
for the employee having regard to his training, experience and qualifications.58The Plaintiff
submits that reasonable notice should be set at fifteen months. The Defendant suggests about
eight months.59
[180] In determining what the proper period of notice should be, I have taken into
consideration the fact that the Plaintiff had a good position at RBC from which he was actively
recruited away. In other words, he was enticed to join the Defendant. I have also taken into
consideration Soost was almost 35 years old at the time of termination. He was a “star” at Merrill
Lynch and had grown his book of business very successfully over his career. I have also taken
into consideration the availability of other similar employment in Calgary around the time of his
termination. In considering his length of employment, I have used seven years. While that is
obviously longer than his employment with Merrill Lynch, the evidence shows that Merrill
Lynch used their investment advisors’ length of service in the industry for comparative and
planning purposes in its own organization and with respect to Soost specifically, they dealt with
him as a “seven year man”. In the result, leaving aside any Wallace factors, I find that a
reasonable notice period would be twelve months.
[181] As to the value, I note that the experts Aldridge and Bailey take different approaches to
calculate the value of the Plaintiff’s loss on a per month basis. Bailey’s approach was essentially
a linear extrapolation of the Plaintiff’s income between January 1, 2001 and the date of dismissal
(May 18, 2001). He did not consider the year 2000 as he viewed it as an outlier year and the
evidence indicated that financial advisors’ income in Canada generally declined in 2001 as
58
59
Bardal v. Globe & Mail Ltd, [1960] 24 D.L.R. (2d) 140 (Ont.H.C.J.)
I note that the contract, Ex. 1, Tab 6 is dated Aug. 13, 1998 and is said to be for a term
of 5 years. Thus, at time of dismissal there were 2 years, 2 months remaining on it. Neither party
argued that was the measure of notice.
[177] Each party called an expert on the issue of damages. The Plaintiff’s expert was Derek
Aldridge. His written reports were marked as Exhibits 34, 36 and 37. The Defendant’s expert
was Bryan Bailey. His report was filed as Exhibit 104.
compared to 2000. The problem with this approach is that it relies on a relatively short time
frame ( 5 1/2 months) to extrapolate forward. During those months Soost was away for a period
in South Africa and it is fair to say as well that there was flux in his business including some
trading restrictions applied to him and his team by his employer prior to his termination. Bailey
calculates severance damages for a period of 8 months. He provides no calculation for 12
months. I have found 12 months to be the appropriate notice period. Therefore, I have arbitrarily
calculated the other four months by taking the average of Bailey’s figures for the eight prior
months net ($215,347 /8 = $26,918)60 and arrived at a figure of $107,67461 which, when added to
Bailey’s net figure for 8 months of $176,000, equals $283,674.
[182] In contrast, Aldridge did use the year 2000 and calculated his figures based upon the
Plaintiff earning a percentage of his book of business, extrapolated into the future. There are a
number of concerns arising out of that approach, the most important being that he calculates the
portion of earned commissions on gross commissions based on the year 2000 figures and it is not
clear that ratio is properly applicable to 2001 and 2002. Further, it does not recognize the fact
that the “tech bubble” had burst and that type of investment represented a significant portion of
Soost’s business. On the other hand, it does appear to proceed on a reasonably conservative basis
by not increasing the book of business for new clients but rather, tracking it in accordance with
the rise and fall of the T.S.E.
[183] Using Aldridge’s figures, the lost income from commissions for the twelve month period
would be $888,85462 less income actually earned during the period of $51,06863 for a net of
$837,786.
[184] It is apparent that neither of these methods nor the figures they produce, is particularly
reasonable in view of Soost’s commission income history for the years 1996 through 200164
which was:
1996
1997
1998
1999
2000
$673,352
$780,612
$366,532
$441,072
$971,252
60
See Exhibit 104, Schedule 1
61
I have not deducted anything for any income that Soost might have earned in these four
months.
62
See Exhibit 34, Table 2 at p.18
63
From Lightyear Capital $38,947 plus $12121 (5 1/2ths of 2002 income of $66,667)
64
See summary in Exhibit 104, Appendix B and Exhibit 34, p.3, Table 1
Page: 40
Page: 41
$157,294
[185] Aldridge’s figure is too high and does not adequately reflect the concerns expressed
above. Bailey’s figure is too low and affected by simply extrapolating the 5 1/2 months in 2001
without giving proper consideration to Soost’s commission history (even excluding 2000).
[186] Given that I am not prepared to accept either expert’s opinion or figures as to the loss for
the 12 month notice period I have stipulated, I am obliged to make my own determination of this
amount. I think the proper figure is $600,000 and I so find.
[187] It would have been of assistance to the court to have comparative commission income of
other top financial advisors in Merrill Lynch for that 12 month period. Regrettably, that evidence
was not lead.
[188] In Wallace v. United Grain Growers [1997] S.C.J. No.94, Iacobucci, J., writing on
behalf of the majority, noted at paragraph 95:
...In my opinion, to ensure that employees receive adequate protection, employers
ought to be held to an obligation of good faith and fair dealing in the manner of
dismissal, the breach of which will be compensated for by adding to the length of
the notice period.
[189] In Honda Canada Inc. v. Keays [2008] S.C.J. No.40, the Supreme Court of Canada
reconsidered the law in this regard. The Court rejected the concept of adding to the notice period
to compensate for the circumstances surrounding the employees dismissal and as well rejected
the notion that there could be no compensation for the circumstances surrounding the dismissal
unless they constituted an independent actionable tort. It found that damages resulting from the
manner of dismissal are available where the employer’s conduct in dismissal was unfair or
unduly insensitive. At paragraphs 58 - 60, Bastarache, J. on behalf of the majority, wrote:
The application of Fidler makes it unnecessary to pursue an extended analysis of
the scope of any implied duty of good faith in an employment contract. Fidler
provides that "as long as the promise in relation to state of mind is a part of the
bargain in the reasonable contemplation of the contracting parties, mental distress
damages arising from its breach are recoverable" (para. 48). In Wallace, the Court
held employers "to an obligation of good faith and fair dealing in the manner of
dismissal" (para. 95) and created the expectation that, in the course of dismissal,
employers would be "candid, reasonable, honest and forthright with their
employees" (para. 98). At least since that time, then, there has been expectation
by both parties to the contract that employers will act in good faith in the manner
of dismissal. Failure to do so can lead to foreseeable, compensable damages. As
aforementioned, this Court recognized as much in Fidler itself, where we noted
that the principle in Hadley "explains why an extended period of notice may have
been awarded upon wrongful dismissal in employment law" (para. 54).
2001
To be perfectly clear, I will conclude this analysis of our jurisprudence by saying
that there is no reason to retain the distinction between "true aggravated damages"
resulting from a separate cause of action and moral damages resulting from
conduct in the manner of termination. Damages attributable to conduct in the
manner of dismissal are always to be awarded under the Hadley principle.
Moreover, in cases where damages are awarded, no extension of the notice period
is to be used to determine the proper amount to be paid. The amount is to be fixed
according to the same principles and in the same way as in all other cases dealing
with moral damages. Thus, if the employee can prove that the manner of
dismissal caused mental distress that was in the contemplation of the parties,
those damages will be awarded not through an arbitrary extension of the notice
period, but through an award that reflects the actual damages. Examples of
conduct in dismissal resulting in compensable damages are attacking the
employee's reputation by declarations made at the time of dismissal,
misrepresentation regarding the reason for the decision, or dismissal meant to
deprive the employee of a pension benefit or other right, permanent status for
instance (see also the examples in Wallace, at paras. 99-100).
In light of the above discussion, the confusion between damages for conduct in
dismissal and punitive damages is unsurprising, given that both have to do with
conduct at the time of dismissal. It is important to emphasize here that the
fundamental nature of damages for conduct in dismissal must be retained. This
means that the award of damages for psychological injury in this context is still
intended to be compensatory. The Court must avoid the pitfall of
double-compensation or double-punishment that has been exemplified by this
case.
[190] I find the Defendant’s actions in purporting to dismiss Soost for cause were both unfair
and insensitive.
[191] I appreciate that in Honda Canada the facts dealt with mental suffering. But I see no
principled reason why the legal principles set out in that case cannot and should not be applied to
the circumstances pertaining in this case. Therefore, I will do so. If I did not, the Plaintiff would
be woefully under-compensated for his true loss.
[192] In this case, I am satisfied that both parties contemplated that if reasonable notice were
not given, and Soost was terminated suddenly, he would suffer damages far greater than the loss
of the notice period. I come to this conclusion for the following reasons. First, the Defendant
sought out and provided Soost with a generous package to leave RBC and come to it. It did so
not simply because Soost was a successful investment advisor, but because he had an established
book of business, the majority of which it knew would follow Soost to it and from which it
would prosper. I heard several witnesses, including experts, testify to the loyalty of clients to
their financial advisor and that between 70 to 80 per cent of them could be expected to follow
their financial advisor to his new firm. Second, the importance of Soost’s book of business to the
Page: 42
Defendant is demonstrated in the fact that it required it to be confirmed by Soost in the Terms of
Employment which he signed.65 Third, I am satisfied that both parties knew that a financial
advisor’s reputation means everything in this industry such that a sudden departure of one’s
financial advisor, without notification that he has immediately gone to a new brokerage house,
raises concern, innuendo, suspicion and distrust. I accept Kaufman’s expert evidence when she
says:
Normally you would think that if somebody was terminated quickly, quietly, that
there must be something more in the background to it.
...
But if he is unable to contact them because he is not licenced at another firm, then
the clients are immediately going to be left in a communications void. And they
will have every reason to be immediately concerned about whether there were any
improprieties that would have led to the severance of that relationship.
...
In other words, it leaves them with a great deal of suspicion.
[193] It is not an easy task to assess the damages resulting from the manner of the Plaintiff’s
dismissal as it relates specifically to reputation and book of business. Aldridge suggests a
number of different scenarios to value the loss of the book of business. The Plaintiff refers to
King v. Merrill Lynch Canada Inc.66 The Defendant points out that the Plaintiff did not own the
book of business; Merrill Lynch did.
[194] At the time of the Plaintiff’s dismissal, he had gross trailing commissions of $1,772,026.
Approximately one year earlier, in March of 2000, Soost testified that Walter Wiltzen of TD
Evergreen tried to recruit him. Soost testified that he was offered approximately $3 million
dollars to come over to TD Evergreen with his book of business. Wiltzen, who I find to be a
credible witness and whose evidence I accept, confirms that he tried to recruit Soost in 2000. He
was not personally involved in putting together the recruitment package but said that generally
such a practice would have included a payment of 45% of the investment advisor’s 12 month
trailing gross commissions and that if those commissions were over one million dollars, the
percentage would be significantly greater. The percentage was negotiable. I had the impression
that 45% would be a bare minimum. I conclude, as well, that there would have been other
incentives as part of the package. As Wiltzen said67:
65
See Exhibit 1, Tab 6, p.8 where Soost confirms that “...my in-house asset base is
presently $110 million.
66
[2005] O.J. No. 5028 (S.C.)
67
Trial Transcript, p.798
Page: 43
What we would try to do is arrange a number of meetings with the investment
advisor, show them at the time what we thought was a better pay system than was
currently offered in the industry, explain to them the types of signing bonuses that
we were prepared to look at, and try to buy them. [emphasis added]
[195] I also note the types of retention bonus that Merrill Lynch as well as its buyer CIBC
Wood Gundy were offering. Had Soost remained an employee of Merrill Lynch and then
transferred over to CIBC Wood Gundy, the Merrill Lynch bonus would have been between68
$147,000 and $183,00069 and the CIBC Wood Gundy bonus would have been $1,772,026.70 I
refer to these bonus as simply one indication as to how the Plaintiff book of business or good
will was valued at the time.
[196] I also consider Soost’s evidence that once he was at Lightyear Capital, he was only able
to bring over about $10 million of his book of business and that as a result, he was unable to
“make a go of it” and therefore left the business at the end of 2001.
[197] I am satisfied that the manner in which the Plaintiff was terminated had a significant
detrimental affect on his reputation in the industry and in his ability to keep his old clients and
attract new clients. I am also satisfied that the Defendant knew at the time it hired the Plaintiff
that if it purported to terminate for cause and without notice, the Plaintiff would suffer
significant damages to his reputation and book of business or goodwill such as would not be
compensated for simply by an award of damages in lieu of notice. Having regard to the
foregoing figures and factors and taking a conservative approach, I would assess those damages
$1,600,000.
[198] The Defendant claims that the Plaintiff failed to mitigate his loss because he left the
business at the end of 2001 and went into business for himself. It is trite law that the Defendant
has the burden of proving failure to mitigate. In this case, the evidence is that the Plaintiff found
similar work at Lightyear Capital within three weeks of his dismissal. However, by that time, it
would appear that most of his clients had decided to stay with Merrill Lynch or to go elsewhere.
Consequently, instead of having a book of business of some $145 million to work with, he had
only about $10 million. Soost described how hard he worked at Lightyear Capital and how little
he was able to achieve in terms of income there. I accept that evidence. In the circumstances, I
find it was reasonable for him to try another endeavour, particularly given the fact that he was
tarnished with having been terminated by Merrill Lynch for cause.
[199] The Defendant has failed to prove that the Plaintiff failed to mitigate his damages.
68
Depending upon whether a 20% or 25% factor is used
69
Exhibit 104, p.24
70
Trial Transcript, p. 1931. It appears that this would have been structured as a forgivable
loan over a period of years.
Page: 44
Page: 45
Loss of Bonuses
[200] The Plaintiff argues that, in calculating his lost income, two bonuses should be included.
The first is the Merrill Lynch retention bonus and the second is the CIBC Wood Gundy bonus.
These two bonuses arose in the course of the arrangement to sell Merrill Lynch Canada to CIBC
Wood Gundy. The Merrill Lynch bonus was created to try and ensure that its financial advisors
kept working at it while the sale was effected. Presumably, this was a sale of a “going business”
and the value of the sale would depend on it remaining so. The CIBC Wood Gundy bonus was
meant to retain the financial advisors after the sale was consummated. In both cases, it defies
logic to believe that an employee who was being terminated, either for cause or upon notice,
would be entitled to this sort of a bonus. The whole point of the bonus was to keep an employee.
If that employee was already one that had been dismissed, with or without notice, he obviously
was not one that anyone wanted to keep or retain and therefore he would not receive a retention
bonus. I therefore reject the Plaintiff argument that these two bonuses should be factored into the
calculation of his damages.
(3)
Loss of Book of Business
[201] The Plaintiff devoted much argument to valuing the book of business as an asset and
seeking damages for its loss. However, in view of my findings concerning interference with
economic relations as well as my award of damages above, I award no damages under this head.
Indeed, given my award above, to do so would amount to double compensation.
(4)
Loss of Reputation
[202] I am satisfied that the Plaintiff’s reputation in the industry suffered as a result of the
Defendant’s having purported to dismiss him for cause. However, I have found that there was no
independent tort of defamation proved and I have considered the affect of the unjust dismissal
for cause on his reputation in the industry and its affect on his business in the award of damages
given above. Accordingly, any further award would amount to double compensation.
(5)
Punitive Damages
[203] In Honda Canada the court made it clear that:
Damages for conduct in the manner of dismissal are compensatory; punitive
damages are restricted to advertent wrongful acts that are so malicious and
outrageous that they are deserving of punishment on their own. This distinction
must guide judges in their analysis.71
71
At paragraph 62
(2)
[204] I acknowledge the Plaintiff’s argument to the effect that the Defendant’s conduct
throughout this matter was designed to get rid of Soost and keep his book of business. I have
earlier indicated that I rejected this theory. The Defendant thought it had just cause to dismiss the
Plaintiff summarily and proceeded to do so. I have found that it did not have just cause. I do not
find that the Defendant’s actions were malicious nor so outrageous as to attract an award of
punitive damages. Therefore the claim for punitive damages is dismissed.
(6)
What, if anything, must the Plaintiff repay to the Defendant on the
forgivable loan?
[205] As one of the incentives given by Merrill Lynch to entice or recruit Soost to move to it72
from RBC, Soost was given an interest free forgivable loan in the amount of $870,000. The
Employment Agreement73 provides, in part, as follows:
Your obligation to repay the loan will be reduced for each month that you remain
employed by the Corporation by one sixtieth of the original loan amount, so that
if you remain employed by the Corporation for five years, you will be considered
to have repaid the loan in full. If you voluntarily terminate your employment or
your employment is terminated prior to the end of the five year period, for cause
by the Corporation, you will be obligated to repay the portion of the loan still
outstanding at that time.
The Employment Agreement goes on to state:
The term of the contract will be five years. If you voluntarily terminate your
employment or are terminated by Midland Walwyn Capital Inc., for cause, during
the first five years of employment, you agree to repay the Corporation a
proportionate amount of your monthly loan, in accordance with the following
formula:
Aggregate Monthly Loan (times) (60) - # months of employment = Repayment Amount
60
[206] Both parties agree that at the time of the Plaintiff’s termination, the amount outstanding
(unforgiven) on this loan was $ 406,000.
[207] It is interesting that while the contract provides for the situation of an employee
voluntarily terminating his employment as well as the situation where he is terminated for cause,
it does not provide for the situation of the employer terminating without cause. Of course, in
such a situation, it is the unilateral act of the employer which ends the employment relationship,
72
In reality, its predecessor, Midland Walwyn
73
Exhibit 1, Tab 6
Page: 46
through no fault of the employee. Given that fact as well as the absence of a provision to deal
with the employer terminating without cause, I interpret that the parties intended that the loan
would not be repayable in the situation of the employer deciding to terminate the employee
without cause.
[208] I am strengthened in that interpretation by the evidence of Doney, Merrill Lynch’s
general counsel, who, when asked by the Defendant’s counsel about the forgivable loans in these
employment agreements, testified:
Q. All right but, with respect to loans, were they forgivable loans, sir?
A. They were forgivable over a period of time, should the financial consultant
remain with the firm in good standing.
Q. And what happens in a case of termination, then, sir?
A. In the case of termination for cause, the loan is required to be repaid.
[209] Doney was asked about termination. The question was not restricted to termination for
cause. The clear implication from his answer, and one which I draw, is that while the loan is
expected to be repaid if the employee is terminated for cause, it is not expected to be repaid if the
employee is terminated without cause.
[210] I have previously found that the Defendant did not have just cause to terminate the
Plaintiff . It follows, therefore, that the loan is not repayable. Accordingly, the counterclaim is
dismissed.
(7)
If successful, should the Plaintiff be awarded special costs?
[211] In his written argument, counsel for the Plaintiff devotes a number of pages of argument
seeking an award of special or increased costs. Much of it is general and philosophical regarding
the length of the litigation, the time it took to get to trial, and the steps taken by the defence in
the litigation, which, although the Defendant was legally entitled to utilize, the Plaintiff thinks
unnecessarily prolonged the litigation and caused increased cost to the Plaintiff.
[212] In her written argument, counsel for the Defendant simply submits that “ it is more
appropriate to speak to the issue of costs once the Court has given its judgment.” She therefore
does not direct any further submissions to that issue.
[213] I agree that the issue of costs is more appropriately argued and considered once the Court
has rendered its decision. Therefore, if the parties are unable to agree on the issue of costs, they
may apply to me within 30 days of the filing of this judgment to argue the issue.
Page: 47
Page: 48
VI.
CONCLUSION
1.
2.
3.
4.
5.
The Defendant did not have just cause to dismiss the Plaintiff.
Damages for wrongful dismissal are set at $2,200,000.
The Plaintiff is entitled to prejudgment interest pursuant to the Judgment
Interest Act, RSA 2000, c. J-2.
The Defendant’s counterclaim is dismissed.
Costs may be spoken to.
Heard on the following dates:
Trial:
Written Argument:
January 21, 2008 to February 14, 2008
March 17, 2008
March 31, 2008
April 7, 2008
Oral Argument:
May 2, 2008
Supplemental Written Submissions: June 5, 2009
June 19, 2009
Dated at the City of Calgary, Alberta this 13th day of October, 2009.
C.S. Brooker
J.C.Q.B.A.
Appearances:
Kevin P. McGuigan & Byron Nelson
for the Planitiff
Lillian Y. Pan, Brent Robinson & Brock Carscallen
for the Defendant
[214] In accordance with my reasons above, I find:
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701
Appellant
v.
United Grain Growers Limited
Respondent
Indexed as: Wallace v. United Grain Growers Ltd.
File No.: 24986.
1997: May 22; 1997: October 30.
Present: Lamer C.J. and La Forest, L’Heureux-Dubé, Sopinka, Gonthier, Cory,
McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for manitoba
Bankruptcy -- Property of bankrupt -- Salary, wages or other remuneration
-- Undischarged bankrupt bringing action for wrongful dismissal -- Whether damages
for wrongful dismissal included in “salary, wages or other remuneration” -- Bankruptcy
Act, R.S.C., 1985, c. B-3, s. 68(1).
Civil procedure -- Wrongful dismissal -- Undischarged bankrupt seeking
damages for wrongful dismissal -- Whether undischarged bankrupt can bring action for
wrongful dismissal in his own name.
1997 CanLII 332 (SCC)
Jack Wallace
-2Employment law -- Wrongful dismissal -- Employee summarily discharged
based on 24-month notice period and aggravated damages -- Whether Court of Appeal
erred in reducing reasonable notice period to 15 months -- Whether Court of Appeal
erred in overturning aggravated damages award -- Whether action can be brought for
“bad faith discharge” -- Whether employee entitled to punitive damages.
In 1972 a printing company wholly owned by the respondent decided to
update its operations and seek a larger volume of commercial printing work. The
appellant, W, met L, the marketing manager of the company’s publishing and printing
divisions, to discuss the possibility of employment. W had the type of experience L
sought, having worked approximately 25 years for a competitor that used a particular
type of press. W explained to L that as he was 45 years of age, if he were to leave his
current employer he would require a guarantee of job security. He also sought several
assurances from L regarding fair treatment and remuneration. He received such
assurances and was told by L that if he performed as expected, he could continue to work
for the company until retirement. W was hired and enjoyed great success at the
company; he was the top salesperson for each of the years he spent in its employ. In
1986 he was summarily discharged without explanation. W issued a statement of claim
alleging wrongful dismissal. In its statement of defence, the respondent alleged that W
had been dismissed for cause. This allegation was maintained until the trial commenced.
The termination of W’s employment and the allegations of cause created emotional
difficulties for him and he was forced to seek psychiatric help. His attempts to find
similar employment were largely unsuccessful. Prior to his dismissal, W made a
voluntary assignment into personal bankruptcy, and remained an undischarged bankrupt
when he commenced his action against the respondent. The trial judge struck out his
claim for damages for breach of contract, holding that a claim for damages for wrongful
seeking damages for wrongful dismissal -- Trial judge awarding employee damages
-3dismissal based on lack of notice vests in the trustee in bankruptcy, and concluded that
judge’s ruling was stayed by the Court of Appeal pending completion of the trial. The
trial resumed and subject to the outcome of the appeal on the bankruptcy issue, W was
awarded damages for wrongful dismissal based on a 24-month notice period and
$15,000 in aggravated damages resulting from mental distress in both tort and contract.
The trial judge refused to award punitive damages. The Court of Appeal reversed the
trial judge’s findings with respect to W’s capacity to maintain an action for breach of
contract, concluding that W had the right to continue his action for wrongful dismissal
in his own name in the absence of the trustee. It also allowed the respondent’s
cross-appeal. It reduced the reasonable notice period to 15 months, on the basis that the
trial judge may have allowed an element of aggravated damages to creep into his
assessment and that recent awards in such cases had been getting too high, and
overturned the award of aggravated damages.
Held (La Forest, L’Heureux-Dubé and McLachlin JJ. dissenting in part on
the appeal): The appeal should be allowed in part and the cross-appeal dismissed.
Per Lamer C.J. and Sopinka, Gonthier, Cory, Iacobucci and Major JJ.: W
can maintain an action for wrongful dismissal in his own name. While under the
Bankruptcy Act, an undischarged bankrupt has no capacity to deal with his or her
property and no distinction is made with respect to whether that property was acquired
before or after the assignment in bankruptcy, s. 68(1) carves out an exception to this
general rule where the property in question can be characterized as “salary, wages or
other remuneration”. To remain true to the spirit of the Act, this exception must include
an award of damages for wrongful dismissal. The measure of such damages is the salary
that the employee would have earned had the employee worked during the period of
the action in that regard was a nullity from the outset. W’s attempt to appeal the trial
-4notice to which he or she was entitled. The fact that this sum is awarded as damages at
interpreted the phrase “salary, wages or other remuneration” broadly. The public policy
considerations that inform the section offer further support for interpreting it broadly.
The trial judge’s award of damages in the amount of 24 months’ salary in
lieu of notice should be restored. In light of W's advanced age, his 14-year tenure as the
company's top salesman and his limited prospects for re-employment, a lengthy period
of notice is warranted. Another factor to be considered is whether the dismissed
employee was induced to leave previous secure employment. Although the trial judge
did not make specific reference to the inducement factor in his analysis of reasonable
notice, in the circumstances of this case the inducements made, in particular the
guarantee of job security, are factors which support his decision to award damages at the
high end of the scale.
Bad faith conduct in the manner of dismissal is another factor that is properly
compensated for by an addition to the notice period. The contract of employment has
many characteristics that set it apart from the ordinary commercial contract. Individual
employees on the whole lack both the bargaining power and the information necessary
to achieve more favourable contract provisions than those offered by the employer,
particularly with regard to tenure.
This power imbalance is not limited to the
employment contract itself, but informs virtually all facets of the employment
relationship. The point at which the employment relationship ruptures is the time when
the employee is most vulnerable and hence most in need of protection. In recognition
of this need, the law ought to encourage conduct that minimizes the damage and
dislocation (both economic and personal) that result from dismissal. To ensure that
employees receive adequate protection, employers ought to be held to an obligation of
trial in no way alters the fundamental character of the money. Several courts have
-5good faith and fair dealing in the manner of dismissal, breach of which will be
good faith and fair dealing is incapable of precise definition, at a minimum in the course
of dismissal employers ought to be candid, reasonable, honest and forthright with their
employees and should refrain from engaging in conduct that is unfair or is in bad faith
by being, for example, untruthful, misleading or unduly insensitive.
While a dismissed employee is not entitled to compensation for injuries
flowing from the fact of the dismissal itself, where an employee can establish that an
employer engaged in bad faith conduct or unfair dealing in the course of dismissal,
injuries such as humiliation, embarrassment and damage to one’s sense of self-worth and
self-esteem might all be worthy of compensation depending upon the circumstances of
the case. Often the intangible injuries caused by bad faith conduct or unfair dealing on
dismissal will lead to difficulties in finding alternative employment, a tangible loss
which the Court of Appeal rightly recognized as warranting an addition to the notice
period. However, the intangible injuries are sufficient to merit compensation in and of
themselves. Bad faith conduct which affects employment prospects may be worthy of
considerably more compensation than that which does not, but in both cases damage has
resulted that should be compensable. The trial judge documented several examples of
bad faith conduct on the part of the respondent. While the award of the equivalent of 24
months’ salary in lieu of notice is at the high end of the scale, it is not unreasonable
when all the relevant factors are taken into account and there is accordingly no reason
to interfere.
There is no reason to interfere with the conclusion of the courts below that
there was insufficient evidence to support W’s claim that he had a fixed-term contract
for employment until retirement.
compensated for by adding to the length of the notice period. While the obligation of
-6With respect to damages for mental distress, the Court of Appeal was correct
respondent’s actions constituted a separate actionable wrong either in tort or in contract.
In circumstances where the manner of dismissal has caused mental distress but falls short
of an independent actionable wrong, however, the employee is not without recourse.
The trial judge has discretion in such circumstances to extend the period of reasonable
notice to which an employee is entitled.
W is unable to sue in either tort or contract for “bad faith discharge”. The
Court should not imply into the employment contract a term that the employee would not
be fired except for cause or legitimate business reasons. The law has long recognized
the mutual right of both employers and employees to terminate an employment contract
at any time provided there are no express provisions to the contrary. A requirement of
“good faith” reasons for dismissal would be overly intrusive and inconsistent with
established principles of employment law. Similarly, the tort of breach of a good faith
and fair dealing obligation with regard to dismissals has not yet been recognized by
Canadian courts. Such radical shifts in the law are better left to the legislatures.
The courts below were correct in finding that there is no foundation for an
award of punitive damages.
Per La Forest, L’Heureux-Dubé and McLachlin JJ. (dissenting in part on the
appeal): W’s action was not precluded by his bankruptcy. Damages in lieu of
reasonable notice constitute “salary, wages or other remuneration” for the purposes of
bankruptcy legislation and hence are recoverable. Moreover, damages for breach of the
implied obligation of good faith are recoverable because of the personal nature of the
cause of action.
in concluding that there was insufficient evidence to support a finding that the
-7To determine the period of reasonable notice in a wrongful dismissal action,
to the employee’s prospects of finding a similar position. The manner of dismissal
should only be considered where it impacts on the difficulty of finding replacement
employment, and absent this connection, damages for the manner of termination must
be based on some other cause of action. The fact that some courts in the past have
considered factors unrelated to prospects of re-employment in determining the notice
period has rendered the law uncertain and unpredictable. To continue on this path would
only increase that uncertainty and unpredictability. The law affords other remedies for
employer misconduct in the manner of dismissal not affecting prospects of
re-employment, and has now developed to the point that to these traditional actions may
be added breach of an implied contractual term to act in good faith in dismissing an
employee. Recognition of an implied term in the employment contract of good faith in
relation to the dismissal of employees is supported by previous decisions, academic
commentary and related developments in other areas of contract law. To the extent that
recognition of such a term may be seen as a new development, it falls within the scope
of the incremental step-by-step revision approved in Watkins and Salituro.
The trial judge fixed the period of reasonable notice at 24 months on the
basis of a careful assessment of W’s prospects of re-employment, and there is no reason
to interfere in his assessment. The trial judge’s award for the damages claimed by W for
mental distress and loss of reputation should also be upheld. These are general damages
flowing directly from the employer’s breach of the implied term of good faith and fair
dealing and are therefore compensable.
the court examines the characteristics of the particular employment relationship relevant
-8There is no reason to interfere with the trial judge’s conclusion that the
conduct to merit an award representing punitive damages.
Cases Cited
By Iacobucci J.
Distinguished: Cohen v. Mitchell (1890), 25 Q.B.D. 262; Neilson v.
Vancouver Hockey Club Ltd., [1988] 4 W.W.R. 410, leave to appeal refused, [1988] 2
S.C.R. viii; not followed: Addis v. Gramophone Co., [1909] A.C. 488; Peso Silver
Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673; Ansari v. British Columbia Hydro
and Power Authority (1986), 2 B.C.L.R. (2d) 33; Wadden v. Guaranty Trust Co. of
Canada, [1987] 2 W.W.R. 739; referred to: Vorvis v. Insurance Corporation of British
Columbia, [1989] 1 S.C.R. 1085, aff’g (1984), 9 D.L.R. (4th) 40; Pilon v. Peugeot
Canada Ltd. (1980), 114 D.L.R. (3d) 378; Re Holley (1986), 59 C.B.R. (N.S.) 17; Ranch
des Prairies Ltée v. Bank of Montreal (1988), 53 Man. R. (2d) 308; Re Pascoe, [1944]
1 Ch. 219; Wyssling (Trustee of) v. Latreille Estate (1990), 78 C.B.R. (N.S.) 114;
McNamara v. Pagecorp Inc. (1989), 76 C.B.R. (N.S.) 97; Long v. Brisson, [1992] 5
W.W.R. 185; Bailey v. Thurston & Co., [1903] 1 K.B. 137; Lough v. Digital Equipment
of Canada Ltd. (1986), 57 O.R. (2d) 456; Sylvester v. British Columbia, [1997] 2 S.C.R.
315; Re Ali (1987), 62 C.B.R. (N.S.) 64; Re Giroux (1983), 45 C.B.R. (N.S.) 245; Re
Greening (1989), 73 C.B.R. (N.S.) 24; Marzetti v. Marzetti, [1994] 2 S.C.R. 765; Jarvis
v. Swans Tours Ltd., [1973] 1 Q.B. 233; Farber v. Royal Trust Co., [1997] 1 S.C.R. 846;
Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; Machtinger v. HOJ Industries
Ltd., [1992] 1 S.C.R. 986; Gillespie v. Bulkley Valley Forest Industries Ltd., [1975] 1
W.W.R. 607; Corbin v. Standard Life Assurance Co. (1995), 15 C.C.E.L. (2d) 71;
respondent did not engage in sufficiently harsh, vindictive, reprehensible and malicious
-9Bishop v. Carleton Co-operative Ltd. (1996), 21 C.C.E.L. (2d) 1; Jackson v. Makeup Lab
Interland Window Mfg. Ltd. (1993), 47 C.C.E.L. 57; Makhija v. Lakefield Research
(1983), 14 C.C.E.L. 131, aff’d (1986), 14 C.C.E.L. xxxi; Mutch v. Norman Wade Co.
(1987), 17 B.C.L.R. (2d) 185; Robertson v. Weavexx Corp. (1997), 25 C.C.E.L. (2d) 264;
Lojstrup v. British Columbia Buildings Corp. (1989), 34 B.C.L.R. (2d) 357; Slaight
Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; Reference Re Public Service
Employee Relations Act (Alta.), [1987] 1 S.C.R. 313; Eyers v. City Buick Cadillac Ltd.
(1984), 6 C.C.E.L. 234, rev’d in part (1986), 13 O.A.C. 66; Jivrag v. City of Calgary
(1986), 13 C.C.E.L. 120, rev’d in part (1987), 18 C.C.E.L. xxx; Hudson v. Giant
Yellowknife Mines Ltd. (1992), 44 C.C.E.L. 109; Hall v. Giant Yellowknife Mines Ltd.
(1992), 44 C.C.E.L. 101; Trask v. Terra Nova Motors Ltd. (1995), 9 C.C.E.L. (2d) 157;
MacDonald v. Royal Canadian Legion (1995), 12 C.C.E.L. (2d) 211; Dunning v. Royal
Bank (1996), 23 C.C.E.L. (2d) 71; Deildal v. Tod Mountain Development Ltd. (1997),
91 B.C.A.C. 214; Gillman v. Saan Stores Ltd. (1992), 45 C.C.E.L. 9; McCarey v.
Associated Newspapers Ltd. (No. 2), [1965] 2 Q.B. 86; Barltrop v. Canadian
Broadcasting Corp. (1978), 25 N.S.R. (2d) 637, leave to appeal refused, [1978] 1 S.C.R.
vi; Stumpf v. Globe Holdings Ltd. (1982), 22 Alta. L.R. (2d) 55.
By McLachlin J. (dissenting in part on the appeal)
Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; Machtinger v. HOJ
Industries Ltd., [1992] 1 S.C.R. 986; Vorvis v. Insurance Corporation of British
Columbia, [1989] 1 S.C.R. 1085; Brown v. Waterloo Regional Board of Commissioners
of Police (1983), 43 O.R. (2d) 113, aff’g in part (1982), 37 O.R. (2d) 277; Addis v.
Gramophone Co., [1909] A.C. 488; Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966]
S.C.R. 673, aff’g (1965), 56 D.L.R. (2d) 117; Canadian Pacific Hotels Ltd. v. Bank of
Inc. (1989), 27 C.C.E.L. 317; Murphy v. Rolland Inc. (1991), 39 C.C.E.L. 86; Craig v.
- 10 Montreal, [1987] 1 S.C.R. 711; Deildal v. Tod Mountain Development Ltd. (1997), 91
(New Zealand) Ltd. v. Turner, [1994] 1 N.Z.L.R. 641; Carrick v. Cooper Canada Ltd.
(1983), 2 C.C.E.L. 87; Bernardin v. Alitalia Air Lines (1993), 50 C.C.E.L. 156;
Cohnstaedt v. University of Regina, [1989] 1 S.C.R. 1011; Greenberg v. Meffert (1985),
50 O.R. (2d) 755, leave to appeal refused, [1985] 2 S.C.R. ix; Truckers Garage Inc. v.
Krell (1993), 3 C.C.E.L. (2d) 157; Doyle v. London Life Insurance
Co. (1985), 23 D.L.R. (4th) 443, leave to appeal refused, [1986] 1 S.C.R. x; Shiloff v. R.
(1994), 6 C.C.E.L. (2d) 177; Houle v. Canadian National Bank,
[1990] 3 S.C.R. 122; Watkins v. Olafson, [1989] 2 S.C.R. 750; R. v. Salituro, [1991] 3
S.C.R. 654; Re Holley (1986), 59 C.B.R. (N.S.) 17.
Statutes and Regulations Cited
Bankruptcy Act, R.S.C., 1985, c. B-3, ss. 2 “property”, 67(1) [am. 1992, c. 27, s. 33],
68(1) [rep. & sub. idem., s. 34], 71(2), 99(1).
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- 11 O’Byrne, Shannon Kathleen. “Good Faith in Contractual Performance:
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APPEAL and CROSS-APPEAL from a judgment of the Manitoba Court of
Appeal (1995), 102 Man. R. (2d) 161, 93 W.A.C. 161, [1995] 9 W.W.R. 153, 34 C.B.R.
(3d) 153, 14 C.C.E.L. (2d) 41, 95 C.L.L.C. ¶210-046, [1995] M.J. No. 344 (QL) and
(1995), 107 Man. R. (2d) 227, 109 W.A.C. 227, [1995] M.J. No. 482 (QL), allowing the
appeal and cross-appeal from a decision of the Court of Queen’s Bench (1993), 87 Man.
R. (2d) 161, [1993] 7 W.W.R. 525, 49 C.C.E.L. 71, [1993] M.J. No. 365 (QL), which
awarded the appellant damages for wrongful dismissal. Appeal allowed in part, La
Forest, L’Heureux-Dubé and McLachlin JJ. dissenting in part. Cross-appeal dismissed.
Stacey Reginald Ball and George J. Orle, Q.C., for the appellant.
John M. Scurfield, Q.C., and Richard W. Schwartz, for the respondent.
The judgment of Lamer C.J. and Sopinka, Gonthier, Cory, Iacobucci and
Major JJ. was delivered by
Reiter, B. J. “Good Faith in Contracts” (1983), 17 Val. U. L. Rev. 705.
- 12 1
IACOBUCCI J. -- This case involves both an appeal and a cross-appeal. The
specifically, the existence of a fixed-term contract, the right to damages for mental
distress, whether or not one can sue for “bad faith discharge”, and the appropriate length
of the period of reasonable notice. The cross-appeal raises an issue of bankruptcy law,
namely, whether an undischarged bankrupt can maintain an action for wrongful
dismissal in his or her own name.
1. Facts
2
In 1972, Public Press, a wholly owned subsidiary of the respondent, United
Grain Growers Ltd. (“UGG”), decided to update its operations and seek a larger volume
of commercial printing work. Don Logan was the marketing manager of the company’s
publishing and printing divisions at that time. For Logan, the key to achieving this
increase in volume was to hire someone with an existing record of sales on a specialized
piece of equipment known as a “Web” press.
3
In April 1972, the appellant, Jack Wallace, met Logan to discuss the
possibility of employment. Wallace had the type of experience that Logan sought,
having worked approximately 25 years for a competitor that used the “Web” press.
Wallace had become concerned over the unfair manner in which he and others were
being treated by their employer. However, he expressed some reservation about
jeopardizing his secure position at the company. Wallace explained to Logan that as he
was 45 years of age, if he were to leave his current employer he would require a
guarantee of job security. He also sought several assurances from Logan regarding fair
treatment and remuneration. He received such assurances and was told by Logan that
if he performed as expected, he could continue to work for Public Press until retirement.
appeal is largely concerned with issues of compensation in a wrongful dismissal action,
- 13 -
Wallace commenced employment with Public Press in June of 1972. He
enjoyed great success at the company and was the top salesperson for each of the years
he spent in its employ.
5
On August 22, 1986, Wallace was summarily discharged by Public Press’s
sales manager Leonard Domerecki. Domerecki offered no explanation for his actions.
In the days before the dismissal both Domerecki and UGG’s general manager had
complimented Wallace on his work.
6
By letter of August 29, 1986, Domerecki advised Wallace that the main
reason for his termination was his inability to perform his duties satisfactorily.
Wallace’s statement of claim alleging wrongful dismissal was issued on October 23,
1986. In its statement of defence, the respondent alleged that Wallace had been
dismissed for cause. This allegation was maintained for over two years and was only
withdrawn when the trial commenced on December 12, 1988.
7
At the time of his dismissal Wallace was almost 59 years old. He had been
employed by Public Press for 14 years. The termination of his employment and the
allegations of cause created emotional difficulties for Wallace and he was forced to seek
psychiatric help. His attempts to find similar employment were largely unsuccessful.
8
On September 26, 1985, Wallace made a voluntary assignment into personal
bankruptcy. When he commenced his action against the respondent, Wallace remained
an undischarged bankrupt. After Wallace had completed his case at trial, UGG moved
to amend its statement of defence to assert that as an undischarged bankrupt, Wallace
lacked the capacity to commence or continue the proceedings. UGG requested that
4
- 14 Wallace’s claim for damages for failure to provide reasonable notice of termination be
9
The trial judge granted leave to amend the statement of defence and then
struck out Wallace’s claim for damages for breach of contract. He held that the action
in that regard was a nullity from the outset. Wallace’s attempt to appeal that ruling was
stayed by the Manitoba Court of Appeal pending completion of the trial. The trial
resumed and subject to the outcome of the appeal on the bankruptcy issue, Wallace was
awarded damages for wrongful dismissal based on a 24-month notice period and
aggravated damages.
10
The Manitoba Court of Appeal reversed the findings of the trial judge with
respect to the appellant’s capacity to maintain an action for breach of contract. It also
allowed the respondent’s cross-appeal, substituting a judgment in favour of the appellant
based on a 15-month reasonable notice period, and overturned the award of aggravated
damages. This Court granted leave to appeal on May 9, 1996.
2. Relevant Statutory Provisions
11
Bankruptcy Act, R.S.C., 1985, c. B-3
2. In this Act,
...
“property” includes money, goods, things in action,
land and every description of property, whether real or
personal, legal or equitable, and whether situated in
Canada or elsewhere, and includes obligations,
easements and every description of estate, interest and
profit, present or future, vested or contingent, in,
arising out of or incident to property;
struck out.
- 15 -
(c) all property wherever situated of the bankrupt at the
date of his bankruptcy or that may be acquired by or
devolve on him before his discharge, and
(d) such powers in or over or in respect of the property
as might have been exercised by the bankrupt for his
own benefit.
68. (1) Notwithstanding subsection 67(1), where a bankrupt
(a) is in receipt of, or is entitled to receive, any money
as salary, wages or other remuneration from a person
employing the bankrupt. . . .
the trustee may, on the trustee’s own initiative or, if directed by the
inspectors or the creditors, shall, make an application to the court for an
order directing the payment to the trustee of such part of the money as the
court may determine, having regard to the family responsibilities and
personal situation of the bankrupt.
99. (1) All transactions by a bankrupt with any person dealing with him
in good faith and for value in respect of property acquired by the bankrupt
after the bankruptcy, if completed before any intervention by the trustee, are
valid against the trustee, and any estate or interest in the property that by
virtue of this Act is vested in the trustee shall determine and pass in such
manner and to such extent as may be required for giving effect to any such
transaction.
3. Judicial History
A. Manitoba Court of Queen’s Bench (1992), 82 Man. R. (2d) 253
12
Lockwood J. granted leave to amend the statement of defence to allow UGG
to raise the issue of the appellant’s status as an undischarged bankrupt. After reviewing
the relevant authorities, he struck out Wallace’s claim for damages for breach of
contract, holding that a claim for damages for wrongful dismissal based on lack of notice
vests in the trustee in bankruptcy. He concluded that the action in that regard was a
nullity from the outset. Neither party disputed Wallace’s right to maintain his claims for
67. (1) The property of a bankrupt divisible among his creditors shall
. . . comprise
- 16 mental distress, loss of reputation and punitive damages. Lockwood J. noted that these
B. Manitoba Court of Appeal (1993), 85 Man. R. (2d) 40
13
The court stayed the appellant’s appeal concerning Lockwood J.’s
interlocutory order pending completion of the trial.
C. Manitoba Court of Queen’s Bench (1993), 87 Man. R. (2d) 161
14
The appellant contended that he had negotiated a fixed-term contract with
UGG that guaranteed him security of tenure until retirement, subject only to termination
for just cause. Lockwood J. rejected that argument. In his view, the making of a fixedterm contract would occur rarely, if at all. He described such a contract as being special
in nature so as to require very explicit terms. He concluded that the evidence about the
meeting between Logan and Wallace prior to Wallace’s being hired was not sufficient
to merit a finding that the parties had entered a fixed-term contract. Further, he found
that in any event, such a contract would be inconsistent with UGG’s employment policy
and that any change in company policy would require the endorsement of the personnel
manager, the general manager or the president of UGG. A change in the company’s
employment policy was neither sought nor granted.
15
In determining the appropriate period of reasonable notice, Lockwood J. took
into account a number of factors including the appellant’s length of service, his age, the
nature of his employment, the history of the employment relationship, his qualifications,
and the availability of similar employment. In addition he noted the difficulty that
Wallace was experiencing in finding alternate employment. He attributed that difficulty
claims are personal in nature and do not vest in the trustee.
- 17 in large measure to the evidence of word having circulated in the trade that Wallace
Lockwood J. concluded:
Taking the above factors into account, and particularly the fact that the
peremptory dismissal and the subsequent actions of the [respondent] made
other employment in [Wallace’s] field virtually unavailable, I conclude that
an award at the top of the scale in such cases is warranted. I, therefore, fix
24 months as the period of reasonable notice.
16
In addition to his claim for wages in lieu of notice, Wallace sought damages
for mental distress and made claims in both contract and tort. The claim in contract
included damages for mental distress, loss of reputation and prestige and punitive
damages. Citing Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R.
1085, Lockwood J. determined that Wallace’s entitlement to an award under this head
of damages turned on whether UGG’s conduct constituted a separate actionable wrong.
He noted that although there was no fixed-term contract, Wallace had been given a
guarantee of security provided he gave UGG no cause to dismiss him. Relying on Pilon
v. Peugeot Canada Ltd. (1980), 114 D.L.R. (3d) 378 (Ont. H.C.), Lockwood J.
concluded that it must have been in the contemplation of UGG that if Wallace was
dismissed without cause or warning, he would probably suffer mental distress. This was
an implied term of the contract and therefore the dismissal constituted a separate
actionable wrong worthy of compensation.
17
Regarding the claim in tort, the appellant sought damages for negligence
including punitive damages or, alternatively, aggravated damages for wilful or negligent
infliction of harassment and oppression. This claim was based on the statements of
Anderson J.A. in the British Columbia Court of Appeal in Vorvis (1984), 9 D.L.R. (4th)
40, at pp. 54-55. Lockwood J. began his analysis by reviewing the evidence concerning
“must have done something reprehensible” to have been dismissed by UGG. At p. 170
- 18 mental distress and found that although Wallace’s assignment into personal bankruptcy
“major component” in his depression (at p. 176). Turning to the part of the claim
concerning wilful or negligent infliction of harassment, he accepted the evidence of
Domerecki that it was UGG’s intention to “play hardball” with Wallace, that UGG did
not have any reason to dismiss him and that the reason given in Domerecki’s letter of
August 29, 1986 was not true. He also noted the late withdrawal of the allegations of
cause. Lockwood J. held that the behaviour of the respondent ought to lead to
compensation for mental distress by way of aggravated damages.
18
Lockwood J. was of the view that since the majority of the Supreme Court
of Canada in Vorvis failed to comment on the statements of Anderson J.A. in the Court
of Appeal regarding the claim in tort, it could be implied that in the proper
circumstances, such a claim might qualify as a separate actionable wrong from the
breach itself. In his opinion, the requisite circumstances existed in this case. He
concluded at p. 177:
I find that it was reasonably foreseeable that mental distress would
result from the manner in which the dismissal was handled and also by the
decision to play hardball with the [appellant]. That decision resulted in the
[respondent] maintaining the plea of just cause for some two years and four
months, during which time the [appellant] undoubtedly suffered further
mental distress. There was, consequently, a negligent breach of the duty of
care warranting compensation by way of aggravated damages.
19
In light of the circumstances and having found that the defendant was liable
for aggravated damages resulting from mental distress in both tort and contract,
Lockwood J. fixed the award at $15,000.
must have caused him an increasing degree of stress, the dismissal itself constituted the
- 19 20
With respect to the appellant’s claim for punitive damages, Lockwood J.
of such damages would have to be of a “harsh, vindictive, reprehensible and malicious
nature” (p. 179). In his view, the conduct complained of in this case was not sufficient
to constitute an actionable wrong, nor was it of such an extreme nature as to merit
condemnation by an award of such damages in either tort or contract.
D. Manitoba Court of Appeal (1995), 102 Man. R. (2d) 161
21
Having disposed of two issues which do not arise on this appeal, Scott
C.J.M., writing for a unanimous court, turned to the question of whether Wallace’s status
as an undischarged bankrupt rendered him incapable of bringing an action for breach of
contract. Scott C.J.M. began his analysis by reviewing those sections of the Bankruptcy
Act (ss. 2, 67 and 71(2)) that provide for the automatic vesting of “property” in the
trustee upon bankruptcy. He recognized that one exception to these provisions is s. 68,
which continues the historical exemption of wages from property that vests in the trustee.
The appellant argued that an action for wrongful dismissal was analogous to “wages or
other remuneration” within the meaning of s. 68 and was therefore statutorily exempt
property. However, Scott C.J.M. examined the competing case law on this point and
found the authorities against Wallace’s position more convincing. He concluded that s.
68 had no application in the circumstances and that as Wallace’s claim for wrongful
dismissal constituted property within the meaning of the Act, it came under the control
of the trustee.
22
Scott C.J.M. acknowledged that Lockwood J. had reached a similar
conclusion on this issue. However, in contrast to the opinion of the learned trial judge,
relied on the decision in Vorvis, supra, and concluded that conduct warranting an award
- 20 he was of the view that this conclusion did not dispose of the question of Wallace’s
23
The appellant relied on Cohen v. Mitchell (1890), 25 Q.B.D. 262, in which
the English Court of Appeal drew a distinction between property owned at the date of
bankruptcy and after-acquired property. It was stated that after-acquired property does
not automatically vest in the trustee in such a way as to prevent the bankrupt from
maintaining an action. Rather, he or she retains the ability to bring the action unless the
trustee intervenes. Scott C.J.M. noted that this case has been applied numerous times in
Canada. However, he was of the view that Cohen and the cases which have followed it
are primarily concerned with preventing third parties from losing property that they
purchased from the bankrupt in good faith and for value to the trustee in bankruptcy.
Section 99(1) of the Bankruptcy Act, he stated, gives statutory expression to this common
law principle, but neither the cases nor the statutory provisions directly address the rights
as between the bankrupt and the trustee. At p. 175 he wrote:
As a logical corollary to this it follows, it seems to me, that the thirdparty beneficiary of such protection [the respondent in the present case]
should not be able to set up as against the undischarged bankrupt the title of
the trustee when the trustee has not become involved.
24
According to Scott C.J.M., the real issue was simply whether the appellant
could maintain his action pertaining to after-acquired property when the trustee failed
to take any interest in the litigation. To determine this issue he embarked on a review
of the early case law that preceded Cohen and found that the courts have long recognized
the authority of a bankrupt to maintain an action to protect property, and that this was
later extended to proceedings for damages. However, the bankrupt possessed this power
subject to the discretion of the trustee to intervene. Scott C.J.M. noted that the common
capacity to bring a claim in contract.
- 21 law had developed this “common sense” principle despite the constant presence of both
passed to the assignees (trustees) on bankruptcy. Scott C.J.M. rejected two recent
authorities to the contrary, stating that neither involved after-acquired property nor did
they make reference to Cohen.
25
In the opinion of Scott C.J.M., Lockwood J. had confused the issues of
whether the trustee could maintain the action for wrongful dismissal, which he clearly
could, with the bankrupt’s right to do so when the trustee chose not to intervene. Scott
C.J.M. concluded as follows at p. 177:
The principle that title to after-acquired property vests in the trustee, but
the bankrupt has the power and authority to maintain an action with respect
thereto unless and until the trustee intervenes, is so well established it could
be argued that the [respondent], as opposed to the trustee, has no status to
raise the issue. But this need not be decided; it is sufficient to say that
Lockwood, J., was quite wrong in his conclusion. Wallace had the right to
continue in his own name his action for wrongful dismissal in the absence
of the trustee.
26
Regarding the issue of a fixed-term contract, Scott C.J.M. ruled that the trial
judge had been correct in finding that there was no fixed-term contract to the age of
retirement. In his view, it is rare that general expressions of inducement such as those
found by the trial judge are intended or accepted as sufficient to create a binding legal
obligation. In addition, he concurred with Lockwood J.’s view regarding the special
nature of such a contract, holding that it would require explicit terms and would most
certainly be in writing.
27
In considering the notice period to which the appellant was entitled, Scott
C.J.M. acknowledged that the manner of dismissal and the circumstances surrounding
English and Canadian legislation which provided that all present and future property
- 22 it may be relevant in determining the appropriate notice period where the prospects for
would be appropriate to consider its impact by way of a separate addition to the
appropriate notice period. Rather, he concluded, it is one of the numerous factors to be
considered.
28
In light of the indefinite terms of Wallace’s employment, his position and
work history with the company as well as his age and prospects for future employment,
Scott C.J.M. concurred with the trial judge’s finding that damages ought to be at the high
end of the scale. Nevertheless, he held that the award of 24 months was indicative of an
element of aggravated damages having crept into the trial judge’s determination. Scott
C.J.M. noted the recent tendency for awards to climb beyond the level indicated by
previous authorities and concluded that 15 months was the appropriate period of notice.
29
Turning to Wallace’s claim for mental distress, Scott C.J.M. noted that
historically, courts have refused to award damages under this head in breach of contract
actions. However, he acknowledged that some exceptions have arisen, namely, in cases
where either freedom from mental distress or enjoyment was the actual matter contracted
for. In his view, the exception that has been carved out for these “holiday” cases and
“peace of mind” cases should not be extended further to allow recovery in circumstances
where it was “reasonably foreseeable” that dismissal would cause mental distress.
Rather, relying on the decision in Vorvis, supra, he concluded that any damages beyond
compensation for breach of contract for failure to give reasonable notice “must be
founded on a separately actionable course of conduct” (p. 184). In addition he noted that
the concept of foreseeability and the notion of determining whether mental suffering
would reasonably have been within the contemplation of the parties at the time the
the dismissed employee’s future employment are affected. However, he doubted that it
- 23 employment contract was entered are negated by the necessity of having an independent
30
At p. 184, Scott C.J.M. concluded as follows:
Here the trial judge applied the reasonably foreseeable test. He clearly
erred in doing so. His conclusion that there was a “negligent breach of the
duty of care warranting compensation by way of aggravated damages”
cannot stand since there was no finding, and no evidence to support one, that
the actions of UGG were such as to constitute an independent cause of
action.
31
Similarly, Scott C.J.M. rejected the trial judge’s conclusion that fair
treatment was an implied term of the contract. In his view, conduct that falls short of
being independently actionable in accordance with Vorvis cannot take on that status
simply by labelling it an implied term of the contract and reasoning that the parties must
have contemplated that mental distress would result if the employee was dismissed in
circumstances which, although not independently actionable, were nonetheless harsh.
This reasoning, Scott C.J.M. found, “is simply the ‘reasonably foreseeable’ doctrine, not
adopted by the majority in Vorvis, in another name” (p. 185).
32
In response to Wallace’s argument that there exists a separate independent
cause of action in tort called “bad faith discharge”, Scott C.J.M. noted the absence of
persuasive authority for this proposition. He held that such a tort has not yet been
recognized by Canadian courts.
33
Scott C.J.M. also rejected the argument that UGG was liable for the
intentional infliction of mental suffering. An examination of the reasons for judgment
of Lockwood J. revealed no finding that UGG had deliberately attempted to inflict
wrong.
- 24 mental suffering upon Wallace. Accordingly, Scott C.J.M. found that the claim lacked
34
Turning to the issue of punitive damages, Scott C.J.M. dismissed Wallace’s
argument that the trial judge had erred in refusing to award such damages. He could find
no basis for interfering with Lockwood J.’s conclusion that the respondent’s conduct was
not of such an extreme nature as to justify this type of award. Furthermore, the
respondent’s conduct did not amount to an independent actionable wrong which,
according to the majority judgment in Vorvis, supra, is a necessary element in cases
deserving of an award of punitive damages.
4. Issues
35
The cross-appeal raises one issue: can an undischarged bankrupt bring an
action for wrongful dismissal?
36
The appeal raises five issues:
a.
Was there a fixed-term contract?
b. Did the Court of Appeal err in overturning the trial
judge’s award for aggravated damages resulting from
mental distress?
c.
Can the appellant sue in either contract or tort for “bad
faith discharge”?
d. Is the appellant entitled to punitive damages?
any factual foundation.
- 25 -
37
Did the Court of Appeal err in reducing the appellant’s
reasonable notice damages from 24 to 15 months?
Because the cross-appeal involves the threshold issue of whether the
appellant’s action can be brought at all, I will address it first.
5. Analysis
A. Capacity to Bring Action as an Undischarged Bankrupt
38
The parties agreed that the claim for mental distress, loss of reputation and
punitive damages is one that is personal in nature. Such a cause of action does not
become the property of the trustee in bankruptcy and thus may be pursued by Wallace
in his own right: Re Holley (1986), 59 C.B.R. (N.S.) 17 (Ont. C.A.). However, the part
of Wallace's action for wrongful dismissal that is based on lack of notice is a claim for
breach of contract. Whether or not he can maintain this claim is the issue that the parties
seek to resolve in the cross-appeal.
39
The Court of Appeal concluded that, although title to after-acquired property
vests in the trustee in bankruptcy, the bankrupt maintains the authority to bring an action
with respect thereto unless the trustee intervenes. Therefore, they reasoned, as the
trustee in the present case took no interest in the litigation, Wallace was entitled to
maintain his action for wrongful dismissal despite his status as an undischarged
bankrupt. Although I believe that the Court of Appeal arrived at the correct result, I
cannot agree, with respect, with its reasons.
e.
- 26 40
Section 67(1) of the Bankruptcy Act describes the property of a bankrupt that
that exists at the date of assignment into bankruptcy and property acquired after that
date but prior to the date of discharge. Section 67(1) reads as follows:
67. (1) The property of a bankrupt divisible among his creditors shall
. . . comprise
(c) all property wherever situated of the bankrupt at the
date of his bankruptcy or that may be acquired by or
devolve on him before his discharge, and
(d) such powers in or over or in respect of the property
as might have been exercised by the bankrupt for his
own benefit.
41
“Property” is defined in s. 2 of the Act and includes things in action which
in turn include claims for breach of contract: see Ranch des Prairies Ltée v. Bank of
Montreal (1988), 53 Man. R. (2d) 308 (C.A.).
42
Once a receiving order has been made or an assignment into bankruptcy has
been filed, s. 71(2) of the Act provides that:
. . . a bankrupt ceases to have any capacity to dispose of or otherwise deal
with his property, which shall, subject to this Act and to the rights of secured
creditors, forthwith pass to and vest in the trustee named in the receiving
order or assignment. . . .
43
The clear wording of the statute indicates that, upon assignment into
bankruptcy, the bankrupt relinquishes his ability to deal with both existing and afteracquired property, all of which vests in the trustee in bankruptcy. As property has been
defined under the Act to include things in action, it appears that an undischarged
bankrupt has no capacity to maintain an action for breach of contract. However, the
is divisible among his or her creditors. No distinction is made with respect to property
- 27 Court of Appeal accepted the appellant’s submission that the words of the Act were not
the plain meaning of the Act with respect to property that was acquired after the
assignment in bankruptcy.
44
The Court of Appeal's reasons relied heavily upon the decision of the English
Court of Appeal in Cohen, supra. In Cohen, an undischarged bankrupt was involved in
the buying and selling of agricultural machinery. Some of the machinery was seized and
the bankrupt sought to bring an action for wrongful conversion. The bankrupt lacked the
funds with which to bring an action, and so he assigned the cause of action to a third
party. In exchange for the assignment, the third party forgave the loan he had made to
the bankrupt. A dispute arose between the third party and the trustee in bankruptcy with
respect to who was entitled to the damages that were awarded.
45
At p. 267 Lord Esher M.R. stated:
. . . until the trustee intervenes, all transactions by a bankrupt after his
bankruptcy with any person dealing with him bonâ fide and for value, in
respect of his after-acquired property, whether with or without knowledge
of the bankruptcy, are valid against the trustee.
46
This proposition has since found statutory expression in s. 99(1) of Canada’s
Bankruptcy Act. That section provides as follows:
99. (1) All transactions by a bankrupt with any person dealing with him
in good faith and for value in respect of property acquired by the bankrupt
after the bankruptcy, if completed before any intervention by the trustee, are
valid against the trustee, and any estate or interest in the property that by
virtue of this Act is vested in the trustee shall determine and pass in such
manner and to such extent as may be required for giving effect to any such
transaction.
meant to be read literally. The court found that judges have put a common law gloss on
- 28 47
The Court in Cohen went on to make several broad statements concerning
the clause in his country’s Bankruptcy Act which, similar to s. 67(1) of our Act, includes
among the property vested in the trustee all property of the undischarged bankrupt,
regardless of its date of acquisition. However, Fry L.J. noted the difficulty that the plain
meaning of this clause creates for a bankrupt who has dealings with others and acquires
rights or property while still a bankrupt. He stated that in response to this difficulty, the
common law has developed a distinction between existing and after-acquired property,
namely, that after-acquired property does not vest in the trustee in such a way as to
prevent the bankrupt from maintaining an action. Rather, an act of intervention on the
part of the trustee is required for this to occur.
48
Wallace relied upon these statements to advance his claim that the common
law treats existing and after-acquired property differently and that because his cause of
action arose after his assignment in bankruptcy, he could rightfully maintain an action
for breach of contract in his own name. The Court of Appeal, for the most part,
approved of his arguments and indeed, their decision seems to have been heavily
influenced by the words of the court in Cohen, supra. However, as the Court of Appeal
itself noted, Cohen and many of the cases that have followed it are concerned with the
protection of third parties involved in good faith transactions for value with undischarged
bankrupts.
49
In the present case, these concerns do not arise. In contrast to the facts in
Cohen, Wallace did not become involved in any good faith transactions for value with
a third party after his assignment in bankruptcy, a fact which considerably diminishes
the persuasive authority of that case. I do not believe that the broad statements of Cohen
with respect to after-acquired property extend to these very different factual
a distinction between existing and after-acquired property. Fry L.J. made reference to
- 29 circumstances. I find support for this position in the fact that the English Court of
court reviewed a number of cases, of which Cohen was said to be the leading modern
authority. In so doing, the court conclusively rejected the argument of the appellant that
found favour with the Court of Appeal in the present case. Lord Greene M.R. held that
these cases do not establish the proposition that after-acquired property belongs to the
bankrupt until the trustee intervenes and claims it. At p. 226 he stated:
. . . the title of the trustee is only qualified by those rights given to the
bankrupt by s. 47 [essentially the same as s. 99(1) of our Act], which protect
transactions with third parties but do not in any way qualify the title of the
trustee, save in so far as that title is liable to be impaired in cases which fall
under the section.
50
The Manitoba Court of Appeal’s reasons, although informed by Cohen,
extended beyond the specific facts of that case. After noting the influence of Cohen on
s. 99(1) of the Act, Scott C.J.M., writing for the court, stated at p. 175:
As a logical corollary to this it follows, it seems to me, that the thirdparty beneficiary of such protection should not be able to set up as against
the undischarged bankrupt the title of the trustee when the trustee has not
become involved.
51
In my opinion, in identifying the respondent in the present case as a “third
party”, the Court of Appeal has extended the meaning of that term beyond that which is
accorded to it by s. 99(1). Dealing with that section of the Act, Lane J. in Wyssling
(Trustee of) v. Latreille Estate (1990), 78 C.B.R. (N.S.) 114 (Ont. S.C.), stated at p. 127:
In my view, this section was designed to act as a shield for the benefit
of third parties who might otherwise be liable to lose to the trustee property
which they had purchased from the bankrupt in good faith and for value.
Appeal has reached a similar conclusion. In Re Pascoe, [1944] 1 Ch. 219 (C.A.), the
- 30 52
I agree with this statement and note that the principles enunciated in Cohen
party to the relationship between Wallace and the trustee, it is not a third party in the
sense in which that term is used in s. 99(1). That section appears to envision that the
third party has received or purchased something of value from the bankrupt in good faith
and which the third party might otherwise lose to the trustee. UGG simply does not fill
that description. Therefore, with respect, the logical corollary developed by the Court
of Appeal is erroneous because the respondent is not, in my view, a third party of the
kind contemplated by s. 99(1).
53
Consequently, in this context, I cannot agree with the Court of Appeal’s
finding that the courts have developed a common sense principle which permits an
undischarged bankrupt to deal with assets acquired after the assignment in bankruptcy
provided the trustee has not intervened. In my opinion, the ability to deal with such
assets is restricted to those situations involving good faith third-party transactions for
value with an undischarged bankrupt regarding the after-acquired property of the
bankrupt. The plain meaning of the Act indicates that outside of these very narrow
circumstances (or the exception created by s. 68(1), which I will discuss below), the
bankrupt loses the ability to deal with his or her property regardless of whether it was
acquired before or after the assignment in bankruptcy.
54
This view of the question before us was correctly applied in two recent
appellate court decisions. In McNamara v. Pagecorp Inc. (1989), 76 C.B.R. (N.S.) 97,
the Ontario Court of Appeal held that an undischarged bankrupt lacked the legal capacity
to bring an action in respect of property which the plaintiff and his wife had owned at
the time of the bankruptcy and which had been sold back to him by the trustee prior to
his being discharged.
serve the same purpose. Although UGG in a general sense can be described as a third
- 31 -
At p. 98, the court stated:
The scheme of the Bankruptcy Act is that all property of the bankrupt
owned at the date of bankruptcy and which is acquired by the bankrupt prior
to his discharge vests in the trustee. There is no doubt that an undischarged
bankrupt cannot bring [an] action to enforce property claims and we are
satisfied that such is the law even where, as here, the property is allegedly
sold by the trustee to the bankrupt prior to his discharge.
56
In Long v. Brisson, [1992] 5 W.W.R. 185, a case which also involved an
undischarged bankrupt who sought to maintain an action in respect of property, the
Alberta Court of Appeal cited McNamara and held at p. 186:
An undischarged bankrupt has no status to commence an action or other
proceeding in his own name where it relates to recovery of property. That
status is reserved to the trustee in bankruptcy. . . .
This is the scheme of the Bankruptcy Act. . . .
57
The Court of Appeal attempted to distinguish both of these cases on the basis
that neither made reference to Cohen, supra, and that both appeared to deal with prebankruptcy assets. However, I have some difficulty with this position. My reading of
the facts in McNamara indicates that the property over which the dispute arose was
acquired after the assignment in bankruptcy and not before as was found by the Court
of Appeal. But even so, in my opinion, the date of acquisition of the property is
irrelevant as the Act makes no distinction on this ground. Further, the absence of any
reference to Cohen is of no consequence in light of my statements above with respect to
the limited application of that case.
55
- 32 58
The wording of the Act is clear. An undischarged bankrupt has no capacity
property was acquired before or after the assignment in bankruptcy. I must therefore
respectfully reject the Court of Appeal's holding that a bankrupt has the capacity to bring
an action for breach of contract concerning after-acquired property unless the trustee
intervenes. In my view, the bankrupt generally will not be able to deal with his or her
property outside the circumstances described in s. 99(1).
59
Nevertheless, this is not sufficient to determine that Wallace's claim is a
nullity because s. 68(1) of the Act carves out an additional exception to this general rule
where the property in question can be characterized as “salary, wages or other
remuneration”. Unlike the Court of Appeal, I believe an undischarged bankrupt can
maintain an action against a former employer for damages in lieu of reasonable notice,
not because of the timing of the acquisition of such property but rather, because of the
nature of the property in question.
60
Section 68(1) of the Act provides as follows:
68. (1) Notwithstanding subsection 67(1), where a bankrupt
(a) is in receipt of, or is entitled to receive, any money as salary, wages
or other remuneration from a person employing the bankrupt. . . .
the trustee may, on the trustee's own initiative or, if directed by the
inspectors or the creditors, shall, make an application to the court for an
order directing the payment to the trustee of such part of the money as the
court may determine, having regard to the family responsibilities and
personal situation of the bankrupt.
61
Wallace argued before the Court of Appeal that since the true nature of the
proceeds from an action for wrongful dismissal is analogous to “wages or other
remuneration”, they are not included among property that vests in the trustee and the
to deal with his or her property and no distinction is made with respect to whether that
- 33 bankrupt is able to maintain the action in his or her own name. The Court of Appeal
has no application. For the reasons which follow, I do not agree with this finding.
62
The respondent contended that this Court ought to draw a distinction
between the damages for breach of an employment contract and “salary, wages or other
remuneration”.
In support of this submission, it relied heavily upon Neilson v.
Vancouver Hockey Club Ltd., [1988] 4 W.W.R. 410 (B.C.C.A.), leave to appeal refused,
[1988] 2 S.C.R. viii, where the plaintiff had a contract under which he was to coach the
defendant's hockey team until the end of the 1985 season. He was fired in 1984 in
breach of this contract. The plaintiff, having found similar employment shortly after his
termination, sought to characterize his action as one for remuneration promised and not
for damages for wrongful dismissal in the hope of avoiding the application of mitigation
principles. At p. 412 Seaton J.A. (Aikins J.A. concurring) stated: “The general rule is
that on wrongful dismissal the employee's action is for damages, not for the
remuneration promised.”
63
The respondent argued that Neilson stands for the proposition that the
proceeds from an action for wrongful dismissal are damages and not “salary, wages or
other remuneration”. As such, they do not merit special protection under the Act and
automatically vest in the trustee in bankruptcy. The Court of Appeal agreed.
64
However, Neilson was concerned with whether mitigation should be taken
into account in assessing damages upon the breach of a fixed term contract of
employment. This case did not involve a bankruptcy, nor was there any consideration
of the meaning of “salary, wages or other remuneration” under the Bankruptcy Act.
Therefore, in my view, the words of Seaton J.A. are not determinative of the issue before
found that there was clear authority against this proposition and concluded that s. 68(1)
- 34 this Court. Similarly, the additional cases relied on by the Court of Appeal undertook
v. Thurston & Co., [1903] 1 K.B. 137 (C.A.); Lough v. Digital Equipment of Canada Ltd.
(1986), 57 O.R. (2d) 456 (H.C.).
65
As I see the matter, the underlying nature of the damages awarded in a
wrongful dismissal action is clearly akin to the “wages” referred to in s. 68(1). In the
absence of just cause, an employer remains free to dismiss an employee at any time
provided that reasonable notice of the termination is given. In providing the employee
with reasonable notice, the employer has two options: either to require the employee to
continue working for the duration of that period or to give the employee pay in lieu of
notice: D. Harris, Wrongful Dismissal (1989 (loose-leaf)), at p. 3-10. There can be no
doubt that if the employer opted to require the employee to continue working during the
notice period, his or her earnings during this time would constitute wages or salary under
s. 68(1) of the Act. The only difference between these earnings and pay in lieu of notice
is that the employee receives a lump sum payment instead of having that sum spread out
over the course of the notice period. The nature of those funds remains the same and
thus s. 68(1) will also apply in these circumstances.
66
In the event that an employee is wrongfully dismissed, the measure of
damages for wrongful dismissal is the salary that the employee would have earned had
the employee worked during the period of notice to which he or she was entitled:
Sylvester v. British Columbia, [1997] 2 S.C.R. 315. The fact that this sum is awarded
as damages at trial in no way alters the fundamental character of the money. An award
of damages in a wrongful dismissal action is in reality the wages that the employer ought
to have paid the employee either over the course of the period of reasonable notice or as
pay in lieu of notice. Therefore, in accordance with the exception which is carved out
no examination of s. 68(1) and thus are of limited persuasive authority: see e.g. Bailey
- 35 in s. 68(1) for “salary, wages or other remuneration”, this money is not divisible among
of attaining these damages and is similarly exempt.
67
In support of this finding, I note that several courts have interpreted the
phrase “salary, wages or other remuneration” broadly. It has been held to include
disability benefits (Re Ali (1987), 62 C.B.R. (N.S.) 64 (Ont. S.C.)), severance pay (Re
Giroux (1983), 45 C.B.R. (N.S.) 245 (Ont. S.C.), and Re Greening (1989), 73 C.B.R.
(N.S.) 24 (N.B.Q.B.)) and income tax refunds (Marzetti v. Marzetti, [1994] 2 S.C.R.
765). In Re Giroux, Smith J. stated at p. 247:
Speaking generally, one should experience no difficulty including in the
definition of salary, wages and other remuneration virtually all benefits
accruing to employees. Unless the context requires a restricted meaning,
any reward should normally qualify, if not as “salary, wages”, at least as
“remuneration”, whether the reward takes the form of sick pay allowance,
bonuses, vacation with pay or pay in lieu of notice. [Emphasis added.]
68
The public policy considerations that inform s. 68(1) of the Act offer further
support for interpreting the wording of that section broadly. In Marzetti, supra, the
Court stated at p. 801:
. . . when family needs are at issue, I prefer to err on the side of caution. In
s. 68 of the Bankruptcy Act, Parliament has indicated that, before wages
become divisible among creditors, it is appropriate to have “regard to the
family responsibilities and personal situation of the bankrupt”. This
demonstrates, to my mind, an overriding concern for the support of families.
69
Until alternative employment has been obtained, the wrongly dismissed
employee will require funds to support him- or herself and his or her family. A damages
award will satisfy this need, in essence, filling the pocket that would otherwise have been
filled by salary or wages. If such an award is considered property divisible among a
a bankrupt's creditors and does not vest in the trustee. The right of action is the means
- 36 bankrupt’s creditors that vests in the trustee, the bankrupt and his or her family may be
spirit of the Act, the words “salary, wages or other remuneration” in s. 68(1) must
include an award of damages for wrongful dismissal. The same policy rationales that
exempt salary, wages and other remuneration from automatically vesting in the trustee
surely must operate in the wrongful dismissal context as the function of such damages
is equivalent to wages or salary earned in the course of ongoing employment. To hold
otherwise would run contrary to Parliament’s intention to put the needs of families ahead
of those of creditors.
70
In addition, I note that the possibilities for abuse associated with this
interpretation of s. 68(1) are few. Creditors and trustees are still adequately protected
by virtue of the fact that s. 68(1) allows trustees by their own initiative or by the
direction of the creditors to go before the court for an order directing payment to the
trustee of such part of the “salary, wages or other remuneration” that the court
determines is not required for the support of the bankrupt or his or her family.
71
For the above reasons, I conclude that the appellant can maintain an action
for wrongful dismissal in his own name. I would therefore dismiss the cross-appeal and
I now turn to the issues raised by the appeal.
B. Fixed-Term Contract
72
The appellant submitted that the courts below erred in rejecting his claim that
he had a fixed-term contract for employment until retirement. The learned trial judge
exhaustively reviewed all of the circumstances surrounding Wallace’s hiring and
concluded that there was insufficient evidence to support this claim. The Court of
deprived of essential income during a time of need. In my opinion, to remain true to the
- 37 Appeal accepted the facts as they were found by the trial judge and agreed with his
reason to interfere with the conclusion of the courts below.
C. Damages for Mental Distress
73
Relying upon the principles enunciated in Vorvis, supra, the Court of Appeal
held that any award of damages beyond compensation for breach of contract for failure
to give reasonable notice of termination “must be founded on a separately actionable
course of conduct” (p. 184). Although there has been criticism of Vorvis (see e.g. I.
Christie et al., Employment Law in Canada (2nd ed. 1993), at pp. 749-50; R. B. Schai,
“Aggravated Damages and the Employment Contract” (1991), 55 Sask. L. Rev. 345, at
p. 355; J. Swan, “Extended Damages and Vorvis v. Insurance Corporation of British
Columbia” (1990), 16 Can. Bus. L.J. 213) this is an accurate statement of the law. The
Court of Appeal also noted that this requirement necessarily negates the trial judge’s
reliance on concepts of foreseeability and matters in the contemplation of the parties.
An employment contract is not one in which peace of mind is the very matter contracted
for (see e.g. Jarvis v. Swans Tours Ltd., [1973] 1 Q.B. 233 (C.A.)) and so, absent an
independently actionable wrong, the foreseeability of mental distress or the fact that the
parties contemplated its occurrence is of no consequence, subject to what I say on
employer conduct below.
74
The Court of Appeal concluded that there was insufficient evidence to
support a finding that the actions of UGG constituted a separate actionable wrong either
in tort or in contract. I agree with these findings and see no reason to disturb them. I
note, however, that in circumstances where the manner of dismissal has caused mental
distress but falls short of an independent actionable wrong, the employee is not without
conclusion. In light of these concurrent findings of fact, I see no palpable error or other
- 38 recourse. Rather, the trial judge has discretion in these circumstances to extend the
for mental distress might not be available under a separate head of damages, the
possibility of recovery still remains. I will be returning to this point in my discussion of
reasonable notice below.
D. Bad Faith Discharge
75
The appellant urged this Court to find that he could sue UGG either in
contract or in tort for “bad faith discharge”. With respect to the action in contract, he
submitted that the Court should imply into the employment contract a term that the
employee would not be fired except for cause or legitimate business reasons. I cannot
accede to this submission. The law has long recognized the mutual right of both
employers and employees to terminate an employment contract at any time provided
there are no express provisions to the contrary. In Farber v. Royal Trust Co., [1997] 1
S.C.R. 846, Gonthier J., speaking for the Court, summarized the general contractual
principles applicable to contracts of employment as follows, at p. 858:
In the context of an indeterminate employment contract, one party can
resiliate the contract unilaterally. The resiliation is considered a dismissal
if it originates with the employer and a resignation if it originates with the
employee. If an employer dismisses an employee without cause, the
employer must give the employee reasonable notice that the contract is
about to be terminated or compensation in lieu thereof.
76
A requirement of “good faith” reasons for dismissal would, in effect,
contravene these principles and deprive employers of the ability to determine the
composition of their workforce.
In the context of the accepted theories on the
employment relationship, such a law would, in my opinion, be overly intrusive and
period of reasonable notice to which an employee is entitled. Thus, although recovery
- 39 inconsistent with established principles of employment law, and more appropriately,
77
I must also reject the appellant’s claim that he can sue in tort for breach of
a good faith and fair dealing obligation with regard to dismissals. The Court of Appeal
noted the absence of persuasive authority on this point and concluded that such a tort has
not yet been recognized by Canadian courts. I agree with these findings. To create such
a tort in this case would therefore constitute a radical shift in the law, again a step better
left to be taken by the legislatures.
78
For these reasons I conclude that the appellant is unable to sue in either tort
or contract for “bad faith discharge”. However, I will be returning to the subject of good
faith and fair dealing in my discussion of reasonable notice below.
E. Punitive Damages
79
Punitive damages are an exception to the general rule that damages are
meant to compensate the plaintiff. The purpose of such an award is the punishment of
the defendant: S. M. Waddams, The Law of Damages (3rd ed. 1997), at p. 483. The
appellant argued that the trial judge and the Court of Appeal erred in refusing to award
punitive damages. I do not agree. Relying on Vorvis, supra, Lockwood J. found that
UGG did not engage in sufficiently “harsh, vindictive, reprehensible and malicious”
conduct to merit condemnation by such an award. He also noted the absence of an
actionable wrong. The Court of Appeal concurred. Again, there is no reason to interfere
with these findings. Consequently, I agree with the courts below that there is no
foundation for an award of punitive damages.
should be left to legislative enactment rather than judicial pronouncement.
- 40 -
80
The Court of Appeal upheld the trial judge's findings of fact and agreed that
in the circumstances of this case damages for failure to give notice ought to be at the
high end of the scale. However, the court found the trial judge's award of 24 months’
salary in lieu of notice to be excessive and reflective of an element of aggravated
damages having crept into his determination. It overturned his award and substituted the
equivalent of 15 months’ salary. For the reasons which follow, I would restore the trial
judge's award of damages in the amount of 24 months’ salary in lieu of notice.
81
In determining what constitutes reasonable notice of termination, the courts
have generally applied the principles articulated by McRuer C.J.H.C. in Bardal v. Globe
& Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.), at p. 145:
There can be no catalogue laid down as to what is reasonable notice in
particular classes of cases. The reasonableness of the notice must be
decided with reference to each particular case, having regard to the character
of the employment, the length of service of the servant, the age of the
servant and the availability of similar employment, having regard to the
experience, training and qualifications of the servant.
82
This Court adopted the foregoing list of factors in Machtinger v. HOJ
Industries Ltd., [1992] 1 S.C.R. 986, at p. 998. Applying these factors in the instant case,
I concur with the trial judge’s finding that in light of the appellant's advanced age, his
14-year tenure as the company's top salesman and his limited prospects for reemployment, a lengthy period of notice is warranted. I note, however, that Bardal,
supra, does not state, nor has it been interpreted to imply, that the factors it enumerated
were exhaustive: see e.g. Gillespie v. Bulkley Valley Forest Industries Ltd., [1975] 1
W.W.R. 607 (B.C.C.A.); Corbin v. Standard Life Assurance Co. (1995), 15 C.C.E.L.
F. Reasonable Notice
- 41 (2d) 71 (N.B.C.A.); Bishop v. Carleton Co-operative Ltd. (1996), 21 C.C.E.L. (2d) 1
The application of these factors to the assessment of a dismissed employee’s notice
period will depend upon the particular circumstances of the case.
83
One such factor that has often been considered is whether the dismissed
employee had been induced to leave previous secure employment: see e.g. Jackson v.
Makeup Lab Inc. (1989), 27 C.C.E.L. 317 (Ont. H.C.); Murphy v. Rolland Inc. (1991),
39 C.C.E.L. 86 (Ont. Ct. (Gen. Div.)); Craig v. Interland Window Mfg. Ltd. (1993), 47
C.C.E.L. 57 (B.C.S.C.). According to one authority, many courts have sought to
compensate the reliance and expectation interests of terminated employees by increasing
the period of reasonable notice where the employer has induced the employee to “quit
a secure, well-paying job . . . on the strength of promises of career advancement and
greater responsibility, security and compensation with the new organization” (I. Christie
et al., supra, at p. 623).
84
Several cases have specifically examined the presence of a promise of job
security: see e.g. Makhija v. Lakefield Research (1983), 14 C.C.E.L. 131 (Ont. H.C.),
affirmed by the Ontario Court of Appeal (1986), 14 C.C.E.L. xxxi; Mutch v. Norman
Wade Co. (1987), 17 B.C.L.R. (2d) 185 (S.C.). In particular, I note that the British
Columbia Court of Appeal recently adopted this approach in Robertson v. Weavexx
Corp. (1997), 25 C.C.E.L. (2d) 264. The facts of this case were very similar to those
currently before this Court. Writing for the court, Goldie J.A. stated at pp. 271-72:
Also part of the inducement to the respondent in making the move he
did was, no doubt, the discussions as to long term employment. . . . As I
have concluded, those discussions lacked contractual force in terms of the
respondent’s assertion of a fixed term contract but nevertheless, they were
and are, in my opinion, significant on the issue of reasonable notice.
(N.B.C.A.). Canadian courts have added several additional factors to the Bardal list.
- 42 85
In my opinion, such inducements are properly included among the
comments of Christie et al., supra, and recognize that there is a need to safeguard the
employee’s reliance and expectation interests in inducement situations. I note, however,
that not all inducements will carry equal weight when determining the appropriate period
of notice.
The significance of the inducement in question will vary with the
circumstances of the particular case and its effect, if any, on the notice period is a matter
best left to the discretion of the trial judge.
86
In the instant case, the trial judge found that UGG went to great lengths to
relieve Wallace's fears about jeopardizing his existing secure employment and to entice
him into joining their company. At p. 172 the trial judge stated:
The [respondent] wanted a man with the skills of the [appellant] and to get
him was prepared to accommodate his demands. . . . I have found that there
was no fixed-term contract. However, there was, in the assurance given to
him, a guarantee of security, provided he gave the [respondent] no cause to
dismiss him. [Emphasis added.]
87
In addition to the promise that he could continue to work for the company
until retirement, UGG also offered several assurances with respect to fair treatment.
Further, despite the fact that the company only had salary arrangements with their
existing employees, they assured Wallace that they would implement a commission basis
for him. Although the trial judge did not make specific reference to the inducement
factor in his analysis of reasonable notice, I believe that, in the circumstances of this
case, these inducements, in particular the guarantee of job security, are factors which
support his decision to award damages at the high end of the scale.
considerations which tend to lengthen the amount of notice required. I concur with the
- 43 88
The appellant urged this Court to recognize the ability of a dismissed
I have rejected both as avenues for recovery, by no means do I condone the behaviour
of employers who subject employees to callous and insensitive treatment in their
dismissal, showing no regard for their welfare. Rather, I believe that such bad faith
conduct in the manner of dismissal is another factor that is properly compensated for by
an addition to the notice period.
89
In Lojstrup v. British Columbia Buildings Corp. (1989), 34 B.C.L.R. (2d)
357, the British Columbia Court of Appeal found that Addis v. Gramophone Co., [1909]
A.C. 488 (H.L.), Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673, Ansari
v. British Columbia Hydro and Power Authority (1986), 2 B.C.L.R. (2d) 33 (S.C.), and
Wadden v. Guaranty Trust Co. of Canada, [1987] 2 W.W.R. 739 (Alta. Q.B.), preclude
extending the notice period to account for manner of dismissal. Generally speaking,
these cases have found that claims relating to the manner in which the discharge took
place are not properly considered in an action for damages for breach of contract.
Rather, it is said, damages are limited to injuries that flow from the breach itself, which
in the employment context is the failure to give reasonable notice. The manner of
dismissal was found not to affect these damages.
90
Although these decisions are grounded in general principles of contract law,
I believe, with respect, that they have all failed to take into account the unique
characteristics of the particular type of contract with which they were concerned,
namely, a contract of employment. Similarly, there was not an appropriate recognition
of the special relationship which these contracts govern. In my view, both are relevant
considerations.
employee to sue in contract or alternatively in tort for “bad faith discharge”. Although
- 44 91
The contract of employment has many characteristics that set it apart from
been approved of in previous decisions of this Court (see e.g. Machtinger, supra) bear
repeating. As K. Swinton noted in “Contract Law and the Employment Relationship:
The Proper Forum for Reform”, in B. J. Reiter and J. Swan, eds., Studies in Contract
Law (1980), 357, at p. 363:
. . . the terms of the employment contract rarely result from an exercise of
free bargaining power in the way that the paradigm commercial exchange
between two traders does. Individual employees on the whole lack both the
bargaining power and the information necessary to achieve more favourable
contract provisions than those offered by the employer, particularly with
regard to tenure.
92
This power imbalance is not limited to the employment contract itself.
Rather, it informs virtually all facets of the employment relationship. In Slaight
Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038, Dickson C.J., writing for the
majority of the Court, had occasion to comment on the nature of this relationship. At pp.
1051-52 he quoted with approval from P. Davies and M. Freedland, Kahn-Freund's
Labour and the Law (3rd ed. 1983), at p. 18:
[T]he relation between an employer and an isolated employee or worker is
typically a relation between a bearer of power and one who is not a bearer
of power. In its inception it is an act of submission, in its operation it is a
condition of subordination. . . .
93
This unequal balance of power led the majority of the Court in Slaight
Communications, supra, to describe employees as a vulnerable group in society: see p.
1051. The vulnerability of employees is underscored by the level of importance which
our society attaches to employment. As Dickson C.J. noted in Reference Re Public
Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313, at p. 368:
the ordinary commercial contract. Some of the views on this subject that have already
Work is one of the most fundamental aspects in a person's life,
importantly, a contributory role in society. A person's employment is an
essential component of his or her sense of identity, self-worth and emotional
well-being.
94
Thus, for most people, work is one of the defining features of their lives.
Accordingly, any change in a person's employment status is bound to have far-reaching
repercussions. In “Aggravated Damages and the Employment Contract”, supra, Schai
noted at p. 346 that, “[w]hen this change is involuntary, the extent of our ‘personal
dislocation’ is even greater.”
95
The point at which the employment relationship ruptures is the time when
the employee is most vulnerable and hence, most in need of protection. In recognition
of this need, the law ought to encourage conduct that minimizes the damage and
dislocation (both economic and personal) that result from dismissal. In Machtinger,
supra, it was noted that the manner in which employment can be terminated is equally
important to an individual's identity as the work itself (at p. 1002). By way of expanding
upon this statement, I note that the loss of one's job is always a traumatic event.
However, when termination is accompanied by acts of bad faith in the manner of
discharge, the results can be especially devastating. In my opinion, to ensure that
employees receive adequate protection, employers ought to be held to an obligation of
good faith and fair dealing in the manner of dismissal, the breach of which will be
compensated for by adding to the length of the notice period.
96
This approach finds support in the words of my colleague, Gonthier J., in
Farber, supra. Writing for a unanimous Court he stated at p. 859:
- 45 -
. . . for the employment contract to be resiliated, it is not necessary for the
employer to have intended to force the employee to leave his or her
employment or to have been acting in bad faith when making substantial
changes to the contract’s essential terms. However, if the employer was
acting in bad faith, this would have an impact on the damages awarded to
the employee.
97
I find further support for this approach in the decisions of several cases
wherein the manner of dismissal was among the factors considered in determining the
notice period: Eyers v. City Buick Cadillac Ltd. (1984), 6 C.C.E.L. 234 (Ont. H.C.),
reversed in part (1986), 13 O.A.C. 66, with no comment regarding manner of dismissal;
Jivrag v. City of Calgary (1986), 13 C.C.E.L. 120 (Alta. Q.B.), reversed in part (1987),
18 C.C.E.L. xxx (Alta. C.A.), with no comment regarding manner of dismissal; Hudson
v. Giant Yellowknife Mines Ltd. (1992), 44 C.C.E.L. 109 (N.W.T.S.C.); Hall v. Giant
Yellowknife Mines Ltd. (1992), 44 C.C.E.L. 101 (N.W.T.S.C.); Trask v. Terra Nova
Motors Ltd. (1995), 9 C.C.E.L. (2d) 157 (Nfld. C.A.); MacDonald v. Royal Canadian
Legion (1995), 12 C.C.E.L. (2d) 211 (N.S.S.C.); Corbin, supra; Dunning v. Royal Bank
(1996), 23 C.C.E.L. (2d) 71 (Ont. Ct. (Gen. Div.)); Deildal v. Tod Mountain
Development Ltd. (1997), 91 B.C.A.C. 214.
98
The obligation of good faith and fair dealing is incapable of precise
definition. However, at a minimum, I believe that in the course of dismissal employers
ought to be candid, reasonable, honest and forthright with their employees and should
refrain from engaging in conduct that is unfair or is in bad faith by being, for example,
untruthful, misleading or unduly insensitive. In order to illustrate possible breaches of
this obligation, I refer now to some examples of the conduct over which the courts
expressed their disapproval in the cases cited above.
- 46 -
- 47 99
In Trask, supra, an employer maintained a wrongful accusation of
of the dismissed employee. Jivrag, supra, involved similar unfounded accusations of
theft combined with a refusal to provide a letter of reference after the termination. In
Dunning, supra, bad faith conduct was clearly present. Although the plaintiff's position
had been eliminated, he was told by several senior executives that another position
would probably be found for him and that the new assignment would necessitate a
transfer. However, at the same time that the plaintiff was being reassured about his
future, a senior representative of the company was contemplating his termination. When
a position could not be found, the decision was made to terminate the plaintiff. This
decision was not communicated to the plaintiff for over a month despite the fact that his
employers knew he was in the process of selling his home in anticipation of the transfer.
News of his termination was communicated to the plaintiff abruptly following the sale
of his home.
100
In Corbin, supra, the New Brunswick Court of Appeal expressed its
displeasure over the conduct of an employer who made the decision to fire the employee
when he was on disability leave, suffering from a major depression. The employee
advised the manager as to when he would be returning to duty and informed him that he
was taking a two-week vacation. He was fired immediately upon his return to work.
The facts in MacDonald, supra, are also illustrative of bad faith conduct. In that case,
the defendant employer closed its bar for three months and laid off the plaintiff
bartender. While the bar was closed, the executive committee was replaced and the new
officers decided to implement a different salary structure for bartenders when the bar
reopened. The employer advertised for a bartender at a rate of almost half of the
plaintiff's hourly rate. The plaintiff was unaware of any change in his status, and it was
involvement in a theft and communicated this accusation to other potential employers
- 48 only when he saw the advertisement in the newspaper that he learned that he had been
101
These examples by no means exhaust the list of possible types of bad faith
or unfair dealing in the manner of dismissal. However, all are indicative of the type of
conduct that ought to merit compensation by way of an addition to the notice period. I
note that, depending upon the circumstances of the individual case, not all acts of bad
faith or unfair dealing will be equally injurious and thus, the amount by which the notice
period is extended will vary. Furthermore, I do not intend to advocate anything akin to
an automatic claim for damages under this heading in every case of dismissal. In each
case, the trial judge must examine the nature of the bad faith conduct and its impact in
the circumstances.
102
The Court of Appeal in the instant case recognized the relevance of manner
of dismissal in the determination of the appropriate period of reasonable notice.
However, relying on Trask, supra, and Gillman v. Saan Stores Ltd. (1992), 45 C.C.E.L.
9 (Alta. Q.B.), the court found that this factor could only be considered “where it impacts
on the future employment prospects of the dismissed employee” (p. 180). With respect,
I believe that this is an overly restrictive view. In my opinion, the law must recognize
a more expansive list of injuries which may flow from unfair treatment or bad faith in
the manner of dismissal.
103
It has long been accepted that a dismissed employee is not entitled to
compensation for injuries flowing from the fact of the dismissal itself: see e.g. Addis,
supra. Thus, although the loss of a job is very often the cause of injured feelings and
emotional upset, the law does not recognize these as compensable losses. However,
where an employee can establish that an employer engaged in bad faith conduct or unfair
dismissed and was not to be offered reinstatement.
- 49 dealing in the course of dismissal, injuries such as humiliation, embarrassment and
compensation depending upon the circumstances of the case. In these situations,
compensation does not flow from the fact of dismissal itself, but rather from the manner
in which the dismissal was effected by the employer.
104
Often the intangible injuries caused by bad faith conduct or unfair dealing
on dismissal will lead to difficulties in finding alternative employment, a tangible loss
which the Court of Appeal rightly recognized as warranting an addition to the notice
period. It is likely that the more unfair or in bad faith the manner of dismissal is the
more this will have an effect on the ability of the dismissed employee to find new
employment. However, in my view the intangible injuries are sufficient to merit
compensation in and of themselves. I recognize that bad faith conduct which affects
employment prospects may be worthy of considerably more compensation than that
which does not, but in both cases damage has resulted that should be compensable.
105
The availability of compensation for these types of injuries has been
recognized in other areas of the law. In McCarey v. Associated Newspapers Ltd. (No.2),
[1965] 2 Q.B. 86 (C.A.), Pearson L.J. examined the scope of recovery in an action for
libel. At pp. 104-5 he stated:
Compensatory damages, in a case in which they are at large, may include
several different kinds of compensation to the injured plaintiff. They may
include not only actual pecuniary loss and anticipated pecuniary loss or any
social disadvantages which result, or may be thought likely to result, from
the wrong which has been done. They may also include the natural injury to
his feelings -- the natural grief and distress which he may have felt at having
been spoken of in defamatory terms, and if there has been any kind of highhanded, oppressive, insulting or contumelious behaviour by the defendant
which increases the mental pain and suffering caused by the defamation and
may constitute injury to the plaintiff’s pride and self-confidence, those are
damage to one’s sense of self-worth and self-esteem might all be worthy of
- 50 -
106
Pearson L.J.’s list of the elements properly compensated for in an award of
this type found favour with the Nova Scotia Supreme Court, Appeal Division in Barltrop
v. Canadian Broadcasting Corp. (1978), 25 N.S.R. (2d) 637, at pp. 661-62, leave to
appeal refused, [1978] 1 S.C.R. vi. Having been asked to assess damages in an action
for defamation, MacKeigan C.J.N.S., writing for a unanimous court, quoted the above
cited passage with approval (see also: Stumpf v. Globe Holdings Ltd. (1982), 22 Alta.
L.R. (2d) 55 (Q.B.), at p. 61).
107
In my view, there is no valid reason why the scope of compensable injuries
in defamation situations should not be equally recognized in the context of wrongful
dismissal from employment. The law should be mindful of the acute vulnerability of
terminated employees and ensure their protection by encouraging proper conduct and
preventing all injurious losses which might flow from acts of bad faith or unfair dealing
on dismissal, both tangible and intangible. I note that there may be those who would say
that this approach imposes an onerous obligation on employers. I would respond simply
by saying that I fail to see how it can be onerous to treat people fairly, reasonably, and
decently at a time of trauma and despair. In my view, the reasonable person would
expect such treatment. So should the law.
108
In the case before this Court, the trial judge documented several examples
of bad faith conduct on the part of UGG. He noted the abrupt manner in which Wallace
was dismissed despite having received compliments on his work from his superiors only
days before. He found that UGG made a conscious decision to “play hardball” with
Wallace and maintained unfounded allegations of cause until the day the trial began.
proper elements to be taken into account in a case where the damages are at
large.
- 51 Further, as a result of UGG's persistence in maintaining these allegations, “[w]ord got
(p. 173). Finally, he found that the dismissal and subsequent events were largely
responsible for causing Wallace's depression. Having considered the Bardal list of
factors, he stated at p. 170:
Taking [these] factors into account, and particularly the fact that the
peremptory dismissal and the subsequent actions of the defendant made
other employment in his field virtually unavailable, I conclude that an award
at the top of the scale in such cases is warranted.
109
I agree with the trial judge’s conclusion that the actions of UGG seriously
diminished Wallace’s prospects of finding similar employment. In light of this fact, and
the other circumstances of this case, I am not persuaded that the trial judge erred in
awarding the equivalent of 24 months’ salary in lieu of notice. It may be that such an
award is at the high end of the scale; however, taking into account all of the relevant
factors, this award is not unreasonable and accordingly, I can see no reason to interfere.
Therefore, for the reasons above, I would restore the order of the trial judge with respect
to the appropriate period of reasonable notice and allow the appeal on this ground.
6. Conclusions and Disposition
110
I would dismiss the cross-appeal with costs and allow the appeal in part with
costs here and in the courts below. I would set aside the judgment of the Manitoba Court
of Appeal and restore the trial judge’s award of 24 months’ salary in lieu of notice. As
explained above, the other aspects of the appellant’s claim are rejected.
around, and it was rumoured in the trade that he had been involved in some wrongdoing”
- 52 The reasons of La Forest, L’Heureux-Dubé and McLachlin JJ. were
111
MCLACHLIN J. (dissenting in part) -- I have read the reasons of Justice
Iacobucci. While I agree with much of his reasons, my view of the law leads me to differ
both in method and in result.
112
As to method, I differ from Iacobucci J. in two respects. First, I am of the
view that an award of damages for wrongful dismissal should be confined to factors
relevant to the prospect of finding replacement employment. It follows that the notice
period upon which such damages are based should only be increased for manner of
dismissal if this impacts on the employee’s prospects of re-employment. Secondly, I am
of the view the law has evolved to permit recognition of an implied duty of good faith
in termination of the employment.
113
These differences lead me to a different result than my colleague. I would
uphold the trial judge’s award of damages for wrongful dismissal based on a 24-month
notice period. I would also uphold the trial judge’s award of $15,000 for mental distress
on the basis of breach of the contractual obligation of good faith in dismissing an
employee.
114
On the cross-appeal, I agree with Iacobucci J. that the plaintiff’s action was
not precluded by his bankruptcy. Damages in lieu of reasonable notice constitute
“salary, wages or other remuneration” for the purposes of bankruptcy legislation and
hence are recoverable. I also conclude that damages for breach of the implied obligation
of good faith are recoverable because of the personal nature of the cause of action.
delivered by
- 53 -
115
The action for wrongful dismissal is based on an implied obligation in the
employment contract to give reasonable notice of an intention to terminate the
relationship (or pay in lieu thereof) in the absence of just cause for dismissal: I. Christie
et al., Employment Law in Canada (2nd ed. 1993), at p. 609. If an employer fails to
provide reasonable notice of termination, the employee can bring an action for breach
of the implied term. A “wrongful dismissal” action is not concerned with the wrongness
or rightness of the dismissal itself. Far from making dismissal a wrong, the law entitles
both employer and employee to terminate the employment relationship without cause.
A wrong arises only if the employer breaches the contract by failing to give the
dismissed employee reasonable notice of termination. The remedy for this breach of
contract is an award of damages based on the period of notice which should have been
given. The length of the notice period is based on the time reasonably required to find
similar employment. The damages represent what the employee would have earned in
this period. These damages place the employee in the position that he or she would
have been in had the contract been performed -- the proper measure of damages for
breach of contract.
116
To determine the period of reasonable notice, the court examines the
characteristics of the particular employment relationship relevant to the employee’s
prospects of finding a similar position including “the character of the employment, the
length of service of the servant, the age of the servant and the availability of similar
employment, having regard to the experience, training and qualifications of the servant”:
Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.), at p. 145, per
McRuer C.J.H.C., approved in Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R.
986, at pp. 998-99.
The Law
- 54 -
As my colleague points out, the Bardal factors have not been viewed as
exhaustive. Courts have introduced additional factors into the assessment process,
often without articulating the policy reasons for doing so. This has led to confusion
about what kinds of factors may be considered in the future. As a result, this area of
the law “is often uncertain and unpredictable”: Christie et al., supra, at p. 611.
Hence the issue on this appeal; when, if ever, can the manner of discharge impact on
the notice period upon which damages for wrongful dismissal are based?
118
My colleague, Iacobucci J., holds that the manner of dismissal may be
considered generally in defining the notice period for wrongful dismissal. An
alternative view is that the manner of dismissal should only be considered in defining
the notice period where the manner of dismissal impacts on the difficulty of finding
replacement employment, and that absent this connection, damages for the manner
of termination must be based on some other cause of action.
119
I prefer the second approach for the following reasons. First, this
solution seems to me more consistent with the nature of the action for wrongful
dismissal. Second, this approach, unlike the alternative, honours the principle that
damages must be grounded in a cause of action. Third, this approach seems to me
more consistent with the authorities, notably Vorvis v. Insurance Corporation of
British Columbia, [1989] 1 S.C.R. 1085, per McIntyre J. Fourth, this approach will
better aid certainty and predictability in the law governing damages for termination
of employment. Finally, there are other equally effective ways to remedy wrongs
related to the manner of dismissal which do not affect the prospect of finding
replacement work. I will discuss in turn each of these reasons for preferring the
second alternative.
117
- 55 -
120
As already stated, the action for wrongful dismissal is an action for
breach of an implied term in the contract of employment to give reasonable notice
of termination. Reasonable notice, in turn, represents the time that may reasonably
be required to find replacement employment. It follows that only factors relevant to
the prospects of re-employment should be considered in determining the notice
period. To include other factors is to consider matters unrelated to the breach of
contract for which damages are ostensibly being awarded.
2. Consistency with the Principle That Damages Must Be Grounded in
a Cause of Action
121
Damages, to be recoverable, must flow from an actionable and hence
compensable wrong: Brown v. Waterloo Regional Board of Commissioners of Police
(1983), 43 O.R. (2d) 113 (C.A.), aff’g in part (1982), 37 O.R. (2d) 277 (H.C.). Since
the compensable wrong in wrongful dismissal actions is the failure to give
reasonable notice so that the employee can find replacement employment, a
successful plaintiff will only be entitled to damages flowing from that wrong.
122
It follows that the only damages recoverable in an action based on breach
of the contractual duty to give reasonable notice are those related to the prospect of
re-employment. Other wrongs must find their remedy elsewhere.
3. Consistency with the Authorities
1. Consistency with the Nature of the Action for Wrongful Dismissal
- 56 123
This is not the first time this Court has considered the issue of whether
which damages for wrongful dismissal are based. In Vorvis, supra, this Court
declined an invitation to do just this.
124
As in the case at bar, the plaintiff in Vorvis claimed damages for wrongful
dismissal as well as damages for mental distress suffered by him as a result of his
employer's callous treatment of him around the time of dismissal. The Court affirmed
the long-standing principle that damages for wrongful dismissal (as opposed to other
wrongs) were confined to loss flowing from the absence of reasonable notice of
termination. McIntyre J. for the majority, citing Addis v. Gramophone Co., [1909] A.C.
488 (H.L.), and Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673, aff’g
(1965), 56 D.L.R. (2d) 117 (B.C.C.A.), stated (at p. 1103):
The rule long established in the Addis and Peso Silver Mines cases has
generally been applied to deny [aggravated] damages, and the
employer/employee relationship . . . has always been one where either party
could terminate the contract of employment by due notice, and therefore the
only damage which could arise would result from a failure to give such
notice.
125
This said, McIntyre J. left open the possibility that aggravated damages
could be awarded in a case of wrongful dismissal, "particularly where the acts
complained of were also independently actionable" (p. 1103).
126
It is argued that this phrase means that the notice period on which
damages for wrongful dismissal are predicated may be increased to reflect the
manner of dismissal, even where it did not affect the prospects of re-employment.
This submission seems to me to read a great deal into the phrase. It seems to me
damages related to the manner of dismissal can increase the notice period upon
- 57 more likely that McIntyre J., without closing the door on the possibility of
a case where manner of dismissal impacts on prospects of re-employment), was of
the view that generally, aggravated damages would arise only where the acts were
independently actionable. This is consistent with the long-standing distinction
affirmed in Vorvis between damages for breach of the contractual duty to give
reasonable notice of termination and other independent causes of action which may
give rise more generally to damages for manner of dismissal. On this view, the first
source of damages is the traditional wrongful dismissal action compensating for the
failure to give reasonable notice. The second source of damages are actions for
independently actionable wrongs. The manner of dismissal may figure in both types
of action: in the former, where it impacts on prospects of re-employment; in the
latter more generally. When it does so, additional aggravated damages may be
awarded if the employer’s conduct was so “harsh, vindictive, reprehensible and
malicious” that damages representing punishment in addition to compensation
should be awarded.
In conclusion, it seems to me that the general principle underlying Vorvis
127
is that damages for wrongful dismissal are confined to damages for breach of the
implied obligation on the employer to give reasonable notice. Unless the manner of
termination increased the time required to find new employment and hence the notice
period, damages for manner of dismissal must be grounded in an independent cause
of action.
128
The view I propose is also consistent with the language and spirit of
Bardal, supra. Each of the Bardal factors indicate something about the future
employment prospects of the particular employee: Christie et al., supra, at pp. 611-
aggravated damages in a contractual action for wrongful dismissal (for example, in
- 58 20. The factor “availability of other employment” clearly relates to the extent of
The “characteristics of the job” are considered because of the hypothesis that
employees in the higher echelon of employment positions will be less able to find
alternative employment because there are fewer job openings available in these
positions. Although the “length of service” is potentially considered for a number
of reasons, one rationale for considering this factor is that “longer seniority-rated
employees are likely to be older and therefore less able to find alternative
employment”(Christie et al., supra, at p. 618). This also explains why the “age of the
employee” is considered.
129
Finally, the view I endorse is consistent with Vorvis and Bardal read
together. To extend the factors in Bardal to include matters unrelated to prospects
of re-employment is to effectively collapse the distinction affirmed in Vorvis between
the cause of action for breach of the contractual duty to give reasonable notice of
termination and independent causes of action for other employer wrongs.
130
I conclude that the authorities support the following position. If the
employer dismisses an employee in a manner that negatively affects the employee’s
chances of finding alternative employment, a court may properly increase the
employee’s period of reasonable notice to reflect that increased difficulty. Otherwise,
the reasonable notice assessment should not be increased to compensate for
employer misconduct in the manner of dismissal. Compensation for such injuries
must be founded on an independent cause of action.
4. Certainty and Predictability
difficulty the employee can expect to confront when searching for new employment.
- 59 131
As earlier noted, the fact that some courts in the past have considered
upon which damages for wrongful dismissal are based, has rendered the law
“uncertain and unpredictable”: Christie et al., supra, at p. 611. To continue on this
path by allowing conduct unrelated to the prospects of employment to affect the
notice period would only increase that uncertainty and unpredictability. It would
confront employers and judges seeking to establish the reasonable notice period
under the contract with new and difficult questions unrelated to the wrong of failure
to give reasonable notice. What sort of employer conduct is capable of increasing
the notice period? How much time should be added for a particular sort of
misconduct? The absence of a legal basis in the action for wrongful dismissal for the
increased damages on account of manner of dismissal would make it difficult to
provide principled and consistent answers to these questions.
132
Confining the factors considered in determining reasonable notice to
matters impacting on the prospect of finding replacement employment will increase
the predictability of wrongful dismissal law, making it easier for employers to
anticipate the length of notice a particular employee is likely to receive. To require
the employer to take into account undefined conduct not related to these factors in
determining the length of notice is to complicate and render less precise the inquiry
into the appropriate notice period.
5. The Availability of Other Remedies
133
It is argued that employer misconduct in the manner of dismissal not
affecting prospects of re-employment must be taken into account in calculating the
notice period in order to avoid injustice and provide an adequate remedy to the
factors unrelated to prospects of re-employment in determining the notice period
- 60 employee in a case such as this. The answer to this argument is that the law affords
134
The law of tort and contract recognizes a number of independent causes
of action for misconduct in dismissing an employee. If the employer defames the
employee or wilfully inflicts mental distress, the employee can sue in tort. If the
employer has lured the employee from a secure position with promises of better
terms, the employee may be able to sue in tort for negligent misrepresentation or for
breach of an express contractual term. Finally, unfair treatment at the time of
dismissal may give rise to an action for breach of an implied term in the contract of
employment.
135
The law has now developed to the point that to these traditional actions
may now be added another: breach of an implied contractual term to act in good
faith in dismissing an employee. I agree with Iacobucci J. that an employer must act
in good faith and in fair dealing when dismissing employees, and more particularly
that “employers ought to be candid, reasonable, honest and forthright with their
employees and should refrain from engaging in conduct that is unfair or is in bad
faith by being, for example, untruthful, misleading or unduly insensitive” (para. 98).
I also agree that this obligation does not extend to prohibiting employers from
dismissing employees without “good faith” reasons; such an extension of
employment law would be “overly intrusive and inconsistent with established
principles of employment law”(para. 76). Both employer and employee remain free
to terminate the contract of employment without cause. This is not inconsistent with
the duty of good faith. While some courts have recognized employer obligations of
good faith outside of the dismissal context (see below), this case does not require us
to go beyond the context of dismissal.
other remedies for employer misconduct in these circumstances.
- 61 -
I differ from my colleague, however, in that I see no reason why the
expectation of good faith in dismissing employees that he accepts should not be
viewed as an implied term of the contract of employment. To assert the duty of good
faith in dismissing employees as a proposition of law, as does my colleague, is
tantamount to saying that it is an obligation implied by law into the contractual
relationship between employer and employee. In other words, it is an implied term
of the contract.
137
Implication of this term meets the test set out by this Court in Canadian
Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711. Le Dain J., for the
majority, held that terms may be implied on the basis of custom or usage, presumed
intention, and as legal incidents of a particular class or kind of contract, the nature
and content of which have to be largely determined by implication. Whereas the
implication of a term based on presumed intention must be necessary “to give
business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test
as a term which the parties would say, if questioned, that they had obviously
assumed” (p. 775), the implication of a term as legal incident need only be necessary
in the sense that it is required by the nature of the contract rather than the presumed
intentions of the particular parties.
138
This is the type of implication that is involved in the proposed obligation
of good faith. As Iacobucci J. points out, employment contracts have characteristics
quite distinct from other types of contracts as a result of the often unequal bargaining
power typically involved in the relationship. This results in employee vulnerability -a vulnerability that is especially acute at the time of dismissal. The nature of the
relationship thereby necessitates some measure of protection for the vulnerable party.
Requiring employers to treat their employees with good faith at the time of dismissal
136
- 62 provides this special measure of protection. It follows that an implied term is necessary
139
Recognition of an implied term in the employment contract of good faith in
relation to the dismissal of employees is supported by previous decisions, academic
commentary and related developments in other areas of contract law. I turn first to
previous decisions. The British Columbia Court of Appeal, per Braidwood J.A. affirmed
a duty of good faith in dismissal in Deildal v. Tod Mountain Development Ltd. (1997),
91 B.C.A.C. 214 (although the case was ultimately decided on other grounds, as the
parties had not argued the point). Deildal suffered mental distress and damage to his
professional reputation and career prospects as a result of the manner of dismissal.
Braidwood J.A. held that in such circumstances two actions lay: one for breach of the
implied contractual term of reasonable notice of termination, the other for breach of a
duty to act in good faith in dismissing the plaintiff. In support of the latter, he wrote (at
para. 77):
The contract under consideration here is not a simple commercial
exchange in the marketplace of goods and services. A contract of
employment is typically of longer term and more personal in nature than
most contracts, and involves greater mutual dependence and trust, with a
correspondingly greater opportunity for harm or abuse. It is quite logical to
imply that the parties to such a contract would, if they turned their minds to
the issue, mutually agree that they would take reasonable steps to protect
each other from such harm, or at least would not deliberately and
maliciously avail themselves of an opportunity to cause it.
The decision of Gibbs J.A., dissenting, was consistent with this view.
140
In affirming an implied contractual obligation of good faith in termination
of employment in Deildal, supra, Braidwood J.A. relied on New Zealand cases
upholding such a duty: viz. Whelan v. Waitaki Meats Ltd., [1991] 2 N.Z.L.R. 74 (H.C.),
in the sense required to justify implication of a contractual term by law.
- 63 approved by the New Zealand Court of Appeal in Ogilvy & Mather (New Zealand) Ltd.
the possibility of implying terms into the contract by examining the particular
circumstances of the employment relationship (at pp. 89-90):
In this case as I have already concluded, the plaintiff occupied a senior
position with substantial responsibilities. . . . The nature and extent of his
service was such that combined with the position he held, I think he was
entitled to assume that he would be treated by his employer in such a manner
as to enable him to retain his dignity within the community and not to have
his status affected by a precipitate act open to misinterpretation. I think
these matters taken together become implied terms of his contract of service
with the defendant and that the defendant in the circumstances in its turn had
an obligation to observe them. [Emphasis added.]
The employer having treated the plaintiff in a manner that caused “undue mental distress,
anxiety, humiliation, loss of dignity and injury to his feelings” (p. 90), Gallen J. awarded
damages for both the failure to provide reasonable notice and the manner of dismissal.
141
Canadian courts have frequently found aspects of an obligation of good faith
in dismissing employees. Trainor J. in Carrick v. Cooper Canada Ltd. (1983), 2
C.C.E.L. 87 (Ont. H.C.), concluded that an employer owed a duty to an employee to treat
him with concern and common decency. Similarly, Gomery J. of the Quebec Superior
Court in Bernardin v. Alitalia Air Lines (1993), 50 C.C.E.L. 156, at pp. 162-63, held that
an employer terminating the employment relationship is under a duty to do so in a
manner which will not cause the employee undue anxiety. Other courts
have introduced a duty of procedural fairness in
dismissal
situations
under
the
rubric
of
determining whether or not there is “just cause”
for summary dismissal: Christie et al., supra, at p.
v. Turner, [1994] 1 N.Z.L.R. 641, and often followed. In Whelan, Gallen J. approached
- 64 416.
Still other courts have held that where the
conferring discretionary powers on the employer,
such discretion must be exercised reasonably and
in good faith; e.g. Cohnstaedt v. University of Regina, [1989] 1
S.C.R. 1011, at p. 1019; Greenberg v. Meffert (1985), 50
O.R. (2d) 755 (C.A.), at p. 764, leave to appeal
refused, [1985] 2 S.C.R. ix; Truckers Garage Inc. v. Krell
(1993), 3 C.C.E.L. (2d) 157 (Ont. C.A.), at p.
164.
It has also been held that the employer
owes
to
an
employee
a
duty
of
procedural
fairness which, inter alia, entitles the worker to be
interviewed honestly and in a non-hostile fashion
about her alleged deficiencies before dismissal
can be invoked: Doyle v. London Life Insurance Co. (1985), 23
D.L.R. (4th) 443 (B.C.C.A.), leave to appeal
refused, [1986] 1 S.C.R. x.
See also:
Shiloff v. R.
(1994), 6 C.C.E.L. (2d) 177 (F.C.T.D.).
142
The weight of academic commentary supports the judicial imposition of a
duty of good faith in dismissing employees. Christie et al., supra, suggest that “[t]he
implied promise to treat the employee with decency and dignity in job exit situations
offers the greatest potential in compensating for mental distress” (p. 750).
143
Similarly, Professor Schai (in “Aggravated Damages and the Employment
Contract” (1991), 55 Sask. L. Rev. 345) opines that “an implied contractual condition of
good faith is the best device by which the law can compensate for the psychological
employment contract contains express provisions
- 65 injuries received in the wrongful dismissal of an employee” (p. 349). He writes (at p.
An implied condition of good faith will serve two masters. Principally,
it will serve as a device of compensation for persons injured by the callous
and malicious treatment of their employers. Secondly, and from a
perspective of aggravated damages awards, of lesser importance, is the role
of deterrence.
144
To similar effect, G. England notes that implying an employer obligation of
good faith would provide symmetry to this area of the law since employees already owe
their employers a duty to act reasonably in the best interests of their employer: “Recent
Developments in the Law of the Employment Contract: Continuing Tension Between the
Rights Paradigm and the Efficiency Paradigm” (1995), 20 Queen’s L.J. 557.
145
Finally, implication of an implied contractual obligation of good faith in
dismissing an employee is consistent with the recognition of an implied obligation of
good faith and fair dealing in other areas of contract law, such as commercial contracts,
insurance contracts and real estate contracts. (See S. K. O’Byrne, “Good Faith in
Contractual Performance: Recent Developments” (1995), 74 Can. Bar Rev. 70; B. J.
Reiter, “Good Faith in Contracts” (1983), 17 Val. U. L. Rev. 705, and E. P. Belobaba,
“Good Faith in Canadian Contract Law”, in Commercial Law: Recent Developments and
Emerging Trends (1985), 73.) It may also be noted that this Court has affirmed an
implied contractual term of good faith and fair dealing under the civil law of Quebec:
Houle v. Canadian National Bank, [1990] 3 S.C.R. 122.
146
In summary, it is my view that the law has evolved to the point of
recognition of an implied contractual obligation of good faith in the contract of
employment to treat the employee with good faith in dismissing him or her. To the
363):
- 66 extent that recognition of such a term may be seen as a new development, it falls within
[1989] 2 S.C.R. 750, at pp. 760-61, and R. v. Salituro, [1991] 3 S.C.R. 654, at p. 668.
The action for breach of this duty supplements the independent causes of action in
contract and tort previously recognized to provide ample redress for wrongs such as
those raised by the appellant without altering the traditional notice-based action for
wrongful dismissal.
Application of the Law
147
After taking into account the enumerated Bardal factors and the fact that “the
peremptory dismissal and the subsequent actions of the defendant made other
employment in his field virtually unavailable” (p. 170), the trial judge fixed the period
of reasonable notice at 24 months. The Court of Appeal reduced the notice period from
24 to 15 months on the basis that the trial judge may have allowed an element of
aggravated damages to creep into his assessment and that recent awards in such cases
had been getting too high. I do not agree. The trial judge proceeded on the basis of a
careful assessment of the appellant’s prospects of re-employment. He considered no
other factors. I see no reason to interfere in his assessment.
148
The appellant also claimed damages for mental distress, loss of reputation
and prestige, and punitive damages. The trial judge concluded that it was the dismissal
and events following thereafter that were mostly responsible for the mental anguish
suffered by Mr. Wallace. These damages are compensable providing they flow from the
employer’s failure to treat Mr. Wallace in good faith at the time of dismissal. The trial
judge found bad faith conduct on the part of UGG in: (1) terminating Mr. Wallace in an
the scope of the incremental step-by-step revision approved in Watkins v. Olafson,
- 67 abrupt manner after having complimented him numerous times prior to the dismissal;
unfounded allegations of just cause up until the start of the trial which resulted in Mr.
Wallace being essentially ostracized from the printing business. UGG thus breached the
implied term of good faith and fair dealing by acting as it did at the time of dismissal.
The damages claimed under the heading mental distress and loss of reputation are
general damages flowing directly from the employer’s breach of the implied term and
are therefore compensable. Accordingly, I would uphold the trial judge’s award of
$15,000 representing compensation for those additional damages.
149
I see no reason to interfere with the trial judge’s conclusion that UGG did
not engage in sufficiently “harsh, vindictive, reprehensible and malicious” conduct to
merit an award representing punitive damages.
150
The parties agreed that the claim for mental distress and loss of reputation,
viewed in tort, would be personal in nature and thus would not form part of the
bankrupt’s property divisible among creditors. The question arises whether an action for
mental distress and loss of reputation founded on breach of an implied term of good faith
in a contract is similarly personal in nature. In my view it is. The issue is not whether
the action sounds in contract or tort, but whether the damages claimed are for personal
loss as distinguished from proprietary loss. As affirmed in Re Holley (1986), 59 C.B.R.
(N.S.) 17 (Ont. C.A.), at p. 35 per Goodman J.A., “it is not the policy of the law to
convert into money for the creditors the mental or physical anguish of the debtor”. I
therefore conclude that the appellant is not prevented from claiming damages for breach
of the implied term because he was an undischarged bankrupt at the time the action was
commenced.
and (2) UGG’s decision to play hardball with Mr. Wallace by maintaining completely
I would dismiss the cross-appeal and allow the appeal with costs here and
in the courts below and restore the trial judge’s award of 24 months’ salary representing
damages for wrongful dismissal and $15,000 representing compensation for mental
distress and loss of reputation.
Appeal allowed in part with costs, LA FOREST, L’HEUREUX-DUBÉ and
MCLACHLIN JJ. dissenting in part. Cross-appeal dismissed with costs.
Solicitors for the appellant: Riley, Orle, Giesbrecht, Born, Winnipeg.
Solicitors for the respondent: Wolch, Pinx, Tapper, Scurfield, Winnipeg.
151
ONTARIO
B E T W E E N:
COURT FILE NO.: 00-CV-188172CM
)
)
Plaintiff )
)
)
- and )
DAVID CLOUTIER, MICHAEL JEFFERIES, )
)
HI-CAP TECHNOLOGIES, GUISEPPE
)
(JOSEPH) DURANTE, KEITH SANGER,
)
JAMES WHITE, KELVIN TECHNOLOGIES
)
INC., DOUGLAS CHRISTIE, 798068
)
ONTARIO LIMITED AND DEREK
)
PEATLING
)
Defendants
)
)
)
)
A N D B E T W E E N:
Timothy Pinos and Jacqueline L. Wall, for
the plaintiff
ZESTA ENGINEERING LTD.
)
)
)
)
Plaintiffs by counterclaim
)
- and )
)
)
Defendant to the counterclaim )
)
DAVID CLOUTIER, KELVIN
TECHNOLOGIES INC. AND GUISEPPE
(JOSEPH) DURANTE
David Harris, for the defendants David
Cloutier, Kelvin Technologies Inc., and
Derek Peatling
Norman Grosman, for the defendants
Guiseppe Durante, Keith Sanger and
James White
Morris Cooper, for the defendants
Douglas Christie and 798068 Ontario
Limited
2010 ONSC 5810 (CanLII)
CITATION: Zesta Engineering Ltd. v. Cloutier, 2010 ONSC 5810
COURT FILE NOS.: 00-CV-188172CM &
05-CV-302414PD2
DATE: 20101021
)
COURT FILE NO.: 05-CV-302414PD2
)
)
Plaintiff )
)
- and )
)
JOE DURANTE AND WENDY DURANTE
)
Defendants )
)
)
)
)
)
)
)
)
Timothy Pinos and Jacqueline L. Wall, for
the plaintiff
A N D B E T W E E N:
Arnie Herschorn, for the defendants
HEARD: April 22, 23, 24, 27 and 28;
May 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 19,
20, 21, 25, 26, 27, and 29; June 8, 9, 10,
11, 12, 15, 16, 17, 18, and 26; September
15, 16, 17, 21, 22, 23, 24, 25, 29 and 30;
and October 1, 2, 5, 6, 7, 8, 9 and 27,
2009; written submissions in November
and December 2009 and January 2010
STINSON J.
[1]
This lawsuit is a case study of the risks and consequences of intertwining business,
family, and marital relationships. On its face, this proceeding involves claims for breach of
fiduciary duty and misappropriation of corporate assets by departing employees, coupled with
counterclaims for wrongful dismissal. Beneath the surface it is the unhappy story of the impact
of a marriage breakdown on a successful business enterprise, and the decade of litigation that has
ensued.
OVERVIEW
The parties
[2]
The plaintiff Zesta Engineering Ltd. is an Ontario corporation based in Mississauga,
Ontario. Zesta carries on business as a distributor of electrical heaters, temperature controls,
temperature sensors called thermocouples, power controls and similar equipment for industrial
applications. Zesta also operates a manufacturing facility that is involved in the production of
similar types of products, including thermocouples. The shares of Zesta are owned by Vincent
Eastman and his wife Ruth. Vincent Eastman is the founder, President and controlling mind of
Zesta.
Page: 2
[3]
The defendant David Cloutier is the son-in-law of Vincent and Ruth Eastman, being the
husband of their daughter Mary. Cloutier and Mary are estranged and have lived separately since
1998; for her part, Mary is estranged from her parents and siblings, many of whom are Zesta
employees. I mention these facts at the outset because they assumed some significance as the
evidence unfolded at trial. Cloutier was the Vice-President and Assistant General Manager of
Zesta at the time of the events in issue.
[4]
The defendant Guiseppe (Joe) Durante was employed by Zesta from 1980 until
December 1999, and latterly held the post of National Operations Manager. The defendant Keith
Sanger was employed by Zesta from 1995 until December 1999. At the time he left Zesta,
Sanger was the Sales Manager for Direct Accounts known as "original equipment manufacturer"
("OEM") accounts. The defendant James White was employed by Zesta from 1996 until
February 2000. He latterly held the position of Production Manager at Zesta's Mississauga
facility.
[5]
The defendant Kelvin Technologies Inc. was incorporated in early 2000. It carries on a
business similar to and in many ways competitive with that of Zesta. Kelvin was incorporated by
Durante, who originally owned 70% of its shares, while the remaining 30% were owned by the
defendant Derek Peatling. All of Cloutier, Durante, Sanger and White (the "ex-Zesta
Defendants") are associated in some capacity with the business of Kelvin. Peatling is a
businessman and investor, as well as a long time acquaintance and friend of Cloutier and Sanger.
He currently owns 100% of the shares of Kelvin.
[6]
The defendant Douglas Christie is a lawyer who specializes in commercial litigation and
employment law. Christie represented the defendants Cloutier, Durante, Sanger, White and
Kelvin when these proceedings were originally tried before Blenus Wright J. in early 2001. The
defendant 798068 Ontario Ltd. ("798") is a management company controlled by Christie that
was created to assist the management of his law practice.
[7]
Although still named as a defendant in the title of proceedings, Michael Jefferies settled
with the plaintiff in early 2000. He was employed by Zesta from 1993 until 1999, latterly as
National Sales Manager. His employment was terminated in November 1999, around the time
this litigation commenced. Hi-Cap Technologies is also named as a defendant. It was a business
name created in connection with an abortive scheme to solicit business from Zesta customers,
that I will describe in detail in due course. Hi-Cap took no part in the proceedings.
[8]
Zesta is also the plaintiff in Action No. 05-CV-302414 (the "Fraudulent Conveyance
Action") in which the named defendants are Durante and his wife Wendy Durante. At issue in
that proceeding is the propriety of certain inter-spousal transfers and mortgages of their
matrimonial home, which took place subsequent to the termination of Durante's employment
with Zesta.
Page: 3
Page: 4
[9]
Zesta was founded by Vincent Eastman in 1968. Initially, it was a distributor for
electrical components including heaters and temperature measuring devices used in industrial
applications such as plastic injection molding machines, and the like. Early in its history Zesta
became an authorized manufacturer's representative for the sale in Canada of parts manufactured
by Watlow Electric Manufacturing Company, based in St. Louis, Missouri, USA. Over the years
the Zesta-Watlow relationship increased in size and importance for both parties, such that at one
stage Zesta was Watlow's single largest distributor and Watlow represented a very significant
portion of Zesta's sales and income.
[10] One of the key elements of the success of the Zesta-Watlow business relationship was a
customer known as Husky Injection Molding Systems Inc. Based in Bolton, Ontario, Husky is a
large international-scale designer and manufacturer of injection molding equipment that is used
by a wide range of manufacturers for producing parts, products and other items out of molded
plastic and other substances. The equipment manufactured by Husky utilizes small electrical
heaters that attached to or wrapped around the barrel, nozzle and other parts of the injection
moulding machine to keep the molten plastic at a specified temperature. The Husky equipment
also incorporates a series of temperature sensing devices known as thermocouples, that measure
the temperature of the equipment at various locations in the machine. Zesta supplied both heaters
and thermocouples to Husky; in addition, Zesta manufactured thermocouples for sale to Husky
and elsewhere.
[11] Under the original terms of its representation agreement with Watlow, Zesta was not
permitted to sell Watlow products to OEMs such as Husky; rather, Zesta was restricted to sales
of Watlow goods to end-users. Responsibility for Watlow sales to OEMs was originally assigned
to Watlow's Detroit sales office, operated by one Dave Martignon. Despite his efforts over the
years, Martignon was unable to persuade Husky to become a Watlow customer. Through
Cloutier's intervention, however, Zesta was permitted to approach Husky with a proposal to
supply Watlow products. That approach was successful and, over time, Husky became a major
consumer of Watlow goods. Because Zesta had developed the customer connection and because
it served as intermediary and on-site customer service representative for Watlow at Husky's
premises, Watlow paid Zesta a commission on all Watlow goods purchased by Husky.
[12] Cloutier was one of Zesta's original employees, joining the company in 1978. In 1981, he
married Vincent Eastman's daughter Mary. Over the years, Vincent Eastman and Cloutier
worked as a team, growing and expanding Zesta's customer base, product line and sales force.
By the mid-1980s, Zesta began manufacturing thermocouples in-house. Zesta expanded its
manufacturing capability to include such things as control panels, wiring harnesses and other
temperature sensing devices in addition to thermocouples.
Factual background
Page: 5
[14] A large measure of Zesta's success was attributable to Cloutier. In addition to being
Vincent Eastman's son-in-law, he was his right-hand man and they worked very closely together.
Over the years their responsibilities diverged, with Cloutier assuming responsibility for the sales
and manufacturing aspects of the business, while Vincent Eastman oversaw the finance and
administration aspects. They consulted frequently and there was a free flow of information
between them that contributed to the success of the operation.
[15] In 1990, Vincent Eastman turned 65 years old. Despite having attained normal retirement
age, he continued in his position as President of Zesta. More significantly, however, he had not
put in place a succession plan in relation to the ownership and ongoing management of Zesta.
The absence of a succession plan proved problematic for two reasons. First, because Zesta was
one of its largest distributors, Watlow was anxious that a suitable succession plan be in place to
ensure that the business relationship would continue to prosper after Vincent Eastman ceased to
be actively involved with Zesta. Watlow made its concern known to Zesta. Its concern
heightened after Vincent Eastman suffered heart problems in the early 1990s. Despite that
concern, no formal succession plan was in place by the end of the 1990s.
[16] The second reason why the absence of a formal succession plan proved problematic was
the position in which it left Cloutier. Up until 1997 or so, he had a close working relationship
with Vincent Eastman. He had spent his entire working life helping to build Zesta. While he
earned a significant income (in excess of $200,000 per year), he was a mere employee and had
no equity position in the company.
[17] At one stage Cloutier and Vincent Eastman engaged in discussions with a third party,
Roka Incorporated (a refurbisher of injection moulding equipment), concerning the possible
acquisition of Roka and the integration of its operations into those of Zesta. Part of the proposed
transaction would have contemplated a partial ownership interest for Cloutier in the new Roka.
As well, at a family meeting in September 1997, Vincent Eastman outlined the proposed
structure of a succession plan for Zesta, which would have given Cloutier and his wife, Mary,
majority ownership of the business.
[18] By the fall of 1999, however, neither the Roka acquisition nor the formal implementation
of the succession plan had been completed. Meanwhile, Cloutier and his wife were encountering
marital difficulties. They separated in mid-1997. They attempted to reconcile in 1998,
unsuccessfully. They have lived separately ever since. In early 2000, Mary commenced divorce
proceedings, but did not follow through with them. They remain married.
[19] Part of the success of Zesta was due to the energetic, devoted and capable management
team that Vincent Eastman and Cloutier put together. Durante started in a minor shipper-receiver
[13] Zesta's sales force also expanded. It opened offices in British Columbia, Alberta and
Quebec. By the end of the 1990s, it employed 50 and 60 individuals and it was a very successful
enterprise, with annual sales in the order of $9 million.
position with the company and assumed increasing levels of responsibility over the years to the
point of becoming National Operations Manager by the mid-1990s. By the latter part of the 90s,
the management team had grown to include Jefferies, Sanger (a friend of Cloutier whom he
recruited to join the team to service the Husky account) and White (who was recruited from
another large customer). Together the group worked cooperatively and energetically to advance
the interests of Zesta. As business associates and friends, Cloutier, Durante, Jefferies and Sanger
also participated as investors in an outside, private venture known as MultiVest Corporation, a
business created to service and support the real estate sales industry.
[20] Unfortunately, the deterioration in the marital relationship between Cloutier and his wife
was accompanied by deterioration in the business relationship between Cloutier and Vincent
Eastman. Their former close working relationship declined. They communicated less and less
frequently. What contact they did have become more and more strained. Cloutier's attendances at
the Zesta premises became less and less frequent. Matters approached the level of animosity in
the fall of 1999 as a result of an incident involving a Zesta salesman named Marcel Jones. The
Jones incident triggered a series of events that ultimately resulted in litigation that commenced in
November 1999 and has continued unabated since then.
The events of fall 1999
[21] Jones was one of Zesta's most successful salesmen. He had key contacts at a number of
significant customers, including Nortel Networks Limited, then a very large and successful
Canadian-based international technology company. Despite Jones' success as a salesman, he was
not trusted by Cloutier or by the members of his senior management team. In their evidence
before me they cited a variety of examples of incidents that caused them concern regarding
Jones' business ethics, loyalty to Zesta and potential plans to free himself from his contractual
non-competition obligations to go into business for himself. Jones was also the subject of an
ongoing controversy between Cloutier and Vincent Eastman: Cloutier doubted Jones' fidelity and
wanted to terminate his employment, while Vincent Eastman (who had approved loans from
Zesta to Jones, some of which were unpaid) did not agree with Cloutier's concerns and was
unprepared to fire a top producer.
[22] The disagreement between Cloutier and Vincent Eastman regarding Jones came to a head
in late August and early September of 1999. Despite Cloutier's directive that he not do so, Jones
went to France and made a solo sales call on Nortel France, a Zesta customer. Vincent Eastman
approved of the trip. This managerial conflict added to the tensions between Cloutier and
Vincent Eastman and undoubtedly fuelled the events that followed. There is considerable
controversy about the proper characterization of those events.
[23] Cloutier testified that Jones' trip to France motivated him to formulate a plan to
demonstrate to Vincent Eastman that Jones was disloyal and should be fired. According to
Cloutier, he decided to plan a "sting" whereby he would involve Jones in a false plan to solicit
business from Zesta customers for a newly-created competing business. His idea was to entrap
Page: 6
Page: 7
[24] According to Cloutier, in furtherance of the sting, he met and spoke with Jones about his
supposed plan to set up a business to compete against Zesta. Cloutier tried to persuade Jones to
use his contacts at Nortel France to submit a false quotation from the new competitor for a
significant order. In order to carry the sting forward, Cloutier instructed Sanger (who, in turn,
enlisted Durante to assist him) to prepare a quotation in the name of a new enterprise. Sanger
came up with the name "Hi-Cap Technologies" and Durante prepared a logo and letterhead with
that name. To give the false quotation more credibility with Jones, Cloutier secured Peatling's
consent to use the business address of Peatling's company as Hi-Cap's corporate address, as well
some telephone and fax numbers that Peatling was arranging to install. Cloutier also prepared,
according to his evidence, other false documents, including spreadsheets showing revenue and
expenses for the new business, with a view to showing these to Jones in order to persuade him of
the seriousness of the intended venture.
[25] When he become concerned that Jones needed even further persuasion to participate in
the new venture, Cloutier arranged (on very short notice) to not only solicit, but to obtain an
actual (on its face) order for Hi-Cap, from a U.S. customer of Zesta. As a result of Cloutier's
efforts, Jones supposedly agreed to use the Hi-Cap quotation to try and get Nortel France to
place an order with Hi-Cap.
[26] Neither side called Jones as a witness before me. Although he played a prominent role in
the alleged sting, I am not sure that Jones could have provided any real insight into the
motivations of Cloutier and the others; after all, Cloutier sought to create the impression with
Jones that he was planning to leave Zesta and compete, something that Cloutier asserts was all a
pretext to prove Jones' disloyalty. In the final analysis, all that Jones could have described was
his impression of events, something that Cloutier did not dispute.
[27] As events unfolded, however, Jones did not procure a Nortel France order for Hi-Cap.
Instead, he forwarded to the fax number given to him by Cloutier a Nortel France purchase order
addressed to Zesta. On Wednesday, November 24, 1999, Jones reported Cloutier's activities to
Vincent Eastman's sons, Peter and Greg Eastman, and his brother and legal advisor Bernard
Eastman. As a result, they contacted Vincent Eastman who returned from his annual Florida
vacation that evening. Together with Bernard, Vincent Eastman assessed the situation, and the
next day Zesta retained its current counsel, immediately commenced proceedings and sought ex
parte injunctive and Anton Piller relief against Cloutier and Jefferies.
[28] From Zesta's perspective, the revelations by Jones were the first indication (it claims) of
any misconduct by Cloutier. Based on Jones' information, Zesta not only initiated litigation, but
undertook a detailed investigation – largely led by Bernard Eastman – to determine the extent of
Cloutier's alleged plan to compete, and the involvement of other Zesta employees. All of those
interviewed, including Jefferies, Durante, Sanger and White (and Cloutier) denied there had been
Jones in this improper conduct, and thus prove his point about Jones' disloyalty towards Zesta to
Vincent Eastman, once and for all, and accomplish Jones's firing.
any plan to leave Zesta and compete. Uniformly, they described the entrapment of Jones as a
sting, carried out under the direction of their boss, Cloutier. Despite their responses, Vincent and
Bernard Eastman believed and Zesta continues to maintain to the present day the solicitation of
Jones was part of an elaborate plan by Cloutier and the others to take away the core of Zesta's
business and to compete unlawfully.
[29] Zesta's perspective (or perhaps more accurately, the Eastmans' perspective) triggered a
series of employee terminations and departures. The discovery of Cloutier's solicitation of Jones
and the Hi-Cap – Nortel France quotation was the match that set fire to the smoldering
antagonism between Vincent Eastman and Cloutier. On Saturday, November 27, 1999, Cloutier
was fired. On December 1, Jefferies was fired. They were the two defendants initially named
(along with Hi-Cap) in this litigation.
[30] On the afternoon of Sunday, November 28, Cloutier and Jefferies met at a restaurant,
together with Cloutier's then-lawyer Christie, with two other members of the Zesta management
team, Durante and Sanger; Peatling attended as well. They discussed what had happened.
Christie warned that anyone who sided with Cloutier would likely be fired. He was right. After
Durante and Sanger swore affidavits in support of Cloutier's version of events (namely, that the
solicitation of Jones was an abortive sting), on December 2, Durante was fired. Soon thereafter,
Sanger resigned. Several months later, White left Zesta after refusing to concede that Cloutier
and the others had acted improperly.
[31] In the wake of the discovery of the Nortel France - Hi-Cap solicitation, Zesta was
successful in obtaining injunctive relief as against Cloutier, Jefferies and Hi-Cap to restrain
further solicitation of Zesta customers. Initially, Durante, Sanger and White were not parties to
the litigation (nor were Peatling, Kelvin, Christie or 798). The litigation was expanded to include
Durante, Sanger, White and Kelvin as co-defendants after Zesta discovered that Durante had
incorporated Kelvin and gone into the business of manufacturing thermocouples.
The incorporation of Kelvin and the events of 2000
[32] There is a divergence of perspectives as to the genesis of Kelvin's business and how the
various ex-Zesta Defendants came to be associated with it. According to Durante, once he found
himself unexpectedly unemployed after having spent his entire working life with Zesta, he
decided to try his hand at setting up his own small distribution business in the same sphere as
Zesta, the only field of business he knew. At Sanger's suggestion, Durante met with Peatling who
agreed to invest in the new enterprise. Kelvin was incorporated at the end of January 2000, with
Peatling as a 30% shareholder; Durante owned the rest of the shares. In October 2001, due to
internal strife at Kelvin and in view of Peatling's ongoing financial support of the business, at
Peatling's insistence Durante transferred all his shares to Peatling, making Peatling Kelvin's sole
shareholder.
Page: 8
[33] Although Durante's claimed plan was to open a small distribution business, Kelvin
evolved into a much more substantial operation with the financial backing of Peatling. In
February 2000, Cloutier, Sanger, Jefferies, White and Durante went on a four day road trip to
visit potential suppliers for Durante's new business. Kelvin succeeded in obtaining a distribution
agreement with one of them. Kelvin rented premises as of March 1, 2000. White, Sanger and
Jefferies helped Durante refurbish the premises; Cloutier helped slightly. The new Kelvin
premises were outfitted with virtually the same equipment found in the Zesta manufacturing
plant, in order to enable Kelvin to go into the business of manufacturing thermocouples.
[34] There is a controversy between the adversaries regarding the legitimacy of Kelvin's new
business. The position of Zesta is that the creation of Kelvin was a breach of fiduciary duty on
the part of the ex-Zesta Defendants. Zesta further contends that Kelvin got its start in the
thermocouple manufacturing business by misappropriating Zesta's confidential information
relating to suppliers, equipment and manufacturing know-how.
[35] Additionally, beginning in February 2000 Kelvin had contacts with Husky, involving
Durante and Sanger (the latter having been the principal day-to-day contact between Zesta and
Husky). The meeting with Husky led to Kelvin supplying a quote to Husky in early March 2000
for the supply of thermocouples. In due course, also under controversial circumstances, Kelvin
became involved in the development of prototype thermocouples for a division of Husky known
as "Thixo". Zesta argues that this conduct by Kelvin and Zesta's former employees amounted to
conversion of an emerging corporate opportunity that Zesta had developed and was pursuing
prior to their departure.
[36] In the meantime, having discovered Kelvin's activities and the involvement of the other
former Zesta employees, Zesta commenced a further action and obtained injunctive relief in that
proceeding. The two lawsuits were ultimately consolidated into the present proceeding. As well,
Zesta brought contempt proceedings as against Kelvin and the other defendants, alleging noncompliance with the various injunctive orders it had obtained. The contempt issue was referred
to the trial judge.
The original trial decision
[37] The consolidated action originally came on for trial before Blenus Wright J. in January
and February 2001. Wright J. released his decision on February 22, 2001. His findings and
conclusions are summarized in the decision of the Court of Appeal allowing Zesta's appeal from
the judgment of Wright J. and directing a new trial, as follows (at paras. 5 through 9 of [2002]
O.J. No. 3738):
[5]
On the whole, the trial was a resounding success for David Cloutier and
his business associates. The trial judge found that Cloutier had a motive to leave
Zesta and start a new business. However, he accepted the defendants’ position
that the evidence uncovered by Zesta relating to a new business, Hi-Cap
Page: 9
Technologies, was merely a sham and part of a sting operation to trap a disloyal
employee. He rejected Zesta’s contention that Hi-Cap Technologies was a
precursor to Kelvin. Kelvin was incorporated by the defendants in the weeks
following their dismissal and was producing in the same line of business as Zesta
within a few months thereafter. The trial judge held further that the individual
defendants’ participation in the sting operation, without Vincent Eastman’s
knowledge, did not constitute cause for their dismissal.
[6]
As a result of these findings, the trial judge found that Durante was
wrongfully dismissed and he awarded him damages in the sum of $198,452 plus
interest. The defendant Keith Sanger was found to have resigned from his
employment and his counterclaim for damages for wrongful dismissal was
dismissed. In so far as Cloutier’s dismissal was concerned, a further issue arose
having regard to Zesta’s allegation that he had received secret commissions.
[7]
The trial judge found that, from March 1999 to September 1999, Cloutier
had in fact received commissions from a major customer, and as a result Zesta’s
own commissions were reduced. Since Cloutier did not tell Eastman about these
commissions, he was ordered to pay Zesta damages in the amount of $100,042
including interest. The trial judge held, however, that Cloutier’s receipt of secret
commissions did not constitute cause for his dismissal since he concluded, at para.
243 that “[w]ithout the marriage breakdown, … [t]he indiscretion of the son-inlaw would be considered an isolated occurrence in a long and unblemished
career”. Cloutier was therefore awarded damages for wrongful dismissal in the
amount of $503,100 plus interest.
[8]
Finally, the trial judge rejected Zesta’s claims relating to the defendants’
use of confidential information. He found that the information which formed the
basis for Kelvin’s production of thermocouples, although acquired during the
course of the defendants’ employment with Zesta, was not confidential. He also
found that any continuing fiduciary obligation owed by the individual defendants
as former employees of Zesta did not survive their wrongful dismissal. In his
view, they should have been able to compete head to head with Zesta without any
consequences. The trial judge therefore dissolved the interim injunctions and
awarded resulting damages to Kelvin in the amount of $70,000 plus interest.
[9]
The counterclaim against the individual shareholders and employees of
Zesta was dismissed without costs. A motion for contempt brought by Zesta
against David Cloutier and Kelvin Technologies in relation to the interim
injunctions also was dismissed. The judgment against Zesta was ordered to take
priority over any monies owed to its shareholders, Vincent Eastman and Ruth
Page: 10
Page: 11
Events subsequent to the first trial
[38] Zesta appealed the judgment of Wright J. No cross-appeal was brought by Sanger with
respect to the dismissal of his counterclaim or by Cloutier with respect to the order requiring him
to pay damages for having received the commissions.
[39] As indicated previously, the Court of Appeal allowed Zesta's appeal and directed a new
trial. The court did so on the basis of fresh evidence received by it at the request of Zesta. It
summarized the fresh evidence at paras. 19 through 25 of its reasons as follows:
[19] On February 14, 2001, approximately one week after the conclusion of the
trial, John Eastman, a sales representative with Zesta, attended a sales meeting
with Alice Wilson, a buyer for one of Zesta’s customers “Husky Buffalo”. During
the discussion, Wilson asked John Eastman: “What’s this Codlin thing about?”
When John Eastman replied that he did not recognize the name, Wilson advised
him that she had purchased heaters from Cloutier for Husky Buffalo through
Codlin Graphics Inc., and not through Zesta. She then showed John Eastman a
number of documents relating to the purchases in question.
[20] John Eastman reported back on this discussion to Vincent Eastman and to
Zesta’s counsel. Neither had ever heard of Codlin or of any connection between
Cloutier and Codlin. A corporate search performed on Codlin Graphics Inc. on
February 15, 2001 revealed that the corporation was incorporated on June 1, 1995
and that Brian Burtch was the president. On February 21, 2001, Zesta reviewed
Cloutier’s cellular telephone bills, which were filed in evidence at trial, and noted
that Cloutier had made eleven calls to Codlin Graphics between October 26, 1999
and November 16, 1999.
[21] On February 26, 2001, John Eastman telephoned Wilson and asked to
meet with her to discuss the matter further and asked her to provide him with
copies of the documents she had shown him. Wilson declined his requests and
advised John Eastman that she did not wish to be involved any further.
[22] On March 14, 2001, a further search of Zesta’s computer files uncovered a
letter from Cloutier to Burtch, president of Codlin Graphics. The letter did not
refer to anything of relevance to the sale of heaters to Husky Buffalo but it
seemed from its tone to indicate a personal and friendly relationship between
Cloutier and Burtch.
Eastman. Finally, Zesta was ordered to pay costs, including one set of solicitorclient costs.
[23] On March 20, 2001, as a result of a search of Zesta’s records on an
unrelated matter concerning Husky Buffalo, invoices relating to the purchase in
1998 and 1999 of heaters similar to those mentioned by Wilson were discovered.
The heaters were to be stamped with Husky part number 534192. With the
exception of three heaters received after the termination of Cloutier’s
employment, Zesta was unable to locate any of these heaters in its inventory.
Further searches also failed to reveal any sale records for these heaters.
[24] This information raised suspicions about Cloutier’s activities prior to his
dismissal in November 1999. Consequently, Zesta reported the matter to the Peel
Regional Police on April 18, 2001 and, on May 8, 2001, P.C. Barker was assigned
to investigate Zesta’s allegations.
[25] The police investigation revealed that Cloutier had caused Husky Buffalo
to purchase some heaters through Codlin and that Husky Buffalo had paid
$132,209 US to Codlin for some 1,806 heater units. Codlin was not in the
business of selling heaters and acted at Cloutier’s direction for no purpose related
to Codlin’s business. Cloutier had then directed that the monies be disbursed
partly to himself and partly to 798068 Ontario Ltd in payment for “fees”. In turn,
798068 Ontario Ltd disbursed the monies to Cloutier and to one Derek Peatling,
who later became a shareholder of Kelvin Technologies Inc., the party to this
litigation. 798068 Ontario Ltd, which is owned by Cloutier’s solicitor’s spouse,
never performed services for Codlin in return for these fees.
[40] As a result of the fresh evidence uncovered by Zesta and the police investigation that
followed, Cloutier was charged with defrauding Zesta of a sum of money exceeding $5,000
contrary to s. 380(1)(a) of the Criminal Code, R.S.C. 1985, c. C-46. On November 29, 2004,
Cloutier pleaded guilty to a charge of theft over $5,000. He received a suspended sentence, was
placed on probation for twenty-four months and was ordered to pay restitution to Zesta in the
amount of $26,778.55 U.S. funds.
[41] As a further result of the fresh evidence, the order of the Court of Appeal directing a new
trial, and the police investigation, Zesta amended its claim against Cloutier to include the socalled Codlin transactions. In addition, Zesta added Peatling, Christie and 798 as co-defendants.
A further consequence of these developments was that Christie ceased to act as counsel, and the
defendants split into three groups, each represented by different counsel.
[42] The other development of significance was the discovery by Zesta that Durante had
transferred title to his matrimonial home, formerly held by himself and his wife as joint tenants,
to his wife exclusively. That house had been sold and a substitute property purchased, also in the
name of Wendy Durante. The replacement property was mortgaged. Zesta viewed these
transactions as ones designed to defeat its claim for damages as against Durante, and it therefore
commenced the Fraudulent Conveyance Action, in December 2005.
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[43] Against the foregoing factual backdrop, the parties come to court raising a number of
issues and claiming a wide range of relief.
The relief sought
[44] In the amended amended statement of claim, Zesta claims specific relief as against
specific defendants, or groups of defendants, as follows:
(1)
As against Cloutier, Durante, Sanger, White, Kelvin and Peatling:
(a)
injunctive relief restraining these defendants from:
(i)
copying or duplicating any confidential information of the
plaintiff;
(ii)
using confidential information;
(iii)
retaining confidential information;
(iv)
soliciting customers or suppliers;
(v)
entering into commercial relations with suppliers of the plaintiff;
(vi)
soliciting any of the plaintiff's employees to take employment with
any of the defendants;
(vii)
usurping corporate opportunities available to the plaintiff;
(viii) interfering with the contractual relations of the plaintiff with its
suppliers; and
(ix)
engaging in any business activities competitive with those of the
plaintiff.
(b)
damages for breach of fiduciary duty, interference with economic
relations, conversion, breach of contract and conspiracy in the amount of
ten million dollars;
(c)
an accounting of all income and profits made by the defendants as a
consequence of their breach of fiduciary duty to the plaintiff and their use
of the plaintiff's confidential information, and an order directing the
The claims advanced at the second trial
Page: 14
(d)
(2)
a declaration that the businesses of the defendants which were created as a
consequence of the breach of fiduciary duty and their use of the plaintiff's
confidential information are the equitable property of the plaintiff.
As against Cloutier alone, Zesta claims:
(a)
An accounting by Cloutier of all secret commissions received from Zesta's
customers which were properly owed to Zesta and an order directing
Cloutier to disgorge and pay to the plaintiff all such commissions;
(b)
Damages for fraud, conversion, breach of fiduciary duty and conspiracy,
as well as an accounting of all monies received by Cloutier in relation to
purchases of heaters by Husky from Cloutier through Codlin.
(3)
As against Christie, 798 and Peatling, Zesta claims damages for breach of
constructive trust, conversion, and conspiracy and an accounting, all in relation to
their participation in the Codlin transactions.
(4)
As against Durante and Wendy Durante, Zesta claims a declaration that the interspousal transfers of their matrimonial home are void as against the plaintiff
pursuant to s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and that
Wendy holds the property in trust for Zesta by way of constructive trust.
In addition, Zesta seeks punitive, exemplary and aggravated damages against all defendants.
Zesta further seeks findings of contempt as against Kelvin and Cloutier, arising from alleged
breaches of several interlocutory injunction orders obtained by Zesta during the course of these
proceedings.
[45]
Several of the defendants are advancing counterclaims against Zesta, as follows:
(1)
Cloutier claims damages for wrongful dismissal and a declaration that he is the
legal and beneficial owner of twenty-four percent of the common shares of Zesta
or in lieu thereof damages of $800,000.
(2)
Kelvin seeks damages for interference with contractual relations, negligent
misrepresentation, commercial slander, compromise of competitive position and
deceit. Cloutier joins in that claim.
(3)
Durante claims damages for wrongful dismissal.
defendants to disgorge and pay to the plaintiff all such income and profits;
and
Page: 15
The basis for the claims and the issues raised
Zesta's Claims against Cloutier, Durante, Sanger, White, Kelvin and Peatling
[46] Zesta asserts that Cloutier, Durante, Sanger, and White were fiduciaries and further
asserts that they were privy to confidential information, including customer lists, pricing
practices, production processes, product designs and manufacturing specifications. Zesta asserts
that Cloutier, Durante, Sanger, and White conspired with one another and with Peatling, in
breach of their fiduciary duties, to set up a business entity in competition with Zesta, they
solicited Zesta employees to resign and join them, they solicited customers of Zesta to place
orders with their new business venture, solicited suppliers of Zesta, and copied lists, and other
proprietary and confidential information. Zesta further asserts that the post-departure conduct of
the ex-Zesta Defendants in setting up the business of Kelvin and competing with Zesta amounted
to a breach of their ongoing fiduciary duties, misuse of confidential information and a usurpation
of corporate opportunities that belong to Zesta.
[47] Zesta further asserts that the involvement of Cloutier, Durante and Sanger in MultiVest
caused Zesta to suffer losses for which they are accountable.
(2)
Zesta's Claims against Cloutier alone
[48] Zesta asserts that Cloutier received secret commissions from Watlow, relating to Husky.
Zesta submits that, but for Cloutier's wrongful conduct, Zesta would have been entitled to and
ought to have received the commissions.
[49] At the first trial before Wright J., Cloutier conceded liability for these commissions, and
judgment was awarded against him for those monies. Cloutier did not appeal that aspect of the
judgment, and the Court of Appeal expressly directed that there be no new trial in respect of that
award of damages. It remains a matter of dispute between the parties, however, whether those
commissions constitute "secret" commissions and whether that issue is res judicata. At this trial,
Zesta asserts that the issue of the characterization of the commissions as secret cannot be
disputed by Cloutier and that it constitutes cause for dismissal. Cloutier argues that there was no
binding determination that the commissions were secret and that Wright J. properly concluded
that these payments were not cause for dismissal.
[50] Zesta further asserts that Cloutier covertly arranged for the heaters to be sold to Husky
Buffalo via Codlin, and further, through the agency of Codlin, secretly recovered the funds for
his own benefit.
[51] Cloutier concedes that some heaters were sold to Husky Buffalo via Codlin. He disputes
the quantity of heaters allegedly sold and further denies that the transactions were kept secret
from Vincent Eastman. Cloutier's explanation was that these were surplus Watlow heaters and
his intention all along was to account for the sale proceeds and divide them between Watlow and
(1)
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(3)
Zesta's Claims against Christie, 798 and Peatling
[52] The documentary record associated with the payments by Husky Buffalo to Codlin for
the heaters establishes that some portion of the funds passed through the bank accounts of 798
and Peatling. Zesta asserts that Christie, 798 and Peatling conspired with Cloutier to deprive
Zesta of the proceeds of sale of the heaters and assisted in the conversion of that money. Zesta
therefore claims this sum from those defendants, as well.
[53] By way of defence, Peatling asserts that he knew nothing about the Codlin/Husky Buffalo
transactions.
[54] For their part, Christie and 798 assert that Christie merely agreed to arrange for 798 to act
as a stakeholder for Cloutier's funds from Codlin, due to a concern that Zesta and Cloutier's wife
Mary (with whom Cloutier was then engaged in matrimonial litigation) were sharing information
about Cloutier's financial affairs. Christie and 798 deny having received any benefit from the
Codlin transactions.
(4)
Claims against Durante and Wendy Durante
[55] As mentioned previously, Durante transferred his interest in the matrimonial home he coowned with Wendy Durante, to Wendy Durante absolutely. Zesta's position is that in doing so,
Durante was conscious of his exposure to Zesta by reason of his participation in the wrongful
conduct in which he was involved with Cloutier et al, and thus the transfer of his interest in the
property was carried out with intent to defeat Zesta's claim against him. on this basis, Zesta
asserts that the transfer was fraudulent and subject to being set aside under the Fraudulent
Conveyances Act.
[56] For their part, the Durantes assert that the transfer had nothing to do with any concern
regarding his exposure to Zesta. Rather, it was a matrimonial arrangement carried out to satisfy
Wendy Durante's long-standing concerns that the house would not be at risk as a result of any
further business endeavours in which Durante might participate.
(5)
Counterclaims of Cloutier, Durante and Kelvin
[57] Both Cloutier and Durante assert that they were dismissed by Zesta without cause, since
they had done nothing wrong at the time their employment was terminated. Each advances a
substantial claim for damages for wrongful dismissal. As well, Cloutier advances a claim for an
equity position in Zesta by reason of Vincent Eastman's representations to him.
Zesta, something he never did. His purpose in involving Codlin as an intermediary was to
remove any liability of Zesta to Husky Buffalo in respect of these heaters. Cloutier further asserts
that he was acting on legal advice from Christie when he retained the sale proceeds.
[58] In response, Zesta asserts that it had cause to dismiss both of Cloutier and Durante, due to
their improper conduct in conspiring to set up a competing business while still employed by
Zesta. Zesta also relies on the secret commissions and the Codlin transactions as providing just
cause for its dismissal of Cloutier.
[59] For its part, Kelvin seeks damages against Zesta arising from the unfounded allegations
made by Zesta against it and the limitations imposed on it by reason of the unjustified injunctive
relief obtained by Zesta during the proceedings.
ISSUES AND ANALYSIS
[60]
Based upon the foregoing, I am called upon to decide the following issues:
1.
Did Cloutier plan to compete with Zesta?
2.
Who else was privy to Cloutier's plan?
3.
What was the genesis of Kelvin and did its creation breach any legal rights of
Zesta?
4.
Did the operations of Kelvin violate any legal rights of Zesta?
5.
What legal results flow from the foregoing findings?
6.
How should the commission payments from Watlow to Cloutier be characterized?
7.
In relation to the heater sales involving Codlin and Husky Buffalo,
(a)
what quantities of heaters were sold, what proceeds were realized and
what became of them?
(b)
what was the involvement of Christie, 798 and Peatling in the CodlinHusky Buffalo transactions?
8.
Did Cloutier or Kelvin act in contempt of any court orders obtained by Zesta?
9.
What remedies should be granted to Zesta?
10.
In relation to the termination of Cloutier's employment,
(a)
did Zesta have cause for dismissal of Cloutier?
(b)
what are Cloutier's damages?
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(c)
12.
13.
In relation to the termination of Durante's employment,
(a)
did Zesta have cause for dismissal of Durante?
(b)
what are Durante's damages?
In relation to Kelvin's counterclaim,
(a)
did Zesta breach any of Kelvin's rights?
(b)
what are Kelvin's damages?
In relation to the inter-spousal transfers of the Durantes' matrimonial homes,
(a)
were the transactions a violation of the Fraudulent Conveyances Act?
(b)
if so, what remedies should be granted to Zesta, if any?
[61] I propose to deal with the factual and legal analysis applicable to each of these issues, in
turn. Before doing so, however, I intend to deal with some basic issues relating to findings of fact
and credibility.
Preliminary note re findings of fact and credibility
[62] In any litigation in which there is a dispute over past events, the trier of fact is faced with
the challenge of making findings of fact. Where the evidence consists, in whole or in part, of
conflicting testimony from witnesses, that challenge includes making assessments of those
witnesses’ credibility and the reliability of their evidence. Where, as in this case, the critical
events in dispute occurred a decade or so ago, the challenge is increased exponentially. Simply
stated, the ability to testify from memory in 2009 regarding a lengthy series of events that took
place in 1999 and earlier pushes the limits of any individual’s power of recollection.
[63] As a consequence of the length of time that it took this case to reach trial before me in
2009, the memories of most witnesses had, quite understandably, dimmed. Also, quite
understandably, the testimony sometimes comprised a narrative explanation of events, meetings,
communications and thoughts as recorded or reflected in the various documents that were
prepared at the time. Although the documentary record is extensive, it is by no means complete.
Given the nature of some of the allegations, one would not expect to find a documentary record
of certain events. (The Christie notes - discussed in detail below - are a significant exception to
this rule.)
11.
is Cloutier entitled to an equity position in Zesta?
[64] I recognize that the evidence of a witness must be assessed in the aggregate, not just with
respect to the demeanour of the witness. I also recognize that I can accept all, some, or none of
the evidence of any particular witness. As was said in Faryna v. Chorny (1951), [1952] 2 D.L.R.
354 (B.C.C.A.) (at 357):
… the real test of the truth of the story of a witness … must be its harmony with
the preponderance of the probabilities which a practical and informed person
would readily recognize as reasonable in that place and in those conditions.
[65] In certain instances it is simply not possible to reconcile some aspects of the evidence
that was presented by the witnesses at this trial. In part, I liken the situation to attempting to
assemble several old jig-saw puzzles whose various parts have sat, co-mingled, in the bottom of
an actively-used desk drawer for a decade: some pieces are missing, some are undecipherable,
some have changed over time and no longer fit together, and some are not what they seem to be,
all due to the passage of time and intervening events. In this case my task is to use the pieces of
evidence to re-create as clear a picture of past events as I can given the foregoing limitations,
applying the "real test of … truth" as described above, drawing inferences where appropriate,
and applying the rules of burden and standard of proof, as required.
[66] There are three witnesses whose testimony is of particular significance, having regard to
their involvement in various critical events. I therefore propose to analyze the credibility and
reliability of their evidence, first.
Credibility and reliability of Cloutier's evidence
[67] The pivotal figure in this litigation is the defendant Cloutier. He was the senior-most
employee at Zesta, and Vincent Eastman's right-hand man. He was the leader of the management
team. He was the one who had the falling out with Vincent Eastman, both on a personal and a
professional basis. He was disaffected by Vincent Eastman's foot-dragging in relation to the
succession plan and by many of his business decisions, in particular those relating to Roka and
Marcel Jones.
[68] It was Cloutier who invited the others to become involved in MultiVest. It was Cloutier
who had the closest connection with Peatling. It was Cloutier who initiated the so-called sting on
Marcel Jones. It was Cloutier who initiated the relationship with Christie, with whom (according
to Christie's notes) he discussed a detailed plan to go into competition with Zesta.
[69] Additionally, it was Cloutier who had the key connections with Watlow and Husky. It
was Cloutier who had the special payment arrangement with Watlow Detroit regarding sales to
Husky. It was Cloutier who engineered and implemented the heater sales to Husky Buffalo and
who involved Codlin and later Christie in the process of recouping the proceeds of those sales. It
was Cloutier who kept the sale proceeds and who pleaded guilty to the criminal offence of theft
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[70] It is thus apparent that the veracity and reliability of Cloutier's testimony regarding all
these matters are at the heart of this case, and I therefore propose to address his credibility at the
outset. For the reasons that follow, I did not find him to be a credible witness.
[71] I begin with Cloutier's criminal conviction for theft, a crime of dishonesty, following a
plea of guilty. Quite apart from being a crime of moral turpitude in general, this theft involved
the admitted conversion of money that was the property of Zesta: his actions were centrally
linked to his falling out with his ex-employer. Even on Cloutier's explanation for his conduct, he
did not follow through on his original intention to account for the proceeds of the heater sales,
after he was fired and became engaged in litigation with Zesta. This was not minor or unrelated
conduct, but instead signaled an intention on his part to act dishonestly in relation to the duties
owed to his employer, his adversary in the present proceeding. It reflects a willingness on his
part to act in a dishonest and untruthful fashion vis-à-vis Zesta.
[72] In addition to that underlying flaw, Cloutier's evidence before me contained numerous
hallmarks of an untruthful witness. For example, early in the litigation and soon after the events
in question, in June 2000 he was cross-examined on an affidavit and asked to list under oath all
of the Zesta customers with whom he had contact subsequent to his termination. He falsely
omitted two companies, material omissions in the circumstances. In an affidavit sworn by him on
July 19, 2000 in response to Zesta's contempt motion at the time, he falsely swore that he had
heard that Marcel Jones had been saying derogatory things about him. He further falsely stated
that the reason he contacted Keith Anderson at Fisher Gauge was because he had heard about
Marcel Jones making derogatory comments about him. These examples illustrate a propensity on
Cloutier's part to omit facts that might be damaging to him and to invent information to explain
his behavior.
[73] Even before the litigation, Cloutier demonstrated a willingness to proffer false
information when it suited him. For example, in relation to the initial sale of heaters to Husky
Buffalo, Cloutier falsely advised Linda Moretuzzo of Husky that Codlin carried on business as a
refurbisher and that Watlow had scrapped heaters with Codlin that could be made available to
Husky. In truth, Codlin carries on business as print broker and is not a manufacturer or
refurbisher of electric heaters. The real purpose in identifying Codlin as the supplier of the
heaters was to disguise the fact that the heaters were actually coming from Zesta, and to provide
Cloutier with a mechanism to gain personal control over the sale proceeds.
[74] Just as Cloutier hid from Husky Buffalo the true source of the heaters that he supplied via
Codlin, so, too he hid from Watlow the disposition of the 300 heaters that he obtained from
Watlow on a no charge basis. He did not want Watlow to see Zesta selling hundreds of heaters to
an OEM purchaser and thus he hid that information from Watlow. This is a further example of
covert and questionable business dealings by Cloutier.
for having done so. Cloutier also came to be involved in varying capacities with the operations of
Kelvin.
[75] Cloutier also demonstrated a willingness to create false documents in his pre-litigation
conduct. In addition to creating Codlin invoices and packing slips to accompany the heaters that
were being shipped to Husky Buffalo from Zesta, Cloutier subsequently created fictitious
expense statements to Codlin in order to provide it with a paper trail for the payment of the
Husky proceeds by Codlin to Cloutier.
[76] Cloutier also changed his story in relation to material aspects of his conduct while a Zesta
employee. A prime example of this is the payments made to Cloutier by Watlow Detroit (David
Martignon & Associates) in relation to sales of Watlow products to Husky. In his initial affidavit
sworn December 1, 1999, Cloutier stated:
Dave Martignon, the fellow running Watlow operations in Detroit, indicated to
me that out of Watlow's share of the commission on these types of sales he would
compensate me for my efforts in setting up the relationship and handling the
business, over and above the commission earned by Zesta directly. To this day,
Mr. Martignon had kept his word and I have been compensated personally for the
Watlow Direct Accounts directed towards Detroit by me. At the same time, Zesta
obtained a great benefit because they gained access to important markets such as
Husky and they earned a commission directly from Watlow for Watlow sales to
Husky.
There was no mention in the foregoing explanation of the Martignon payments being
reimbursement for expenses; rather, the concept of compensation for services rendered was
mentioned twice.
[77] When Cloutier was examined for discovery in advance of the first trial, back in 2000, he
agreed with the characterization of the Martignon payments as "personal commissions". At no
time prior to the present trial did Cloutier change those answers and purport to correct his prior
evidence or otherwise suggest that the Martignon payments were reimbursement for expenses
and not personal commission payments on sales effected to Husky.
[78] At trial before me, Cloutier testified for the first time that these payments to him were
made to reimburse him for expenses incurred in connection with the Watlow-Husky business,
expenses that were originally reimbursed to him on the basis of expense reports submitted to
Martignon. This explanation was never given at the first trial, an omission that is illogical and
simply does not make sense, because it would have provided Cloutier with an answer to the
allegation that he was wrongly in receipt of secret commissions from Martignon, a potential
cause for dismissal. It defies common sense that Cloutier would concede liability for the full
quantum of those receipts (as he did at the first trial), without proferring the explanation he now
gives. Cloutier's suggestion that he did so on the advice of Christie to avoid damage to his
credibility on this ground likewise makes no sense, for it would be contrary to Cloutier's interests
and strategy to concede such a significant point on an unqualified basis: his credibility would be
damaged further, not enhanced, by a concession without an explanation.
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[79] What makes Cloutier's revised explanation for the Martignon payments even more
dubious is that it followed a Canada Revenue Agency (“CRA”) investigation of his personal tax
filings. Subsequent to the initial trial, someone reported to CRA that Cloutier had received a
significant sum by way of commission payments. In response to enquiries from CRA, Cloutier
for the first time took the position that the Martignon payments were expense reimbursements.
This had the effect of reducing his exposure to CRA for any possible reassessment and resulting
liability for unpaid taxes and penalties.
[80] It is thus apparent that when it suited his convenience, Cloutier was prepared to tell a
different story about the Martignon payments than the one he had given under oath on multiple
previous occasions. In light of the fact that there was no logical reason for him to omit this
significant information at the first trial, and he had motivation to offer a different story to CRA, I
do not accept or believe Cloutier's new explanation for the Martignon payments.
[81] On other occasions, Cloutier gave evidence that was simply wrong. In his affidavit filed
in response to a Zesta motion for summary judgment, Cloutier stated under oath that he ceased
making written reports to Vincent Eastman during the last 18 months of his tenure at Zesta. At
trial, he was forced to acknowledge that this assertion was completely wrong, since he continued
to submit written reports to Vincent Eastman as late as November 1999. At another point in his
testimony, when pressed about the accuracy of his recollection, he stated “the last ten years, I am
not certain of anything.”
[82] On occasion, Cloutier's testimony suggested a willingness to make up evidence as he
went along. For example, a critical issue identified early on in the proceedings was whether
Cloutier attended the meetings with Christie on November 5 and 9, 1999 at Mississauga Steel
Mart, as recorded in Christie's notes bearing those dates. In his testimony in-chief, Cloutier
denied attending these meetings, but offered no explanation as to what else he was doing at the
time. Only in re-examination, without having disclosed this evidence in-chief, Cloutier testified
that the November 5 meeting with Christie could not have taken place, because Cloutier was
engaged in bonus meetings with Jefferies and Zesta employees much of that day.
[83] When Jefferies gave evidence (in advance of Cloutier) he said nothing about any such
bonus meetings on November 5. There is no mention of any bonus meetings that day in Jefferies'
diary; to the contrary, Jefferies' diary contains a notation that bonus day was two weeks earlier,
on October 21. Indeed, Jefferies' evidence was to the effect that he was rarely in the Zesta office
between mid-October and November 23, which makes it even less likely that he was at Zesta’s
premises meeting with Cloutier and other Zesta employees on November 5, 1999.
[84] To the extent that Cloutier relies on the alleged bonus meetings involving Jefferies as an
alibi for the time Christie says they were meeting at the office of Mississauga Steel Mart,
Cloutier's evidence is not supported by Jefferies, whose diary entry undermines Cloutier's
testimony on this point. The late disclosure of this information by Cloutier, the lack of any
mention of it in his examination in-chief or any questions at all concerning the subject during
Page: 22
Jefferies' testimony, all combine to suggest that this was a last minute attempt by Cloutier to
come up with some further explanation for why he could not have been at Mississauga Steel
Mart that day. Cloutier's evidence on this point is unsupported, contradicted by Jefferies' diary
entry, self serving, and not credible.
[85] This brings me to the topic of Christie's handwritten notes. According to Christie, he met
with Cloutier on October 22, November 5 and November 9, 1999. On each occasion, he says, he
made notes during the meetings. Cloutier concedes that the first meeting, held at the MultiVest
premises, took place, but he denies that he met with Christie on November 5 and 9 at
Mississauga Steel Mart or elsewhere.
[86] Dealing first with the meeting of October 22 (erroneously recorded in Christie's notes as
October 21) the notes reflect that Cloutier reported to Christie that Vincent Eastman had not
done the succession plan. At trial, Cloutier denied having said this, because it was not so. One is
left to wonder why Christie would make this note (at a meeting that Cloutier concedes he
attended) if Cloutier had not provided the information. As a professional note taker, Christie
would have been motivated to get the facts straight and to record them accurately for future
reference. Cloutier conceded that the balance of the contents of the October 21 notes are
accurate. In the current trial, however, Cloutier is advancing the notion that he believed the
succession plan was in place, in order to try and discount his motive to leave and compete with
Zesta. In the face of Christie's contemporaneous October 1999 note on the subject, Cloutier's
September 2009 trial testimony on the point is not credible.
[87] I turn now to Christie's notes of November 5 and 9, 1999. Christie testified that he met
with Cloutier on those dates at the premises of Peatling's business, Mississauga Steel Mart, with
Peatling in attendance intermittently. Cloutier and Peatling deny these meetings occurred. Apart
from their own testimony (which in this respect was plainly self-serving) neither Cloutier nor
Peatling was able to proffer any significant corroborative evidence to support their assertions that
the meetings did not take place. I have previously mentioned Cloutier's last-minute recollection
of his bonus day meetings with Jefferies and others at Zesta on November 5, a point I did not
find credible. Another point made on Cloutier's behalf was that his cell phone records note a very
brief call to Peatling's residence number on a day he was supposedly meeting with Christie and
Peatling at Peatling's office. The mere fact such a call was placed does not negate the fact that
Peatling and Cloutier were at the Mississauga Steel Mart office at the time.
[88] The 7 pages of handwritten notes prepared by Christie dated 5 November 1999 and 9
November 1999 are consistent with Christie's statements that the meetings did occur. These
notes contain considerable detailed information concerning the affairs of Zesta, including details
of various employees' employment and contractual arrangements. It is logical, as Cloutier
conceded, that Cloutier would have been the source of this information.
[89] Significantly, the notes dated 5 November 1999 contain information regarding share
ownership of and investment in a proposed new corporation. That information is more or less
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consistent with comparable information contained in a separate, unsigned document prepared by
Cloutier. That document is a draft agreement in principle between Cloutier and Peatling
concerning a total investment by Peatling of some $410,000. The investment was to be in a
corporation comprised of Class A (voting) and Class B (non-voting) shares in which Peatling
was to own 25% of the Class B shares (the same amount, share structure and percentage
ownership mentioned in Christie's notes).
[90] Cloutier and Peatling attempted to explain the draft document as a proposed agreement in
principle concerning the restructuring of MultiVest. That explanation is not credible, for a
number of reasons. First of all, none of the documents in question makes any reference to
MultiVest. Secondly, at the time, MultiVest was in decline, and the prospect of Peatling
receiving $410,000 in shareholder bonuses (as suggested by the final item in the draft document)
bears no connection with reality. The draft document also makes reference to Cloutier continuing
in a rental relationship with Peatling. At the time, MultiVest was housed in premises
unconnected with Peatling; by contrast, other documents prepared under the direction of
Cloutier (such as the Hi Cap quotation to Nortel) suggest a landlord-tenant relationship between
Peatling and Hi Cap.
[91] Very significantly, when Peatling was examined in the year 2000 as a witness on a
pending motion (prior to being added as a party defendant) he testified that the draft agreement
in principle between him and Cloutier was a document that he first discussed with Cloutier in
connection with starting a business in competition with Zesta, and that Sanger and Durante were
included in the discussions. That evidence is consistent with the conclusion (based on a
comparison of the document and Christie's notes) that the draft agreement did not relate to
MultiVest or Heritage Park, a real estate brokerage arm of MultiVest. Four years later, after
being added as a co-defendant, Peatling purported to correct the answer he gave in 2000, to
assert that the agreement in principle related to Heritage Park and not to a new company that
would compete with Zesta. The problem with this purported correction, however, is that Heritage
Park was already a business that was in existence and not a new company with a new share
structure by the time Peatling was given the draft agreement in principle in the fall of 1999. Thus
Peatling's 2000 evidence (before he was personally sued) contradicts Cloutier's (and Peatling’s)
trial testimony concerning the purpose of the draft agreement in principle.
[92] All these circumstances make Cloutier's and Peatling's explanation that the draft
agreement in principle concerned the restructuring of MultiVest highly suspect, and I do not
accept it. I will have further to say about Peatling's credibility in due course.
[93] The Christie notes are powerful evidence that the meetings described by him occurred as
he testified they did. The notes do not stand by themselves: they are backed up by and consistent
with several handwritten time dockets, and calendar entries, also prepared by Christie. If the
notes are not authentic, the logical inference is that Christie fabricated and backdated them, and
his dockets, and made erroneous entries in his appointment calendar for the same period. I
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acknowledge that Christie did not process the docket entries in the normal course. I do not attach
any significance to that omission, however, particularly in light of the fact that, prior to the end
of November, Christie came to be engaged by Cloutier on a far more intensive (and lucrative)
basis, as his counsel in the Zesta litigation.
[94] Cloutier and Peatling submit that Christie fabricated the notes of the November 5 and
November 9 meetings, in order to try and place Cloutier in a bad light. Christie's reason for doing
so, the argument continues, is to support an argument that Cloutier is not believable, in
anticipation of Christie's need to explain his actions in relation to the Codlin transactions. They
submit that his intent in fabricating the notes was to lay a trap to attack Cloutier's credibility.
[95] In my view, that submission does not explain why Christie would fabricate this evidence.
To begin with, Christie could not have known that the notes (which were initially the subject of a
claim for privilege) would ever form part of the record at a trial. If Christie's intention was to lay
a trap to support an attack on Cloutier's credibility, this trap was remote, and one which would
likely have been wholly ineffective, because in all probability it would never have been sprung.
[96] More importantly, the disclosure of the (fabricated) notes would expose Christie to the
accusation that he had participated in leading a false case at the first trial, likely leading to
allegations of professional misconduct and potentially serious disciplinary sanctions. It seems
unlikely that Christie would create evidence that could possibly be used against him. Moreover,
if indeed he did create and falsify the November 5 and November 9 notes after the fact, he would
be creating an even more serious risk of exposing himself to a criminal prosecution for perjury
and obstruction of justice. It seems highly unlikely that Christie would dig himself a potentially
far deeper hole in order to obscure or fend off allegations concerning his complicity in the Codlin
events, which itself was already largely reflected in the documentary record.
[97] There is no logical reason for Christie creating false records of meetings that did not
occur. Rather, the level of detailed information contained in the notes suggests to me that they
were created during the meetings in question. I find as a fact that the meetings occurred as
described in Christie's notes, and that Cloutier was present throughout. It follows that Cloutier's
denial that he met with Christie on November 5 and November 9, 1999, was untrue.
[98] I would be remiss if I did not also observe that Cloutier has a very significant stake in the
outcome of these proceedings. He is advancing a substantial claim for damages for wrongful
dismissal, in which he was successful before the first trial judge. He is accused of participating in
a variety of improper conduct vis-à-vis Zesta, including breach of his fiduciary and other
obligations. He stands exposed to substantial claims for damages and costs. His personal
financial stake in the outcome is readily apparent. He also has (or at one time had) close ties with
the other defendants (with the exception of Christie and Christie's company). Cloutier is by no
means an impartial or disinterested witness.
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[99] Finally, Cloutier's demeanour during both his examination in-chief and crossexamination was not that of a candid and honest witness. He frequently failed to answer the
question put to him, even when the question was asked repeatedly. He was sometimes
argumentative and belligerent with counsel and in many cases answered a question with a
question. Overall, Cloutier was not an impressive witness. I therefore conclude that I cannot rely
very much upon his testimony with respect to any material points adverse to the plaintiff or
supportive of the defendants.
Credibility and reliability of Peatling's evidence
[100] Although he was not associated with Zesta and he did not play a leading role in any of the
events of the fall of 1999, Peatling was involved with a variety of matters that were discussed in
evidence before me. For example, he was said to be the source of derogatory information about
Marcel Jones that he coincidentally shared with Cloutier at a Thanksgiving Day dinner in
October 1999. He was named as a party in the draft agreement in principle in which reference
was made to an investment by him of $410,000 in a company to be comprised of both Class A
and Class B shares. It is alleged that he attended (for part of the time, at least) meetings with
Cloutier and Christie on November 5 and November 9, 1999 and he is mentioned in Christie's
notes as being a participant in the new company, with an investment of $410,000. Christie's
notes also record that Peatling will finance the new company and rent space to it. Peatling's
business address was used for the address of Hi-Cap Technologies. Peatling attended the
afternoon-long meeting with the other defendants on the Sunday after Cloutier was fired. He
subsequently became involved as the financier for, and a partial shareholder of, Kelvin, the new
business operated by Durante beginning in early 2000. Peatling later became the 100% owner of
Kelvin. Additionally, Peatling was involved with the processing of some of the funds arising
from the Codlin transactions. For a non-Zesta person, therefore, Peatling had a hand in a wide
range of the events in question.
[101] With respect to Peatling’s credibility, I observe at the outset that he is the sole
shareholder of Kelvin, which is exposed to a significant adverse outcome should the lawsuit go
against it. As well, it would appear that he has underwritten a substantial amount of legal fees,
for which he would undoubtedly be entitled to significant reimbursement, were the action to go
in favour of the defendants, and against Zesta. He is also named as a personal defendant who is
alleged to have participated in an unlawful conspiracy. He therefore has a significant personal
stake in the outcome of the proceedings.
[102] For the most part, Peatling gave answers that were responsive to questions and he was not
argumentative with the questioners. His memory failed him on several occasions, however. For
example, in connection with his interview with the police about the Codlin transactions, he
insisted that he had gone to the police station in the afternoon. His police statement indicates,
however, that he was there at 10:30 a.m. Peatling repeatedly denied taking any documents with
him to the police station, until confronted with the fact that he had printed out a copy of his
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[103] In his statement to the police in November 2001, Peatling stated:
Dave Cloutier and Kelvin [T]echnologies became enmeshed in a court battle with
Zesta Engineering. As a result numerous lawyers [sic] fees had to be paid. I
received a cheque of $26,400 from a numbered company 798068 Ontario Limited
[Christie's company]. I don't recall how I received the cheque, however I know it
was for reimbursement of legal fees incurred by Dave Cloutier. Kelvin
Technologies had paid the legal fees and as such I deposited $25,000 back into
Kelvin's accounts.
It is reasonable to infer and expect that Peatling had reviewed his own documentation before he
went to the police station, including his bank statement. His bank statement shows the deposit of
$26,400 on June 2, 2000 and the payment of $25,000 to Kelvin 10 days later on June 12, 2000.
The statement Peatling gave to the police is consistent with his bank statement and added the
additional information that he knew the cheque came from 798 and that it was for reimbursement
of legal fees.
[104] During his examination for discovery, which took place nearly three years after his police
statement (and after he was named as a personal defendant), Peatling changed his evidence,
stating that he did not recall receiving the cheque and that he did not know that it was on account
of legal fees for Cloutier. He further denied that there was any relation between his receipt of the
cheque for $26,400 from Christie's company and his subsequent deposit of $25,000 into Kelvin's
account. Peatling went so far as to say that he was unaware of having received the cheque from
Christie's company at the time and that it was deposited into his account by his wife (who was
not called to testify).
[105] Peatling's attempts to resile from his earlier, more damaging statement to the police raise
serious concerns in my mind regarding his credibility. His explanation for the contents of his
police statement – that the investigating officer "basically threw that idea at me" which he
accepted "because I wasn't going to sign a blank piece of paper" – does not ring true, especially
for someone who is a successful, seasoned and sophisticated business person.
[106] Another significant issue regarding Peatling's credibility arises from his denial that he
attended at any of the meetings with Christie on November 5 and 9, 1999. Christie testified (as
his notes record) that these meetings took place at 925 Meyerside, Mississauga (the address of
Peatling's place of business, Mississauga Steel Mart), and that Peatling was there at the outset
and intermittently during the course of each meeting. Peatling denied any such meetings took
place, and maintained that it was his practice not to go into the office on Mondays and Fridays,
the dates when the meetings allegedly took place.
personal financial information to refresh his memory about the transactions with Christie, before
attending at the police station, which document was appended to his police statement.
[107] For the reasons already indicated, I do not accept the submission by Cloutier and Peatling
that Christie made up the notes of the meetings. As stated, there is no logical reason for Christie
to have done so. Nor would there be any logical reason for him to have included mention of
Peatling as being present, had he not been. I therefore disbelieve Peatling's denial that he was
present for part of the meetings; instead, I find that he was, and that he was aware of their
purpose.
[108] In relation to Peatling’s 2004 purported withdrawal of his year 2000 admission that the
draft agreement in principle related to a business competitive with Zesta, once again I note that
his change of recollection did not occur until he was personally named as a defendant. One
possible explanation is that he was careless about his evidence the first time. Another
explanation is that he became concerned in 2004 that his prior testimony exposed him to
potential liability and he therefore needed to resile from it. Astoundingly, Peatling denied that his
recollection in 2000 (when the first examination took place) would be better than it was in either
2004 or at the present time. I do not accept his revised recollection.
[109] In my view, Peatling's testimony reflects a concerted effort by him to distance himself
from involvement in any of the misconduct alleged by Zesta and specifically Cloutier's plans to
go into competition and the alleged laundering of the funds from the Codlin transactions.
Overall, I did not find Peatling to be a credible witness.
Credibility and reliability of Christie's evidence
[110] Christie is in an unusual position in this litigation, having acted as counsel for the
defendants in the original proceeding from the outset, through the trial before Blenus Wright J.
and through Zesta's successful appeal to the Court of Appeal. By reason of Zesta having
uncovered the trail of funds emanating from the Codlin transactions, Christie and his
management company 798 were joined as co-defendants.
[111] The allegations as against Christie and 798 in the Amended Amended Statement of Claim
are relatively narrow. Specifically, the allegations concern participation by Christie and 798 in
the transfer of $44,619 of the funds paid by Husky to Codlin: it is alleged that portions of those
funds were paid by 798 to Peatling, to the Receiver General (for G.S.T.) and to Cloutier; Christie
and 798 are alleged to have participated in the conspiracy by which Zesta was deprived of the
proceeds of sale of all of the heaters sold by Codlin to Husky; and they are also the subject of a
claim for punitive damages.
[112] On several occasions during the course of the trial before me, Zesta's counsel alluded to
alleged misconduct by Christie in knowingly leading false evidence during the first trial.
Specifically, reference was made to Christie's notes of the meetings of November 5 and
November 9, 1999 and the discussions with Cloutier at that time regarding his plans to set up a
competitive business, as contrasted to Cloutier's (and others') testimony at the first trial that there
had been no such pre-planning. Although Zesta's counsel made those comments, Christie's
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counsel properly pointed out that the Amended Amended Statement of Claim contained no such
allegations and that was not the case that he had come to court to meet. I agree. Whether Christie
did or did not lead false evidence before the court during the course of the first trial is not an
issue I am called upon to decide. My responsibility is to decide the issues raised in the pleadings
before me, and nothing more.
[113] Although the issues between Zesta on the one hand and Christie and 798 on the other are
formally restricted to the latter's involvement in the Codlin transactions, Christie's trial testimony
had broader relevance. Most significantly, Christie gave evidence about his meetings with
Cloutier during October and November 1999. As previously discussed, Cloutier and Peatling
denied that the meetings of November 5 and 9, 1999 took place at all, despite Christie's
handwritten notes, calendar entries and dockets. The contents of the November 5 and 9 meetings
have considerable significance in assessing the substantive allegations of breach of fiduciary
duty as against Cloutier and the allegations of conspiracy as against Peatling. Zesta's reliance on
those meetings and Christie's notes of them, as contrasted to Cloutier's and Peatling's denial that
the meetings took place, coupled with Zesta's allegations against Christie and 798 regarding their
involvement in the Codlin transactions, created an unusual dynamic among the parties. More
particularly, Zesta argued that Christie's notes about the meetings and the fact that the meetings
took place should be accepted, while the remainder of his evidence should be discounted. The
position of Cloutier and Peatling was that the meetings never took place and the notes were
fabricated and Christie's evidence should be disregarded insofar as it related to those matters.
Cloutier also asserted that he relied on Christie's advice when he failed to disclose and disgorge
the proceeds of the heater sales from Codlin to Husky Buffalo, something Christie denied.
[114] Against the backdrop of that dynamic, I am called upon to assess Christie's credibility.
For the reasons previously discussed, I do not accept the proposition advanced by Cloutier et al
that Christie's notes were an after-the-fact fabrication. In my view, there would be no logical
reason for Christie to falsify these records, at considerable peril – both personal and professional
– to himself for doing so. Given the context in which the notes were prepared – by a lawyer who
was receiving information for purposes of analyzing that information and providing professional
advice – it is reasonable to assume that the notes are an accurate record of what Christie was told
and what else transpired on the occasions in question. A further factor that motivates me to that
conclusion is the fact that the notes were prepared and the information recorded before there was
any dispute or controversy among the parties: thus there was no motivation to record
information in a false, biased or non-objective fashion.
[115] The same cannot be said of Christie's oral testimony. Christie finds himself before the
court in a most unenviable position. His former client, Cloutier, has pleaded guilty and been
convicted of a criminal offence arising from his theft of the proceeds from the sale of heaters to
Husky. Those proceeds were funneled back to Cloutier via Codlin. Christie facilitated at least
some of those transactions, a fact confirmed by the paper record. Cloutier claims Christie told
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[116] Zesta alleges that Christie was more complicit in the Codlin transactions than he admits,
thus giving him added motivation to colour the facts. Indeed, the testimony of Cloutier and
Jefferies suggested that Christie knew early on about the heater sales to Husky Buffalo, and that
Christie advised Cloutier to say nothing about it. Zesta also contends that Christie has a motive
to colour the facts surrounding the meetings of November 5 and 9, 1999 because, on the face of
it, Christie's notes of those meetings suggest that he knowingly filed false affidavits and led false
evidence during the course of the proceedings through to the end of the trial before Wright J. As
I have noted, the latter issue is not raised on the pleadings before me; nevertheless, it is a factor
that, in my view, I can and should properly take into account when assessing Christie's
credibility.
[117] During his evidence in-chief Christie testified in a confident, calm and straightforward
fashion and made reference to various documents such as his dockets, calendar, and handwritten
notes, all of which appear to have been prepared contemporaneously with the events they reflect.
During cross-examination, however, Christie was frequently prone to giving lengthy and
expansive answers to questions, answers that were often not responsive to the question posed. As
well, from time to time he stepped out of the role of witness and assumed the role of counsel, for
example, by insisting that some of his answers were not inconsistent.
[118] On at least one occasion, he misstated events and was reluctant to concede the inaccuracy
of his recollection until forced to do so. During cross-examination he insisted that the
information attached to Mary Cloutier's affidavit in the divorce proceeding came from the Anton
Pillar order search of Mr. Cloutier's home. He was then taken to the affidavit of the Zesta
computer examiner and the judgment of Nordheimer J. dated March 30, 2000, which established
that his recollection was wrong.
[119] Most troubling to me was Christie's testimony regarding the Codlin transactions. The
most significant documents that connect Christie and 798 to the Codlin money trail are the
invoices dated April 3 and May 4, 2000 from 798 to Codlin, seeking payment of $28,248 and
$16,371 respectively. Each invoice reads:
TO ALL SERVICES RENDERED in connection with consultation and
management respecting special projects assignments, product procurement and
delivery to Buffalo, New York, USA ….
specifying a timeframe, number of hours and hourly rate. It is beyond argument that these
invoices were false and were created by Christie to trigger the payment of the funds still held by
Codlin. The false invoices were intended to and did facilitate payment to Christie's law firm on
account of its outstanding fees.
him to stay quiet about the Codlin funds. Christie concedes he made an error in judgment, but
nothing more.
[120] Christie's trial evidence was that the narrative descriptions in the invoices he sent to
Codlin were coincidental and that he inserted them in order to provide a reminder in the event in
later years he was questioned for some reason about why the invoices were generated. Put
bluntly, that answer does not ring true. It is beyond the realm of coincidence that Christie would
by chance insert in the invoices he created a description that directly related to the underlying
source of the funds he was seeking to free up from Codlin. When questioned further on this point
he gave a series of argumentative, non-responsive and obfuscatory answers. I conclude that
Christie knew more about the Codlin transactions than he was willing to admit. His explanation
that Codlin was somehow paying money to Cloutier because of business steered by Cloutier to
Codlin on behalf of Zesta is also highly suspect, because it suggests that Cloutier had somehow
been involved in taking kickbacks from Codlin, something Christie denied.
[121] Overall, I conclude that where Christie's testimony is consistent with or confirmed by the
documentary record it is largely credible. Where his evidence is not so supported, however, I
have concerns regarding its veracity. Christie's involvement and conduct in the events in
question, his motivation to explain his role in the least damaging fashion, and his conduct in the
witness stand, all raise doubts regarding the truthfulness of his unsupported evidence.
Issue 1. Did Cloutier plan to compete with Zesta?
[122] A central issue in this case is whether Cloutier took active steps while he was employed
at Zesta to plan and implement a scheme to compete unfairly, and thereby breached his fiduciary
duties. Cloutier denies that he did. Zesta asserts that Christie's meetings with Cloutier as
reflected in Christie's handwritten notes prove Cloutier's plans. Zesta further asserts that
Cloutier's solicitation of Marcel Jones to pursue an order for Hi-Cap from Nortel France, proves
that Cloutier had begun to implement his plan.
[123] Dealing first with the plan to compete, I have previously concluded that the meetings
summarized in Christie's notes occurred as he says they did, that Cloutier was present throughout
them all and that Peatling was in attendance intermittently during the meetings on 5 and 9
November 1999.
[124] The Christie notes dated 5 November 1999 contain a detailed description of "Dave's
plan". Christie described this meeting as one in which Cloutier paced around the room, almost
dictating information to him. Although Christie testified that he considered the meeting to be one
in which Cloutier was outlining a contingency plan that Cloutier might pursue in the event that
he was unable to patch things up with Vincent Eastman, I do not find that explanation credible.
[125] To begin with, I do not believe Cloutier's testimony that he had no such meetings with
Christie. Further, there is no reference in any of the notes to the proposal being a contingency
plan; the advice given on 9 November is similarly unqualified. Christie left the 5 November
meeting with the understanding that he was to consider Cloutier's plan and come back to him
with legal advice about how Cloutier could compete with Zesta without violating his legal
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obligations. The fact that he gave this advice to Cloutier and subsequently defended this
litigation by relying on Cloutier's denials that he had no such plans – not even contingent ones –
reflects poorly on Christie, and gave him cause to testify as he did. I do not believe Christie's
evidence that Cloutier was describing a contingency plan. I find as a fact that Christie's notes
dated 5 November and 9 November 1999 reflect the information provided to him and the advice
he gave on those occasions, and that Cloutier did not qualify his plans as outlined to Christie as a
contingency he might pursue if he could not reconcile with Vincent Eastman.
[126] The above findings of fact lead me to conclude that on 5 November 1999 Cloutier met
with Christie and presented a detailed outline of a plan to leave Zesta, create a new business with
financing from Peatling, and involve Durante and Sanger in an enterprise that would compete
with Zesta and take over its relationships with Watlow and Husky. Peatling was present for at
least part of the meeting and was aware of its purpose and the topics discussed. I further find that
Cloutier's purpose in attending the 5 November meeting was to obtain Christie's legal advice
concerning the plan. That advice was provided at the 9 November, 1999 meeting. Again,
Peatling was present for at least some of this meeting and understood its purpose and the topics
discussed. Peatling's presence on both occasions confirms that he was aware of Cloutier's plan,
and was prepared to facilitate it (whether by providing meeting space for Cloutier's meetings
with Christie or supplying a false address for Hi-Cap) and finance it.
[127] It would be one thing for Cloutier to seek legal advice regarding how he might lawfully
compete with Zesta in the event he later left. Taking active steps against Zesta's interest while he
remained in its employ, however, is something quite different. I find that Cloutier did take such
steps before he was fired, as described below in relation to Zesta's relationship with Watlow.
[128] There are other indicia of a plan by Cloutier to set up a business to compete with Zesta.
These include the spreadsheet documents found on his computer that indicate forecasts for
revenue and expenses on a month-by-month basis during 2000, 2001 and 2002. These documents
reflect projected sales to, among others, Zesta customers Husky, Husky Thixo, Nortel France and
Cameron & Barkley. Cloutier's explanation was that he prepared them to show to Marcel Jones
in order to convince him of the advanced state of preparation of commencing the new business,
in order to persuade Jones to come on board. Apart from Cloutier's explanation for the existence
of these documents, there is no direct evidence to prove or disprove that they were part of an
actual plan to compete. I do not accept Cloutier's self-serving evidence on this point.
[129] Of considerable significance and relevance to this issue are the two letters from Watlow
to Zesta, dated November 11 and 12, 1999, terminating the ongoing Watlow-Gordon
commission payments and the Watlow-Zesta-Husky arrangements. Since 1987 Zesta had been a
sales representative for a Watlow business division known as "Watlow-Gordon". Zesta was paid
a commission on all its direct sales of Watlow-Gordon products. Zesta was also a distributor for
Watlow-Gordon, and was paid a commission on all its distribution purchases. By letter dated 11
November 1999, Watlow informed Zesta that Watlow was going to cease paying Zesta so-called
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[130] Cloutier denies that he instigated either step by Watlow. Despite that testimony, Christie's
5 November 1999 note mentions (as item 2 of "Dave's plan") that "Watlow has now written
Zesta a letter ending the holdover commissions on Gordon." [Emphasis added.] The actual letter
from Watlow was dated 11 November 1999, six days after Christie's note, which describes this
as a past event. Although Cloutier strongly denied that he had advance knowledge of the
Watlow-Gordon decision, he must have been the source of Christie's information on this topic;
there is no other logical explanation for this note by Christie. This suggests ongoing backchannel communications between Cloutier and Watlow, contrary to Cloutier's evidence that he
was unaware of Watlow's decision in advance. I am conscious of Mary Cloutier's testimony that
Cloutier was allegedly angry at her for not telling him that Watlow had pulled Zesta from the
Husky account. It is completely conceivable that his outburst was contrived, in order to detract
attention from what was actually occurring. The same can be said of Cloutier's confrontation
with Vincent Eastman on the same subject. By contrast, Christie's note about what he was told
by Cloutier on 5 November about an event that did not occur until 11 November cannot
otherwise be explained.
[131] The Christie 5 November 1999 notes also mentions (as step 3 of "Dave's plan") that
"Watlow would pull Husky as a representative account on 30 days' notice (again, at Dave's
instigation)." The reference to "again at Dave's instigation" can be read as a reference to the prior
step of Watlow having ended the Watlow-Gordon commissions, further suggesting that Cloutier
told Christie that Watlow had done so at the urging of Cloutier. Step 3 itself came to pass when,
on November 12, 1999 (just one week later), Watlow wrote to Vincent Eastman informing him
of its decision to terminate the Watlow-Zesta-Husky relationship. It is difficult to conceive of
how Cloutier could have been so prescient when he spoke to Christie on 5 November, unless he
had inside knowledge of the Watlow's plans.
[132] While Cloutier denies the meetings with Christie took place (a denial I do not believe),
the reference in Christie's notes to the two letters from Watlow terminating the two relationships,
make the actual occurrence of those very events too coincidental to be unrelated. A more logical
inference is that there was a direct connection between what Cloutier outlined to Christie as his
plan, and what transpired with Watlow – namely, that Cloutier persuaded Watlow to act as it did,
anticipating that he would proceed in due course with his plan to set up a new business to
compete with Zesta, and take over those relationships. It may well be that Cloutier did not expect
that Watlow would move as swiftly as it did in terminating the Husky arrangement, but it is
entirely consistent with Cloutier's plan as described to Christie, that Watlow did so at Cloutier's
instigation.
"holdover commissions" on Watlow-Gordon accounts as of December 31, 1999. By letter dated
12 November 1999, Watlow informed Zesta that it was removing Zesta from the Husky
accounts, also effective December 31, 1999.
[133] Cloutier, Kelvin and Peatling submit that I should draw an inference adverse to Zesta
concerning its allegations regarding the Cloutier-Watlow relationship, by reason of the failure of
Zesta to call a Watlow representative as a witness at trial. Prior to the first trial, Christie (then
counsel for the defendants) tried without success to secure the attendance of Watlow witnesses.
Watlow is a US-based company, and there is no evidence that its employees (or ex-employees)
are within the jurisdiction of the Ontario courts. Given these facts, I am not prepared to draw any
inferences for or against either side due to the absence of witnesses from Watlow.
[134] Zesta also points to Cloutier's approach to Jones and his attempts to persuade Jones to
submit the Hi-Cap quotation to Nortel France as evidence of additional active steps by Cloutier
to implement his plan to go into competition. Specifically, Zesta argues, Cloutier intended to hire
Jones as a salesman for the new enterprise, in order to exploit his contacts and customer base for
the benefit of Hi-Cap.
[135] Significantly, there is no mention of Jones in any of Christie's notes of his meetings with
Cloutier on November 5 and November 9, 1999. If Cloutier actually considered Jones to be an
important recruit to his new team, given Jones' contractual non-competition obligations, one
would have expected Cloutier to seek advice concerning how Jones could make a so-called
"clean exit" from Zesta and be freed to work for the new enterprise. The fact that the Christie
notes do not mention Jones is consistent with and supports the ex-Zesta Defendants' contention
that they had no true intention of having Jones joined them in a competing business. The
antipathy felt by Cloutier and the other senior managers at Zesta towards Jones was such that I
do not believe that there was any true intention to take Jones on as part of his new enterprise.
Rather, I infer that the "Jones sting" was a course of action pursued by Cloutier with a view to
driving a wedge between Vincent Eastman and Jones, resulting in the termination of Jones'
employment at Zesta, such that when Cloutier came to the point of "jumping ship" (assuming he
could persuade Durante, Sanger, Jefferies and White to join him) they would find themselves
competing against a Zesta that was lacking its top salesman; this would make it far easier for the
new enterprise to pick up major accounts, such as Nortel.
[136] As events unfolded, however, Cloutier's plan to accomplish Jones' firing by Zesta failed
when Jones reported Cloutier's approach to him to the Eastmans, instead of going along with it.
That development, coupled with the initiation of litigation and the injunctive relief obtained by
Zesta early on, put an end to Cloutier's plan to complete.
[137] I therefore conclude that, in advance of the termination of his employment by Zesta,
Cloutier took active steps to plan to set up a competing business. Cloutier prepared a plan, as
outlined in Christie's notes. I infer and find that Peatling was aware of, and agreed to assist in the
execution of Cloutier's plan, and this was complicit in it. Cloutier sought legal advice from
Christie. He sought financing from Peatling. He prepared financial projections. He also arranged
for Watlow to terminate specific ongoing arrangements with Zesta, in anticipation that he would
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[138] It was conceded by the defendants that Cloutier, as Vice President, Assistant General
Manager and the most senior employee at Zesta, had and owed fiduciary duties to the company.
By planning as he did to leave Zesta and set up a competing enterprise (as reflected in Christie's
notes), by communicating with Watlow to arrange for the termination of the Watlow-Gordon
holdover commissions and the Watlow-Zesta-Husky relationship (as I further find he did), by
further taking steps to attempt to cause the termination of Jones' employment by Zesta (on
fabricated grounds with the likely result that Zesta would have lost an important sales
representative and his key contacts) Cloutier breached his fiduciary duties. A more challenging
question is whether, in light of the fact that Cloutier's plans were halted in mid-execution, Zesta
suffered any damage as a result. I will return to this subject when I discuss the assessment of
damages later in these reasons.
[139] An important additional question arises for consideration: who else (apart from Peatling
and Christie) was privy to Cloutier's improper plan? This requires me to address the involvement
of Durante, Sanger and White, not only in relation to the approach by Cloutier to Marcel Jones,
but various other allegations as well.
Issue 2. Who else was privy to Cloutier's plan?
[140] Although I have found as a fact that Cloutier both laid plans to compete with Zesta and
began to implement those plans prior to the termination of his employment on November 27,
1999, and that Peatling was privy to those plans, it is another question entirely whether the
remaining ex-Zesta Defendants (Durante, Sanger and White) were knowing participants in that
scheme. Each of them denied that he was, from their first interviews with Vincent and Bernard
Eastman, through to their testimony before me. In relation to Cloutier and Peatling, the evidence
I have previously summarized, including the notes and testimony of Christie, the draft agreement
in principle regarding Peatling's proposed investment in the new business, and Peatling's prior
admission as to the purpose of that document, all establish the complicity of Cloutier and
Peatling. In relation to these other three defendants, however, similar direct evidence is lacking.
To prove its case, Zesta relies on various pieces of circumstantial evidence which, it argues,
confirm that Durante, Sanger and White were knowing participants in Cloutier's pre-departure
plans.
[141] Before examining the evidence relied upon by Zesta, it is worth noting that each of
Durante, Sanger and White was a subordinate to Cloutier: Durante had worked under Cloutier's
direction virtually his entire working life, while Sanger and White were hired by Cloutier. As
subordinates, they were expected to follow Cloutier's instructions in relation to Zesta's business.
Unlike Cloutier, however, none of these other three individuals had any demonstrated antipathy
towards either Zesta or Vincent Eastman. To the contrary, they appear to have been loyal,
hardworking and dedicated Zesta employees. In the case of Durante in particular, I was
pick up that business in his new enterprise. He carried out a plan designed to have Vincent
Eastman fire Zesta's top salesman.
impressed by his earnestness and sincerity when he testified that he never contemplated leaving
the company and loved it. It was evident that he was very close to Vincent Eastman, whom he
considered to be a second father, and to other members of the Eastman family. That relationship
was confirmed by several witnesses called by Zesta. The evidence and allegations against
Durante and against Sanger and White must be examined against that backdrop.
[142] In relation to the credibility and reliability of the evidence of these three witnesses,
Durante was the most controversial perhaps because he was the longest-serving Zesta employee
and was viewed as a turncoat by the Eastmans. As I have noted, Durante was virtually a member
of the Eastman family and he was devoted to Zesta and Vincent Eastman. I have difficulty
accepting that, in the face of those deep connections, he would knowingly participate in a plot
that would have severed those connections.
[143] The long-standing connection between Durante and the Eastmans, the impact of being
accused of disloyalty and caught up in this long-running litigation, and the financial and personal
toll it has had on him, were all apparent during Durante's testimony. Durante was deeply
wounded by the lengths to which Bernard Eastman and Zesta went to prevent him from
collecting employment insurance benefits, including pursuing an appeal process that it
abandoned at the last minute. There were various lapses and contradictions in Durante's
testimony, but in my view they were the unintentional by-product of the emotional impact this
dispute has had on him and his family. I accept that Durante did his best to recall and recount
events, although I acknowledge that he was not always able to do so with complete accuracy. I
do not consider that any of his evidence was intentionally misleading; rather, I accept that he did
his best to tell the truth as he recalled it.
[144] In relation to Sanger, for the most part his answers were responsive to the questions
asked. He was calm and relaxed as he attempted to recall events of almost 10 years ago. On a
few minor occasions, he gave answers that were at variance with either his 2000 examination for
discovery or his 2001 trial testimony, but he acknowledged that he had a better recollection at
that time than now of these past events. I accept that explanation. Overall, Sanger's testimony
was not seriously challenged on cross-examination, and I found it largely credible and reliable.
[145] With respect to White, on several occasions he gave evidence that was at variance with
what he had said during his early 2000 interview with the Eastmans, or during his examination
for discovery or during the first trial. Some of these variances he could explain, but others he
could not. I was left with the impression that he was not intentionally misleading the court, but
he was having difficulty recalling certain facts, which is understandable given the passage of
time.
[146] For each of these witnesses, then, for the most part I found that their testimony to be
largely credible and reliable in most matters. This is not to say that I accept all of their evidence:
I will refer in due course to specific aspects of their testimony that, when evaluated against other
information, I am unable to accept.
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A. MultiVest
[148] As mentioned previously, Cloutier, Durante, Jefferies and Sanger were investors in
MultiVest, a business created to service and support the real estate sales industry. Zesta relies
upon the existence of MultiVest and certain specific events involving it, as evidence to suggest a
willingness among Cloutier, Durante and Sanger to engage in covert business activities together
in breach of their duties to Zesta. I do not agree with that characterization of this evidence.
[149] To begin with, it is plain that none of the activities carried on by MultiVest in its various
incarnations was in the least bit competitive with Zesta. Rather, MultiVest was intended as an
outside, more or less passive investment, which the participants hoped would yield a monetary
return. Zesta points to Cloutier having concealed his business activities outside of Zesta in
connection with MultiVest from both Vincent Eastman and Mary Cloutier. While Cloutier may
not have told either of them about MultiVest, I see no impropriety with him having done so.
[150] Zesta also argues that Durante concealed his involvement in MultiVest, citing three
different examples. The first was an alleged lie to Steve Lock of Zesta when asked by Lock
about some computer aided drawing work carried out by a Zesta employee in relation to a
MultiVest business call "Tradesman Renovations". Durante merely replied that Lock would
have to ask Cloutier. I find nothing inaccurate or misleading about that answer, since there was
no proof that Durante was aware that the Zesta employee had been instructed to do work for
Tradesman Renovations.
[151] The second alleged concealment by Durante related to a photocopying job done for Zesta
through one of the MultiVest companies. In reality, this was an initiative of Bernard Eastman
through Cloutier, to solve a problem arising during previous litigation involving Zesta that
required a large volume of photocopying to be done in short order. Cloutier in turn instructed
Durante to carry out the copying work at MultiVest's premises and to prepare an invoice and
give it to Jefferies. Durante was merely following the chain of command at Zesta. This work was
for the benefit of Zesta and there is no evidence the price charged was excessive. Once again,
there is no evidence to suggest that Durante acted improperly or that he was untruthful in relation
to this incident.
[152] The third occasion relied upon by Zesta concerns work performed by Durante in
November 1999 to prepare GST returns for two MultiVest companies. It is true that he did not
ask permission to do so during his working day at Zesta. Durante's evidence was that this was the
single instance where he did MultiVest work at Zesta. When viewed in the context of all of the
other unpaid overtime and on-call time put in by Durante over the course of his career with
Zesta, I would characterize this as an extremely minor transgression. Once again, I see no basis
to characterize it as an act of deception, disloyalty, or concealment by Durante.
[147] I turn now to specific allegations relied upon by Zesta as constituting evidence of
improper conduct by these three defendants.
[153] I further observe that there is no significant evidence to support the suggestion that, by
reason of his involvement in helping to manage the affairs of MultiVest, Cloutier failed to
perform his duties at Zesta. While it is true that Cloutier was absent from the Zesta office
frequently during the fall of 1999, and that he met with Christie at the MultiVest office during
the business day on one occasion, Cloutier's Zesta duties included paying visits to customers. He
remained in touch with the Zesta office by telephone and Zesta could not point to any detriment
to Zesta arising from Cloutier's activities with MultiVest.
[154] Finally, I note the reference in Christie's testimony that Durante, Sanger and Jefferies
"were co-investors and co-venturers in other enterprises and they had basically cast their lot with
Mr. Cloutier." The fact is, that by swearing affidavits in support of Cloutier, Jefferies, Durante
and Sanger had, in the eyes of the Eastmans, "cast their lot" with Cloutier; the mere fact they had
done so, however, does not equate to them having lied about their own knowledge of or
involvement in Cloutier's plans to compete. In any event, Christie's characterization of these
defendants' conduct does not amount to evidence.
[155] I therefore do not consider the involvement of Cloutier, Durante and Sanger in MultiVest
to have any significance for purposes of the present dispute.
B. White's offer to Jason Go of a job in a new endeavour
[156] Jason Go, a long time Zesta employee, testified about a discussion with White in the fall
of 1999 in which White asked him if he was interested in joining a group of people who had an
endeavour similar to Zesta's manufacturing operation, but outside Zesta. Go testified that he
understood White was offering him a job in a non-Zesta business. Go further testified that a few
days later, he spoke to White about the offer and was told, "No rush, think about it. By the way,
money is not an issue and also you can pick your own guys."
[157] White testified that his approach to Go was in the context of the possible Roka
transaction and followed discussions with Cloutier concerning possible staffing of that entity.
Roka, it will be recalled, was a refurbisher of injection moulding equipment, with which Zesta
had been in discussions concerning a possible acquisition. According to White, Cloutier had
asked him if there were people at Zesta who could move to such a facility and get a
thermocouple manufacturing cell underway. White further testified that it was his idea to
approach Go, as the most logical person, and that he asked Go if he would be interested in doing
what he was doing at Zesta at another location. White was clear that there was no discussion
about location, title, position or money.
[158] With respect to the competing versions of this exchange, I am troubled by several
changes in Go's evidence between the first trial and the second trial. At the first trial, Go testified
that White pointed to the glass window of his office, but that Go did not know what he meant. At
the second trial, Go claimed that he knew it meant another manufacturing place. At the first trial,
Go made no mention of the suggestion that money was not an issue or that he could choose his
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own people; he recalled both these specifics at the second trial. At the first trial, Go testified that
he went home, talked about his discussion with White with his wife, and became concerned it
might be a competing company. At the second trial, he denied this and confirmed that his
previous answers were not accurate.
[159] In my view, Go's evidence falls short of establishing that White was offering him a job
with a competing enterprise. Moreover, it seems to me illogical that, if Cloutier had secretly
planned to go into competition with Zesta, he would delegate White or anyone else with the
knowing task of recruiting employees for the planned new enterprise. At best, I accept that any
conversation between White and Go regarding the possibility of Go working elsewhere was,
indeed, in the context of White having been instructed by his superior (Cloutier) to consider
possible employees to assign to the new Roka venture. It is illogical for White, in these
circumstances, to have told Go that "money was no issue"; that is an aspect of the business
concerning which White would have had no control or understanding at that stage. This leads me
to further doubt the accuracy of Go's recollection.
[160] I therefore conclude that the evidence fails to persuade me that White knowingly offered
Go a position in the enterprise that Cloutier was planning to set up to compete with Zesta. It may
well be that Cloutier was "testing the water" regarding potential personnel at Zesta whom he
might later invite to join his new business, without disclosing to White his underlying purpose,
but that does not make White knowingly complicit in Cloutier's secret plan.
C. Cloutier's solicitation of Marcel Jones
[161] In is undisputed that, in the weeks leading up to his firing in November 1999, Cloutier
sought to interest Jones in participating in a competing business venture that he, Cloutier,
claimed he was setting up. It was the disclosure by Jones to the Eastmans of Cloutier's overture,
and in particular his request that Jones solicit Nortel France on behalf of the new enterprise, that
sparked the termination of Cloutier's employment and the initiation of this litigation. Two major
points of contention in relation to the solicitation of Jones are: (1) whether it was an actual
attempt to recruit Jones for Cloutier's new business, and (2) whether anyone other than Cloutier
was engaged in an improper attempt to recruit Jones for a competing enterprise.
[162] In relation to the former point, as I have previously mentioned, Jones did not testify. The
evidence concerning Cloutier's approaches to Jones came largely from his own mouth or through
documents that he either produced voluntarily or that were found on his office or home computer
(such as financial projections and the like). Cloutier's explanation for all these documents was
that it was a fictional exercise, designed to entrap Jones and expose him as a disloyal employee,
with a view to persuading Vincent Eastman to terminate Jones' employment. The evidence of the
other Zesta employees who were privy to or participants in this exercise was that it was, as far as
they were aware, a "sting" against Jones. Mary Cloutier testified that Cloutier told her of the
sting, in advance of Jones' disclosure.
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[163] Zesta points to a variety of pieces of evidence to support its contention that the approach
to Jones was an actual effort by Cloutier, Jefferies, Durante and Sanger to involve Jones in their
new business. Much of the evidence is equivocal, however, and is capable of supporting either
the plaintiff's or the defendants' position.
[164] A prime example is the Hi-Cap quotation for Nortel France. Zesta points to this
document and its creation as damning evidence against Cloutier and the creators of the
document, Sanger and Durante, arguing it establishes their complicity in the efforts to create a
new company. The latter defendants assert it was a document that was created at the direction of
Cloutier, as part of a plan to expose Jones' disloyalty. On its face, the Hi-Cap quotation to Nortel
France is capable of supporting either side's contentions. The same may be said of the financial
projections (which Cloutier explains as further material created to reinforce to Jones the state of
planning for the new enterprise) or the Sanger purchase of a cell phone in the name of Hi-Cap
(again, from the defendants' perspective, to create a scenario that would persuade Jones that HiCap was a real entity).
[165] Stepping back from the various potential explanations for the specific items of evidence,
it is useful to ask whether it makes sense that Jefferies, Durante, Sanger and White would agree
with Cloutier to recruit Jones as part of their new operation. It is true that Jones was a top
salesman at Zesta. There was, however, considerable animosity between Cloutier and his fellow
managers, and Jones. Jefferies' diary reflects a number of entries regarding occasions upon which
Jefferies learned information that gave him concerns about Jones. Vincent Eastman agreed that
Jefferies brought to him concerns about Jones on more than one occasion. Vincent Eastman
conceded that Jones had asked him about becoming an independent contractor; he further agreed
that Jones violated Cloutier's order that he should not go to France. Jones told another Zesta
employee (Barbara Lomax) he was going to take the trip to France in any event, no matter who
told him not to go. He further told Lomax that he was not going to put customer information into
the Zesta database because he did not want others having information regarding his clients. All
this evidence bolsters the contention of the ex-Zesta Defendants that they did not trust Jones.
[166] In all the circumstances, I consider it unlikely that Jefferies, Durante, Sanger and White
(or Cloutier) would want to have Jones join them in a new enterprise, given their prior distrust
and disdain for him. It simply does not make sense that they would want as part of their new
team someone whom they disliked and who they considered disloyal and untrustworthy.
[167] Other aspects of the evidence relied upon by Zesta to support its contention that the exZesta Defendants conspired together to lure Jones to join their new enterprise, include Durante's
conduct in relation to the Nortel France order that was finally faxed to a Zesta fax machine late
in the day, as Durante was locking up the premises. Durante's explanation was that he took the
fax home with him in his briefcase because he was running late. In my view, this is entirely
believable and makes sense. The so-called "panic" among Cloutier et al. when Jones failed to
obtain a Nortel France order for Hi-Cap and the efforts undertaken by Cloutier through Jefferies
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[168] A further question raised in connection with the solicitation of Jones concerns the
complicity, if any, of Durante and Sanger arising from their preparation of the Hi-Cap quotation.
Their explanation for their involvement in the Jones' solicitation has been consistent and
unwavering from their first interview with Vincent and Bernard Eastman: it was a sting in which
they were involved pursuant to the directions of their boss, Cloutier. Apart from their admitted
involvement in the preparation of the false quotation and the purchase of the cell phone, there is
no evidence that Durante or Sanger had any other involvement in setting up the solicitation of
Jones. For example, there is no evidence that they were even aware that their names were
included in the financial projections prepared by Cloutier.
[169] Only Cloutier and Peatling participated in the meetings with Christie, prior to the
termination of Cloutier's employment. It may well be that Cloutier had planned a scenario by
which he would disable Zesta by (among other steps) persuading Vincent Eastman to fire Jones
and then go into competition, luring Jefferies, Durante, Sanger, White and others to join him, all
as he mapped out to Christie.
[170] It is entirely plausible that Cloutier did not inform or involve any other Zesta employees
in his plan to compete because he wanted to have it in place as a more or less "fait accompli" so
that they would all follow him there. They had loyalties (especially Durante) and reasons not to
leave Zesta (e.g. Durante had spent most of his savings on a new car and Jefferies had two
children in university) so they might have been wary of walking away from Zesta without good
prospects and an incentive to leave. The Jones sting thus served two purposes: one, to get the
new enterprise up and running without attracting suspicion from the others; and two, to set up
Jones to be fired by Zesta, leaving Nortel up for grabs and Zesta vulnerable to competition from
the new company.
[171] The evidence fails to persuade me, however, that any of Durante, Sanger or White had
advance knowledge of Cloutier's plan to compete. I find as a fact they were not privy to those
plans. Instead, although Sanger and Durante were aware of the approach by Cloutier to Jones
(for what they believed was the bona fide purpose of exposing him as a disloyal Zesta
employee), they were unaware in advance of Cloutier's firing of any plan or steps taken by
Cloutier to compete with Zesta.
[172] I should add that I am conscious of the letter sent by Christie to Watlow dated
December 8, 1999, in which he refers to "Mr. Cloutier's group." At that stage none of the exZesta Defendants except Cloutier had retained Christie, as they were not parties to the litigation.
There is no evidence that Christie had authority to speak on anyone else's belief, and Christie
himself conceded that, by using that phrase, he was "taking some literary licence." I therefore do
to locate Jones, are merely one adversary's (Zesta's) characterization of events and actions of a
senior manager and his staff to deal with a missing salesman. Once again, these events are
equivocal.
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Issue 3. What was the genesis of Kelvin and did its creation breach any legal rights of
Zesta?
[173] Zesta's theory is that Kelvin was the formal incarnation of the business enterprise that
Cloutier and other defendants had been planning in the fall of 1999 to set up in competition with
Zesta. Following Zesta's discovery of Cloutier's abortive attempt to recruit Jones and to solicit an
order from Nortel France on behalf of Hi-Cap, and the departures from Zesta of Cloutier,
Jefferies, Sanger and Durante, these defendants changed their strategy, the theory continues.
Instead, Zesta submits, they agreed to set Durante up in a competing business which came to be
known as Kelvin, and which was bankrolled by Peatling, just as Peatling had been the intended
financier of Hi-Cap. Zesta argues that these various defendants came to play varying roles in the
new enterprise. Zesta further argues that, because Kelvin was the continuation of Cloutier's
initial plan (which itself actionable since it was tainted by Cloutier's breach of fiduciary duty),
the new enterprise was tainted as well.
[174] The defendants advance a radically different explanation for the creation of Kelvin.
Durante testified that he developed the idea himself (with support from family members) of
opening up a sales distributorship, representing various manufacturers of electrical components,
initially to be run out of his house. Only after he was put in contact with Peatling as a potential
financier for the operation, did Durante expand the scope of his idea to include leased premises
and a thermocouple manufacturing operation. Based upon the personal expertise that he had
developed over more than two decades in the business and his knowledge of the industry and
manufacturing processes, Durante was able to locate premises, acquire equipment and set up
shop for Kelvin by March 2000. Durante and the other ex-Zesta Defendants deny any
impropriety in doing so.
[175] The first question to address is whether Kelvin was the re-incarnation of Hi-Cap. For
reasons already articulated, I have concluded that only Cloutier and Peatling were involved in the
November 1999 attempt to set up a competing business. It is true that Sanger proceeded to
submit a letter of resignation (an event that was contemplated under Cloutier's plan) but in my
view, he was not acting in concert with anyone when he did so. The decision by Watlow to
terminate Zesta as its agent on direct accounts such as Husky (even if it was orchestrated by
Cloutier), had the effect of eliminating Sanger's position at Zesta. The Watlow decision was
announced on November 17 and Sanger submitted his letter on November 24, prior to Cloutier's
firing. Cloutier and Sanger testified that an alternate role was being sought for Sanger at Zesta
and that Cloutier had asked Sanger to hold off his resignation. John Clark, a long time Zesta
salesman and current employee, confirmed that there were discussions at the time about Sanger
possibly remaining in Zesta in an expanded or modified role. I therefore attribute no impropriety
to Sanger arising from his decision to resign.
not accept this letter as reflecting any collective effort by Durante, Sanger and White to
participate in Cloutier's plan to compete with Zesta.
[176] Sanger also drafted a letter to Martignon of Watlow Detroit dated November 29, 1999 in
which he sought to get work directly from Watlow. The letter was never sent, but in any event, it
was prepared subsequent to Cloutier's termination by Zesta on November 27. It is not surprising
(nor is it blameworthy) that in the face of these two significant events (the Watlow termination of
the Husky arrangement and Cloutier's firing), Sanger contemplated seeking some arrangement
with Watlow on his own behalf. I expressly do not find that these steps by Sanger were in
furtherance of a plan conceived by Cloutier to set up a business in competition with Zesta.
[177] I further acknowledge that Sanger was approached by Ted Stanley on behalf of Watlow
concerning his potential employment by Watlow to act as a representative looking after the
Husky accounts, and other direct accounts. This may well have been a step initiated as a result of
Cloutier's previous discussions with Watlow, but this does not establish complicity on the part of
Sanger. If anything, it indicates a concern on the part of Watlow to secure the services of
someone whom it perceived would be a competent agent on its behalf.
[178] I further note that Cloutier's plan as reflected in Christie's notes contemplated that Sanger
would be a significant shareholder in the new enterprise. Sanger denied any knowledge of such a
plan and, as events unfolded, Sanger never became a shareholder of Kelvin.
[179] Another event relied upon by Zesta to support its argument that the creation of Kelvin
was tainted, is a meeting that took place at Christie's law firm on January 7, 2000, attended by
Cloutier, Sanger, Durante, Jefferies (accompanied by his litigation counsel), Christie and a
corporate lawyer from Christie's firm. Given the previous close association among these four by
now ex-Zesta employees, the firing of three of them by Zesta, the litigation initiated by Zesta
against Cloutier and Jefferies, and the injunctive relief already granted, it is not surprising that
caution (including consultation with involved legal counsel) would accompany any plan by
Durante to go into a business that might compete with Zesta. The mere fact of the incorporation
of Kelvin as the vehicle through which Durante would carry on his business, does not necessarily
mean that there was anything nefarious about the meeting. To the contrary, it is difficult to be
critical of Durante and others for seeking appropriate legal advice as to what would or would not
be permissible conduct, given the existing state of the litigation and the climate of antagonism
that accompanied it. I draw no inference adverse to the defendants arising from this meeting.
[180] As noted, in due course Peatling and Durante agreed that Durante would incorporate and
operate Kelvin, with Peatling as a passive investor and minority shareholder. This was clearly
not the type of business arrangement that was contemplated by Cloutier's plan, since none of the
other ex-Zesta employees were shareholders. While Peatling may have been a party to Cloutier's
fall 1999 plan to compete, that plan did not proceed after Cloutier was fired. The evidence
presented by Zesta fails to persuade me that the creation of Kelvin was a by-product of Cloutier's
fall 1999 plan or that Cloutier played any material role in the creation of the business.
[181] That leaves the question whether the admitted creator of Kelvin – Durante – breached any
legal obligations when he chose to start a business to compete with his former employer – Zesta.
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Zesta argues that, as a senior and long-standing employee, Durante had and owed fiduciary
duties and obligations to it. As a fiduciary, the argument continues, Durante had an obligation
that continued after his departure from Zesta's employ, to refrain from activities that would
conflict with the interests of his former employer.
[182] Assuming, without deciding, that Durante was a fiduciary and that ordinarily he would
have been subject to the limitations and restrictions for which Zesta contends, I do not accept
that Durante's involvement as incorporator of Kelvin breached any such obligations. In my view,
for the reasons set out below in my analysis of Durante's counterclaim for wrongful dismissal,
Durante's employment with Zesta was terminated without notice or cause on December 20, 1999.
As Laskin J. commented in Canadian Aero Service Ltd. v. O'Malley (1973), 40 D.L.R. (3d)
371(S.C.C.) ("Canaero") at 391, the factors to be considered in determining whether a fiduciary
has broken his duty include, among others, "the circumstances under which the relationship was
terminated, that is whether by retirement or resignation or discharge." It is, to a degree, counterintuitive that an employer who breaches its duty to a long-serving employee by wrongfully
terminating the worker's employment, should nevertheless be at liberty to restrict the exemployee's efforts at rejoining the workforce by asserting a claim of breach of ongoing fiduciary
duty.
[183] An analogous situation was considered in General Billposting Co. v. Atkinson, [1909] AC
118 (H.L.) where it was held that an employer was precluded from enforcing a restrictive
covenant against competition, where the employer had dismissed the employee without cause
and without notice. This makes sense, because to allow employer to enforce the restrictive
covenant would be to allow it to benefit from its own breach of contract. This analysis applies
equally to a general fiduciary obligation not to compete with one's former employer.
[184] This principle applies in the case of Durante. Once he was wrongfully dismissed by
Zesta he was thereafter under no obligation to refrain from competing with Zesta, and his
involvement with Kelvin cannot be characterized as a breach of fiduciary duty on his part.
[185] I therefore conclude that the creation of Kelvin did not breach any legal rights of Zesta.
Issue 4. Did the operations of Kelvin violate any legal rights of Zesta?
[186] Although I have found on the facts that Cloutier (with Peatling's involvement as
financier) planned to set up a business in competition with Zesta, and took the initial steps to
implement that plan before he was fired, I have also found as a fact that no other former Zesta
employees were privy to Cloutier's plan to compete. I have further concluded that, once Cloutier
was fired by Zesta and the litigation was commenced, he did not pursue the plan that he
discussed with Christie. Rather, I have concluded that the concept for Kelvin was Durante's, and
that only after Durante was introduced to Peatling did the scope of the intended operation expand
from a mere sales representative one to a more comprehensive business, including the design and
manufacture of thermocouples. Zesta, however, asserts that in various ways the activities
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[187] Zesta argues that several aspects of the conduct of Kelvin's business were a violation of
its legal rights, as follows:
A.
Contact with Husky in January 2000
B.
February 2000 "road trip"
C.
Misuse of confidential information
D.
Conversion of corporate opportunity with Husky-Thixo
I will address each in turn.
A. Contact with Husky in January 2000
[188] During the course of his employment with Zesta during the 1990s, one of Cloutier's most
significant responsibilities was maintaining the relationship with Husky. Although he brought in
Sanger to be the Husky-specific Zesta sales representative, from Husky's perspective Cloutier
remained the most important contact at Zesta. He worked with Sanger to address any Husky
problems and maintained an ongoing presence and contact with Husky.
[189] In late January 2000 (almost two months after he had left Zesta), Cloutier was contacted
by Rod Nicol, an engineer at Husky. At the time, and for many months thereafter, Cloutier had
no active role with Kelvin. Nicol had somehow learned about the plans for the new business that
ultimately became Kelvin. According to Nicol, the purpose of his contact with Cloutier was
because Nicol was interested on behalf of Husky to continue the type of work with Cloutier and
Sanger that he had done with them before they both left Zesta. Cloutier referred Nicol to Sanger,
but asked Nicol to send him (Cloutier) a fax letter which stated as follows:
This letter is to confirm that we have initiated commercial relations with you as a
result of receiving excellent service from you over the past several years. I would
like to confirm that you have not solicited our business, but rather we have
approached you to continue a commercial relationship through your new business.
A copy of the fax was also sent to Sanger, who had been identified by Cloutier to Nicol as
someone associated with the new business.
[190] What is significant about the contact between Nicol and Cloutier is not who initiated it,
but rather Cloutier's response. As Nicol himself put it, "I knew there was a possibility to continue
a commercial relationship if they started a new business" and that was plainly the intention of his
undertaken by the newly-incorporated Kelvin violated its rights, thereby entitling Zesta to pursue
recourse against Kelvin and its participants. I therefore turn now to a review of Zesta's
submissions in this regard.
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[191] There is no dispute but that Cloutier had and owed fiduciary duties to Zesta while he
served as its Vice-President and Assistant General Manager. As Canaero, supra, makes clear the
fiduciary obligations of a senior executive such as Cloutier do not automatically cease upon the
termination of his/her employment, rather, one must consider the circumstances under which the
relationship was terminated. In my view, where an employee is terminated for cause, his or her
fiduciary obligations would ordinarily continue. To hold otherwise would be illogical, because it
would permit a former employee who was guilty of misconduct sufficient to justify dismissal, to
benefit by his/her misconduct by thereby obtaining a release from his/her fiduciary obligations.
The employer would be doubly wronged, first by the employee's initial misconduct, and then by
the ex-employee's post-termination breach of fiduciary duty.
[192] In the present case, for the reasons articulated below in relation to Cloutier's claim for
wrongful dismissal, I conclude that Zesta had cause to terminate Cloutier's employment at the
time it did. Accordingly, Cloutier's fiduciary obligations to Zesta survived after his employment
was terminated at the end of November 1999 and, in my view, remained in place at the time of
his dealings with Nicol in January 2000.
[193] The question thus becomes whether, in responding as he did to Nicol's enquiry, Cloutier
complied with his ongoing obligations to Zesta. In my opinion, he did not. As a fiduciary with a
high level of responsibility and the corresponding high level of loyalty to Zesta, and with a longstanding connection with a key Zesta customer (Husky), Cloutier should have declined
completely to respond to the enquiry he received from Nicol. As a fiduciary, Cloutier owed an
undivided duty of loyalty to Zesta. There can be no dispute that, while he was the Vice-President
and Assistant General Manager of Zesta, Cloutier would have breached his duties to Zesta by
referring a Zesta customer to a competitor instead of encouraging the customer to continue to do
business with Zesta. Although he asserts that he had no participation in the creation of Kelvin's
new business, plainly Cloutier steered Nicol and Husky towards Sanger and Kelvin, thus
advancing and preferring the interests of the latter over the interests of Zesta: in so doing,
Cloutier knowingly facilitated contact between Husky and a new business that he knew would be
competing with Zesta. Given his ongoing obligations to his former employer, Cloutier should
have either attempted to dissuade Husky from diverting its business away from Zesta to Kelvin
or, at the very least, refrained from providing any information or facilitating the contact that he
did.
[194] I therefore hold that, regardless of whether Nicol was solicited or approached Cloutier on
his own, Cloutier breached his fiduciary duties to Zesta by reason of the fashion in which he
responded to Nicol's approach. In turn, Cloutier's referral of Husky to Sanger resulted in contacts
between Husky and Sanger and an exploratory meeting in February 2000 that led to a quote from
contact with Cloutier. Cloutier's response was to refer Nicol to Sanger so as to facilitate the
ongoing business relationship and to have Nicol document for the record that he, Nicol, had
initiated the contact.
Kelvin to Husky. Although there is no evidence that Cloutier directly participated in the
February 2000 discussions with Husky, the response of Cloutier to the January 2000 enquiry
from Husky paved the way for that business opportunity for Kelvin. Thus, Kelvin benefited from
Cloutier's breach of duty. Given the fact that Sanger was copied on the fax from Nicol to
Cloutier in January 2000 and further given Sanger's involvement with Durante and Kelvin in
February relating to the exploratory meetings with Husky, Kelvin must be fixed with knowledge
of Cloutier's breach of duty.
B. The February 2000 "Road Trip"
[195] In mid-February 2000, Cloutier, Durante, Sanger, White and Jefferies went on a 4-day
"road trip" to the United States to visit potential suppliers for Kelvin. As a result of these
meetings, Kelvin got a distribution contract for Heatron, thus enabling it to sell products that
were competitive with some offered by Zesta.
[196] The actual extent of Cloutier's participation in the meetings with these potential suppliers
is unclear on the evidence. What is clear, however, is that Cloutier participated in the trip,
together with his fellow ex-Zesta employees, knowing that its business purpose was to facilitate
Kelvin going into direct competition with Zesta. Indeed, in advance of the trip, he had been
contacted by White (who had just ceased his employment with Zesta) and in turn he arranged for
Durante to get in touch with White to discuss the new business.
[197] For the reasons previously discussed, Cloutier had ongoing fiduciary obligations to Zesta.
Had he still been employed by Zesta it would have been impermissible for him to go on a road
trip having as one of its purposes the solicitation of suppliers for a Zesta competitor. Cloutier's
participation in the "road trip" with other ex-Zesta employees, designed to secure suppliers for a
business competitive with that of Zesta, and his assistance in facilitating recruitment by Durante
of other former Zesta employees, was contrary to the interests of Zesta and a breach of Cloutier's
obligations. Kelvin was able to secure a source of supply (from Heatron) and hired White as a
key employee. Once again, Kelvin knowingly benefited from Cloutier's breach of duty.
C. Zesta's complaint regarding misuse of confidential information
[198] The basic thrust of Zesta's confidential information claim is that "know-how",
information and documents regarding the design and manufacture of thermocouples that it had
developed through trial and error over many years, were valuable information that Kelvin
unlawfully used to springboard its new business into competition with Zesta. Zesta points to the
fact that, within two to three months of setting up business, Kelvin was manufacturing
thermocouples that were identical to those produced by Zesta. In doing so, Kelvin utilized a
production system that was modeled on the one created at Zesta over the course of many years,
utilizing equipment, supplies, suppliers and techniques developed and refined by Zesta through
years of effort, experimentation, trial and error. The Zesta production process, the argument
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[199] The position of the ex-Zesta Defendants is that there was nothing confidential or
proprietary about Zesta's manufacturing process. Nor, they submit, was there anything
confidential or proprietary about Zesta's suppliers or the designs of the thermocouples that it
manufactured. Finally, these defendants deny having misappropriated any confidential Zesta
documents or information relating to its thermocouple business.
[200] I acknowledge that the concept of confidential information is not limited to trade secrets
and that information may be confidential if the whole result is not known, though its separate
features or ingredients are capable of being ascertained by actual inspection by any member of
the public: see Ansell Rubber Co. Pty. Ltd. v. Allied Rubber Industries Pty. Ltd., [1967] V.R. 37
(Supreme Court of Victoria) at 49 as cited in Schauenburg Industries Ltd. v. Borowski (1979),
101 D.L.R. (3d) 701 at para. 19 (Ont. S.C.). Further, I acknowledge that "it is enough that the
information represents in some considerable degree the independent efforts of the claimant": see
Coco v. A.N. Clark (Engineers) Ltd., [1969] R.P.C. 41 (Chancery Div.) at 47 as cited in
Schauenburg, supra, at para. 20. I further acknowledge the reliance by Zesta on the Supreme
Court of Canada decision in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2
S.C.R. 574 in support of its argument that the Zesta defendants are liable due to breach of
confidence. Insofar as Zesta's production processes, equipment, supplies and suppliers are
concerned, however, subject to one exception, I am unable to find that this information was
confidential or communicated in confidential circumstances entitling it to the protection Zesta
claims.
[201] A thermocouple is a solid state device that is comprised of two wires composed of
different metals that are joined or welded together at a point; when that connected point is
applied to a surface and the temperature of the surface changes, a small but measurable electrical
current is generated through the connected wires. When the wires are attached to a voltage
measuring device that is properly calibrated, the electrical current can serve to indicate the
temperature of the surface to which the point of the thermocouple has been applied. The theory
behind thermocouples has been known for approximately 150 years. They are broadly available
from a number of sources and the principal considerations driving customer purchase decisions
are price, product reliability and reliability of supply.
[202] Based upon the evidence I heard, I conclude that there is not very much magic or
ingenuity in the design and manufacture of a thermocouple. Variations in fit or application
dictate specific aspects of design or size, but they are all relatively basic devices, manufactured
out of similar, widely available materials, to suit customers' requirements. Those customer
requirements will dictate the type of thermocouple (i.e. tube and wire; mineral insulated; shim
stock; etc) as well as the specific design requirements that will allow the device to be attached by
the customer to the location at which the temperature measurement is required. Depending on the
continues, is a body of confidential information that was unlawfully misappropriated by the exZesta Defendants after they left Zesta and set up their competing business.
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[203] Numerous examples of thermocouples manufactured by Zesta and by Kelvin were placed
in evidence. On their face, they appear almost identical. I do not find that surprising, however,
simply because they were manufactured to be sold to customers for use in specific applications.
In other words, if a customer were to approach each of Zesta and Kelvin to request, for example,
a shim stock thermocouple having a certain dimension for purposes of being affixed to a
particular machine in a specified fashion, each of Zesta and Kelvin (or, for that matter, any other
thermocouple manufacturer) would likely produce an end product that looked virtually the same.
These are not high technology devices; copying, reproducing or reverse engineering the products
of other thermocouple manufacturers is a common practice in the industry, and one which Zesta
itself has practised in the past.
[204] With respect to specific design improvements or advancements, there was no evidence
that any of these attained by Zesta were protected by patents or other industrial design rights.
Rather, Zesta (and other manufacturers) kept pace with one another by adopting design
refinements to meet customer requirements. A classic example of this is the so-called "molded
transition" in which a ceramic-like substance is applied through use of a pressure mold to
encapsulate the area on the thermocouple at the "transition" i.e. the location at which the lead or
connecting wires are connected with the solid portion of the device. Zesta did not, and could not
claim to be the inventor or originator of this feature; rather, Zesta learned about it from Husky,
who showed Zesta what other thermocouple manufacturers were producing. I therefore reject the
suggestion that there was anything unique, original or confidential about this or any of the other
products that Zesta was manufacturing.
[205] Zesta further complains that the production line and equipment installed at Kelvin were a
mirror image of the Zesta production line, utilizing the identical equipment and manufacturing
techniques that Zesta has sourced and refined for the years. The Kelvin production line was
largely identical to that of Zesta and it utilized much of the same equipment. The real question is
whether there was anything improper about Kelvin proceeding as it did.
[206] The reality is that, as I have noted, a thermocouple is an inherently "low tech" device. It
does not involve any secret formula or complex manufacturing process. There are very few steps
in the manufacturing process, none of which is inherently complex or difficult. Once the type
and design of thermocouple is designated, the manufacturing processes involves the procurement
of the materials, the stripping of the wires, their insertion into the prescribed format, the welding
of the connection, the application of the necessary transition, plug and attachment hardware, and
testing. There is a limit to the number of ways in which these various steps can be carried out;
likewise, there is a limit to the number of different machines or pieces of equipment that can be
used to perform these steps. As two independent witnesses (Rod Nicol and Martin Kestle of
customer's specific needs, the manufacturer may supply in-stock thermocouples or may adapt a
basic design to allow the device to be attached in a certain way or location. Once again, in my
view, there is no magic in those adaptations to suit customer requirements.
Husky) put it, having visited the manufacturing facilities of various thermocouple makers, they
did not observe any substantial differences between the various manufacturers in terms of how
they made thermocouples: the materials used were the same, the equipment was largely the
same, there were slight differences in how their factories were set up, but the basic order of
operations and manufacturing techniques were virtually identical. Indeed, the sample products
produced by the various manufacturers had no significant differences.
[207] In relation to suppliers of equipment and materials, it may well be that, over the years,
Zesta spent time and undertook research to determine which sources of supply of which
equipment were best suited to its operations. There is no evidence that Zesta had contractual
rights of exclusivity with any of these suppliers or that it alone came up with the idea of dealing
with specific equipment manufacturers. For example, Zesta learned about TIG welding from
another manufacturer; it copied the use of a flash pressure stripper from that same manufacturer;
it learned about the mini encapsulating press from a customer. None of these concepts was
unique or confidential to Zesta and I do not accept the argument that, by setting up a
manufacturing or production line that mirrored the one at Zesta, Kelvin violated any legal rights
of Zesta. In a nutshell, I am unable to find that the Zesta production line and the equipment used
in it can properly be characterized as confidential information.
[208] Zesta further complains that the Zesta defendants and Kelvin wrongfully exploited the
manufacturing techniques and procedures that it developed and refined internally over the years.
Among other things, Zesta points to its practice of maintaining information relating to
manufacturers of specific parts on instruction sheets that were labeled confidential and the
confidentiality associated with TIG welder settings. The evidence fails to establish, however, that
any of these materials or this information was removed or improperly used by the defendants,
subject to the one point discussed below.
[209] Zesta argues that the fact that Kelvin was able to start manufacturing thermocouples
within a matter of months establishes that Kelvin wrongfully misappropriated confidential
information relating to Zesta's manufacturing techniques. The evidence indicates, however, that
Kelvin's initial attempts to manufacture thermocouples were not very successful. It was only
after an experienced welder was hired that Kelvin was able to produce satisfactory products. This
would indicate that there was no improper use of confidential manufacturing information by
Zesta's former employees, but rather quite proper reliance upon the welder's skill, expertise and
knowledge that he brought with him. Once again, the evidence fails to persuade me that Kelvin
improperly exploited any confidential information regarding Zesta's manufacturing techniques.
[210] I do have concerns in one particular area, however, relating to product costing. When
Zesta began to manufacture thermocouples, it initiated a database program and compiled data to
keep track of its manufacturing costs. In turn, this allowed Zesta to not only keep track of its
manufacturing expenses, but also to forecast the cost of meeting specific customer orders, in
order to factor in markup and to bid competitively. By the end of 1999, the defendant White had
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assumed responsibility for most of the costing exercise, utilizing costing spreadsheets that
included such information as the costs and number of individual components used for a
particular model, the reject cost, the labour cost, the total cost, and markup factors. White was
actively involved in costing products, including thermocouples that Zesta sold to its large, high
volume customers, such as Husky. The significance of this information was that it went to the
heart of the pricing of Zesta's products in a competitive market where price was one of the most
important factors in a purchaser's decision when choosing a thermocouple supplier. I have no
difficulty finding that Zesta's costing information was and was treated as confidential
information.
[211] While White was employed by Zesta, he had a copy of Zesta's costing spreadsheet on his
home computer, where he worked at it from time to time. During his testimony at trial, White
testified that at the time he left his employment at Zesta in February 2000, he made and returned
copies of all files on his home computer. Soon after he began to work at Kelvin, White prepared
a costing spreadsheet for molded transition thermocouples to be manufactured by Kelvin to meet
Husky requirements. It included detailed labour costing information that was identical in many
respects to the costing information contained in Zesta's costing spreadsheets for the same
products. White's explanation was as follows:
Well, this information I had been using daily for four years. The information was
in my head and I still use this information today.
[212] There was a dispute concerning the date upon which White prepared the Kelvin costing
spreadsheet in question. At the first trial, White testified that by the end of February or the
beginning of March 2000 he was doing work for Kelvin on the costing of a quote to Husky and
he prepared the Kelvin costing spreadsheet as part of the preparation for the Husky quote. The
Kelvin quote is found in a letter dated 6th March 2000 from Durante to Husky (Exhibit 6, Tab
253) which contains prices that are consistent with the pricing spreadsheet (found at Exhibit 6,
Tab 252). The latter document bears a date in the upper left-hand corner of "07/03/2000, which
could correspond to either 7 March 2000 or July 3, 2000. At the first trial, White confirmed that
the document was prepared by him as part of the preparation for a quotation for Husky and that it
was dated March 7, 2000. At the trial before me, White changed his evidence to state that he
prepared the costing spreadsheet on July 3, 2000. I do not accept his revised evidence,
principally because the close correlation between the information contained on the Kelvin
costing spreadsheet and the March 6, 2000 quote negates the suggestion that the costing
spreadsheet was prepared four months after the fact. Rather, I find as a fact that the document at
Tab 252 was prepared in early March 2000.
[213] The significance of the foregoing is that, as of March 7, 2000, Kelvin did not have any
thermocouple manufacturing equipment on its premises and had not yet manufactured any
thermocouples. Therefore, by that date, White could not have done any studies to determine
Kelvin's labour cost for making these items. Indeed, by the beginning of July 2000 Kelvin had
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[214] I find it unnecessary to address Zesta's submission that White could not have retained in
his memory (as he admitted he did) all of the data which he input on Kelvin's costing spreadsheet
which was identical to the corresponding data on Zesta's costing spreadsheet and that he must
have (contrary to his testimony) improperly retained copies of Zesta's costing records. Rather, I
hold that even if White merely retained the information in his memory (and not on paper or in
electronic form), it was Zesta's confidential information regarding the time and expense required
to manufacture the specified thermocouples. By incorporating it into Kelvin's costing
spreadsheet, White was misusing Zesta's confidential information for the benefit of Kelvin. In
turn, Kelvin used the information supplied by White using the Zesta confidential information for
purposes of submitting a thermocouple pricing quote to Husky. In so doing, they breached
Zesta's rights.
D. Zesta's complaint regarding conversion of corporate opportunity with Husky-Thixo
[215] Husky Injection Molding Systems Inc. carries on business through a number of corporate
divisions, each devoted to specific aspects of the injection molding business. In the late 1990s, as
part of its research and development efforts, Husky created the Thixo Division, which had as its
goal the adaptation and development of injection molding technology utilizing molten metals
(such as magnesium) in the place of plastic as the substance to be molded. The use of molten
metal in lieu of plastic required the modification of Husky's injection molding equipment to
operate at much higher temperatures. In turn, this led to the requirement for heaters,
thermocouples and other peripheral equipment to be modified and adapted for use in much more
demanding conditions.
[216] In the course of its development work on the new metal injection molding technology,
Thixo required new designs and configurations of thermocouples. Beginning in or about 1998,
Thixo began to work with Zesta on the design and development of prototype thermocouples for
this new application. It was an iterative process: Thixo would order a handful of thermocouples
with certain specifications and features; Zesta would manufacture them, sometimes making
suggestions or initiating modifications; Thixo would put the prototypes into service in its
machines and determine through use whether they required further changes; and so forth.
Throughout, as the customer, Thixo specified, ordered and paid for the prototype thermocouples
that Zesta manufactured for it. It is an accepted practice in the industry that a customer may go to
a competitor and either ask for a similar thermocouple or even reverse engineer an existing one
for which it has already paid.
[217] While he was still with Zesta, Sanger had primary responsibility for the Thixo project.
Following Sanger's departure, Vincent Eastman asked a Zesta sales representative, John Clark, to
assume responsibility for dealing with Husky Bolton campus with respect to Zesta products,
only a limited manufacturing history, insufficient to develop the refined level of information
found in the Kelvin costing spreadsheet. This is further confirmation that the document was
likely prepared in early March 2000.
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[218] Thixo was not entirely happy with the products produced by Zesta, due to the level of
failure. In May 2000, Thixo asked Kelvin to manufacture some prototype thermocouples, as an
alternate supplier. Ultimately, for reasons I will discuss presently, Thixo discontinued doing
business with both Zesta and Kelvin. For its part, Husky ultimately decided to abandon the Thixo
project at the end of 2000.
[219] The position of Zesta is that the circumstances under which Kelvin came to deal with
Thixo in relation to the development of prototype thermocouples was a usurpation by Kelvin of a
corporate opportunity that was available to Kelvin only because of the prior involvement of
Sanger, White and Cloutier with the Husky-Thixo project. But for the customer connection,
detailed knowledge and technical know-how that these individuals developed while employed by
Zesta and took with them to Kelvin, Thixo would not have transferred its business, to the benefit
of Kelvin and the detriment of Zesta.
[220] For its part, Kelvin denies any wrongdoing associated with the decision by Thixo to seek
out other sources for the advancement of the development of prototype thermocouples for the
metal injection molding equipment. Specifically, Kelvin and the individual defendants deny that
they wrongfully exploited any prior connection with or know-how concerning the Thixo project.
Rather, the decision by Thixo to approach and continue to deal with Kelvin was driven by
Thixo's lack of confidence in Zesta's ability to satisfy its requirements, as well as a series of
significant missteps by Zesta personnel that had the effect of alienating key decision makers at
Thixo.
[221] Three former Thixo engineers who dealt with both Zesta and Kelvin testified at trial:
Derek Mackie, Martin Kestle and Lisa McKinstry. Mackie was the lead Zesta contact at Thixo
until he left at the end of March 2000. McKinstry overlapped with and then succeeded Mackie in
relation to the development of heater bands and thermocouples for Thixo machines. Kestle was
an engineering team leader at Thixo who worked with both Mackie and McKinstry. The
evidence of these three independent witnesses concerning the fashion in which the Zesta-Thixo
and Kelvin-Thixo relationships progressed was largely consistent, and was supported in several
respects by contemporaneous documents. In my view, none of these witnesses was seriously
challenged on cross-examination (despite a concerted effort by counsel for Zesta to discredit
McKinstry) and I found their testimony to be largely logical and reasonable. Most importantly,
as insiders at Thixo, they were in a position to understand and explain how and why Thixo took
the steps that it did in its dealings with Zesta and Kelvin.
[222] The gist of the evidence of these three Thixo witnesses, which I accept, is that Thixo was
engaged in a development project that required thermocouples that could withstand the high
temperature conditions associated with the injection of molten metals. Initially, Thixo sent
including the Thixo Division. Stephen Lock of Zesta and the defendant White (who remained
with Zesta until the beginning of February 2000) continued their involvement with the
development and manufacture of prototype thermocouples for Thixo.
drawings to Zesta to have it manufacture prototypes. To begin with, Zesta brought in existing
technologies and used off the shelf products, although in due course it revised and customized its
designs, and used substitute materials to try to meet Thixo's needs. Due to the failure rate
experienced with Zesta thermocouples, and being aware of the existence of Kelvin, Mackie
decided to contact Kelvin to see if it could assist Thixo in solving the problems. After Mackie
left in March 2000, McKinstry followed through with Kelvin. Kelvin did not solicit business
from Thixo, but merely responded to the contact from Thixo.
[223] In the course of involving Kelvin in its efforts to achieve a satisfactory level of
performance and design for the thermocouples it required, Thixo provided to Kelvin both
samples and drawings of some of the prototypes manufactured by Zesta. Although Zesta argued
before me that Husky acted improperly in doing so, I do not agree, in light of the fact that (1)
Thixo had paid Zesta to develop the prototypes and had purchased them, as well as participating
in the iterative process leading to the successive designs; (2) the practice of reverse engineering
was an accepted one in the industry; and (3) this information was provided to Kelvin at Thixo's
instance and not the other way around. In any event, my concern is whether Kelvin's action in
dealing with Thixo amounted to a usurpation of a corporate opportunity that was the property of
Zesta, not whether Thixo's conduct violated some agreement or understanding between Thixo
and Zesta.
[224] At trial, Zesta made much of McKinstry's efforts to determine the metallic composition
of a spring incorporated by Zesta in the attachment mechanism for one of the prototype
thermocouples. From her perspective, McKinstry legitimately wanted to know that information
so that it could be taken into account when evaluating the performance of any future prototypes
that Thixo might test, be they from Zesta or Kelvin. She also wanted to know that information in
order to relay it to Kelvin, to factor into any design modifications that it might contemplate. As
the customer who had commissioned and paid for the Zesta prototype, McKinstry believed she
was entitled to this information. Her enquiries about this topic led Lock to become concerned
that MacKinstry was somehow "leaking" information in an improper fashion, prompting Lock to
provide false information about the composition of heat spring to McKinstry by way of a "sting".
Lock subsequently admitted to McKinstry that he had provided her with false information in
order to "test the confidentiality of communications". McKinstry was understandably angered
because a supplier had lied to her, and she complained loudly to others at Thixo and Zesta about
this conduct. There is no question but that Lock's actions in this regarding caused serious damage
to the Thixo-Zesta relationship.
[225] A further blunder on the part of Zesta guaranteed that it would do no further business
with Thixo. In light of the issues (raised by Lock and Zesta) surrounding confidentiality of
information and proprietary rights regarding technical developments, Thixo decided to ask Zesta
to sign a technology development agreement, consistent with those used by it with numerous
other suppliers. Husky also required Kelvin to sign such a document, which Kelvin did. Zesta
refused to sign the technology development agreement, without giving a reason. As a result,
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[226] The principles relating to improper usurpation of corporate opportunities were outlined in
the Supreme Court of Canada decision in Canaero, supra. Over the past several decades,
numerous cases have considered those principles and their applicability to various fact situations.
In each case, the court must decide whether the ex-employee in question falls within the category
of "top management" such that a fiduciary duty arises and then, if so, what activities will amount
to a breach of that fiduciary duty. For purposes of the present discussion, I am prepared to
assume that Durante (who was actively involved with Kelvin throughout) was a fiduciary of
Zesta and thus Kelvin was subject to the same limitations. The question remains, however,
whether Kelvin's activities amounted to a breach of that fiduciary duty.
[227] In Edac Inc. v. Tullo, [1999] CanLII 14868, [1999] O.J. No. 4837 (ON S.C.),
Nordheimer J. reviewed a series of cases subsequent to Canaero in seeking to define the scope of
activities in which a former senior employee is precluded from engaging. He concluded as
follows (at para. 40):
I conclude, therefore, that the prohibition that is placed on a senior employee, who
owes a fiduciary duty to his former employer, precludes the individual from using
any special knowledge he or she obtained during the course of their employment
to directly solicit the customers of their former employer. It does not, however,
preclude the solicitation of those customers as part of the general solicitation of
potential customers nor does it preclude the individual from using his or her
general body of knowledge and expertise from competing, either for themselves
or for someone who might employ them, for the business of such customers. To
hold otherwise would, it seems to me, result in a situation where the individual
could be effectively prevented from engaging in gainful employment in the
industry or area with which they are familiar and for which they have an
established background of experience.
I respectfully agree with that analysis.
[228] I am satisfied that the contact between Thixo and Kelvin that ultimately led to Thixo's
request to Kelvin to assist in the manufacture of prototype thermocouples, was initiated by Thixo
when it was seeking help to resolve the problems that it was experiencing with the Zesta
prototypes. I also find that there was no solicitation, no misuse of special knowledge and no
improper usurpation of a corporate opportunity by Kelvin or any of the other defendants in
relation to the Kelvin-Thixo dealing. I further find that the Thixo-Zesta prototype development
arrangement was not a budding corporate opportunity, but rather a situation in which Thixo was
seeking to solve a problem and went looking for assistance wherever it believed that assistance
could be found. In any event, I further conclude that Zesta itself was responsible for bringing its
McKinstry and Thixo did not do any further development work with Zesta. Thixo did, however,
continue to deal with Kelvin.
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[229] I therefore conclude that Kelvin violated none of Zesta's legal rights by engaging in the
relationship with Thixo that it did.
Issue 5. What legal results flow from the foregoing findings?
[230] In relation to each of Issues 1 through 4, I have examined the evidence relating to the
allegations of Zesta that Cloutier and the other ex-Zesta Defendants planned and began to
execute a scheme to set up a competitive business, prior to their departure from Zesta, and
thereby breached their duties to Zesta. I have also examined the allegations surrounding the
genesis of Kelvin and whether any of its operations violated Zesta's rights. In the course of that
analysis, I have made certain factual and legal findings. I turn now to the legal results that flow
from those findings.
[231] With respect to Issue 1, I have found as a fact that Cloutier made detailed plans to leave
Zesta and to set up a competing enterprise, and that Peatling was aware of, complicit with, and
agreed to finance Cloutier's plans. I have further concluded that, prior to his dismissal by Zesta,
Cloutier arranged for the cessation of the Watlow-Gordon holdover commissions and WatlowHusky-Zesta relationship and that he further attempted to engineer the dismissal of Jones through
the so-called "sting". While Cloutier accomplished the cessation of the Watlow-Gordon holdover
commissions and the Watlow-Husky-Zesta deal, his attempt to get Jones fired failed. I have
further concluded that, once Jones reported to the Eastmans about Cloutier's efforts to lure him
away, and Cloutier was fired as a result, the plans of Cloutier and Peatling to set up a competing
enterprise advanced no further. I have further found that Cloutier's conduct amount to a breach of
his fiduciary duties to Zesta.
[232] In Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983]
1 S.C.R. 452 (S.C.C.) (at p. 472), the Supreme Court of Canada recognized the tort of civil
conspiracy where:
the conduct of the defendants is unlawful, the conduct is directed towards the
plaintiff … and the defendants should know in the circumstances that injury to
the plaintiff is likely to and does result.
In the present case, I have found that Cloutier and Peatling acted in concert, their conduct was
unlawful (since it amounted to a breach of fiduciary duty by Cloutier), the conduct was directed
towards Zesta, injury to Zesta's business was likely to and did result (the termination of the two
Watlow arrangements). I therefore find that the elements of tort of civil conspiracy are made out
in the present case, and that Cloutier and Peatling are liable to compensate Zesta for the damages
that flowed from that wrong.
relationship with Thixo to an end, having lied to the customer and subsequently having refused
to sign a technology development agreement for no good reason.
[233] With respect to Issue 2, I have concluded that none of the other defendants was involved
with Cloutier's fall 1999 plan to go into competition with Zesta. To the extent the other ex-Zesta
Defendants may have been involved in activities that advanced Cloutier's plans, they did so
pursuant to instructions received from him as their superior in the Zesta organization and
unaware of Cloutier's overall strategy. I therefore conclude that they were not complicit in the
civil conspiracy and therefore have no liability arising from it.
[234] With respect to Issue 3, the genesis of Kelvin, I have concluded that this was a legitimate
and bona fide undertaking on the part of Durante to establish himself in his own business
following his wrongful dismissal by Zesta. The mere fact that he sought and obtained financing
from Peatling does not make Durante or Kelvin a party to the Cloutier-Peatling conspiracy, an
effort that came to an end following Cloutier's dismissal by Zesta. I have further found that the
circumstances of Durante's dismissal by Zesta relieved him of any duty he might otherwise have
had to refrain from competing with his former employer. I therefore conclude that no liability
arises from Durante's incorporation of Kelvin.
[235] With respect to Issue 4, the actual operations of Kelvin, however, I have found that
several activities from which Kelvin benefited amounted to breaches of Zesta's legal rights. Two
of these involved breaches by Cloutier of his fiduciary duties in: (1) referring enquiries from
Husky to Sanger, in furtherance of Kelvin's business competitive with that of Zesta, and
(2) participating in the road trip that had as its goal securing supplier contracts that would enable
Kelvin to compete with Zesta.
[236] In each of these situations, Kelvin knowingly benefited from Cloutier's breach of
fiduciary duty. A party who knowingly participates in a breach of fiduciary duty of another is
liable to compensate the wrong party to the same extent as the fiduciary who committed the
wrong: see MacMillan Bloedel Ltd. v. Binstead (1983), 22 B.L.R 255 (B.C.S.C.) at para. 51 as
approved in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217 (S.C.C.) at 219. See also Gold v.
Rosenberg (1995), 25 O.R. (3d) 601 (C.A.). I hold that Kelvin and Cloutier are jointly and
severally liable to Zesta to compensate it in this regard.
[237] In relation to the complaint by Zesta regarding misuse of confidential information by
Kelvin and the ex-Zesta Defendants, I have found this allegation to be largely unfounded, save in
relation to improper use of confidential production costing information. This is information that
was utilized by Kelvin for purposes of estimating its production costs in relation to thermocouple
manufacturing, before it had begun producing its own products. But for the use of the Zesta
information, Kelvin would have been at a disadvantage when submitting competitive bids for
customers' thermocouple requirements, since it would have been unable to forecast costs
accurately until it developed its own base of experience. I estimate that the time frame involved
for Kelvin to develop its own track record of production costs for various products would have
been approximately six months. This is a factor that might properly be taken into account when
calculating the period over which a damage award might be appropriate.
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[238] In relation to Zesta's complaint regarding the conversion of the supposed Husky-Thixo
corporate opportunity, my conclusion based on the facts is that there was no wrong doing on the
part of Kelvin and the ex-Zesta Defendants. As a result, Zesta is entitled to no remedy arising
from this complaint.
[239] I will address the matter of damages suffered by Zesta and their quantification in due
course.
Issue 6. How should the commission payments from Watlow to Cloutier be characterized?
[240] Soon after Cloutier's dismissal, Vincent Eastman discovered that Dave Martignon
(Watlow's Detroit representative who oversaw the Husky business) had been paying
commissions directly to Cloutier. This practice began in March 1999 (supposedly at Martignon's
instance), due to concerns by Martignon that Cloutier might leave Zesta and become directly
involved with the Husky account. Vincent Eastman was unaware of these payments prior to
Cloutier's dismissal.
[241] At the same time as Martignon initiated the payments to Cloutier, he reduced the
commission paid to Zesta by Watlow by a like amount: in effect, Martignon transferred to
Cloutier funds he would otherwise have paid to Zesta. Cloutier admitted this fact at his
examination for discovery in 2000, and never amended his answer. At trial before me, Cloutier
disagreed with his prior evidence, and asserted that it was no longer correct, by reason of certain
additional (but undisclosed) information that he had received from Martignon in connection with
his Canada Revenue Agency appeal. Martignon did not testify and, for the reasons already
expressed, I do not accept Cloutier's revised evidence on this point.
[242] At the first trial, Zesta claimed repayment of the sums paid by Watlow to Cloutier, which
it characterized as secret commissions. Further, Zesta defended Cloutier's counterclaim for
wrongful dismissal, on the ground that the payment of secret commissions constituted cause for
his dismissal. Cloutier conceded liability for the amounts paid to him, but denied they were
secret payments to him. Wright J. ordered Cloutier to repay the sums, but he declined to
characterize the payment as "secret commissions" or grounds for dismissal.
[243] Zesta's supplementary notice of appeal to the Court of Appeal challenged this aspect of
the trial decision and asserted that the receipt by Cloutier of secret commissions was cause for
his dismissal. The Court of Appeal allowed Zesta's appeal and ordered a new trial, due to fresh
evidence with respect to Cloutier's involvement with the Codlin transactions. The Court of
Appeal did not deal with the merits of the appeal on the other grounds advanced. In the course of
its ruling, the Court of Appeal referenced the allegation of "secret commissions" several times,
although the argument before that court focused on and was decided upon the fresh evidence.
Since Cloutier did not appeal his liability to pay the commission money to Zesta, that portion of
Wright J.'s decision stood.
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[244] The first question for me to address is whether the characterization of the commission
payments from Watlow to Cloutier as "secret" for "not secret" is res judicata. Surprisingly, both
sides contend the issue has previously been decided authoritatively, each contending for an
opposite conclusion. Zesta says it was decided affirmatively by the Court of Appeal; Cloutier
says it was decided negatively by Wright J., since his ruling on this point was not overturned by
the Court of Appeal.
[245] In my view, neither party is right. As to Wright J.'s decision, his judgment was set aside
by the Court of Appeal, save in relation to Cloutier's admitted liability for payment of the
quantum of the commissions received by him. Once an appellate court sets aside a judgment
below, the first decision "disappears altogether": see Spencer-Bower and Turner, The Doctrine of
res judicata, 2nd ed. (London: Butterworths, 1969) at p. 59; see also Mount Hamilton Christian
Reformed Church v. Sikkema, [1995] O.J. No. 1568 (Gen. Div.) at para. 20.
[246] With respect to the Court of Appeal decision, at no time did that court approach and
analyze the question whether the commissions were secret. It is true that that terminology was
used (and incorporated in the formal order of the Court of Appeal) but in my view, that was
merely a shorthand phrase used to reference the sums paid to Cloutier. In my view, the Court of
Appeal did not rule one way or the other on the issue whether the amounts paid by Martignon to
Cloutier were or were not properly characterized as "secret".
[247] Given that the question was not decided authoritatively or finally by the Court of Appeal
and given further that the judgment of Wright J. has "disappeared", it falls to me to make the
requisite determination as to whether the payments properly fall to be characterized as secret
commissions paid to a Zesta employee.
[248] The evidence before me confirms that Martignon privately approached Cloutier, with a
proposal that he would pay Cloutier a personal commission, based on sales of Watlow products
to Husky via Zesta. At trial before me, Cloutier attempted (for the first time) to explain these
payments as a new method of reimbursing Cloutier for expenses incurred in relation to the
Husky account. For reasons previously expressed, I do not accept that explanation. The fact
remains that Cloutier was paid a personal commission by Watlow for performing the job he was
paid to do by Zesta. The sums paid to Cloutier by Martignon resulted in a corresponding
decrease in the sums paid to Zesta for the same work. Zesta's President and controlling
shareholder, Vincent Eastman, was neither aware of nor approved these payments, which plainly
came at a cost to Zesta. In my view, it is no answer for Cloutier to say that he openly instructed
his secretary to prepare the commission claim forms: that cannot amount to disclosure to or
approval by the company of what Cloutier was doing.
[249] I therefore hold that it is proper to characterize the Martignon payments to Cloutier as
secret commissions paid to an employee. I need not deal with the matter of Cloutier's liability to
pay those sums to Zesta, since that aspect of Wright J.'s judgment remains undisturbed. I will,
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Issue 7. In relation to the heater sales involving Codlin and Husky Buffalo,
A. What quantities of heaters were sold, what proceeds were realized and what became of them?
[250] Considerable time was spent at trial before me exploring the question of when Zesta first
became aware of the transactions by which Cloutier sold heaters to Husky Buffalo through
Codlin, and retained the proceeds. Zesta's position before me (and before the Court of Appeal)
was that it only learned of these matters after the conclusion of the trial before Wright J.,
beginning in February 2001. Cloutier argues that Vincent Eastman was aware of the Codlin
transactions prior to the first trial, that Zesta failed to advance those arguments on that occasion
and that Zesta presented misleading evidence to the Court of Appeal on the application to admit
fresh evidence.
[251] The last Codlin-Husky Buffalo transaction was completed in the fall of 1999. The trial
before Wright J. took place in January and February 2001. The litigation was hard fought, to say
the least. It seems to me illogical that, had Zesta actually been aware that Cloutier had sold more
than $100,000 worth of heaters to Husky Buffalo through Codlin and had failed to account for
the sale proceeds, Zesta would have intentionally refrained from advancing that allegation in the
initial trial. I am conscious of the evidence regarding a Husky Buffalo purchase order mentioning
Codlin that supposedly was received at Zesta and shown to Vincent Eastman, but I do not
consider that conclusive of knowledge by Vincent Eastman or Zesta of the now-established
wrongdoing by Cloutier.
[252] Quite apart from the foregoing, as a matter of law it is not open to Cloutier to contest the
issue of when Zesta became aware of the Codlin transactions. That issue was squarely raised
before the Court of Appeal on the fresh evidence motion, which was the centerpiece of the
appeal. As the Court of Appeal noted, to be admitted, the proposed evidence had to meet the four
criteria set out in Palmer v. The Queen, [1980] 1 S.C.R. 759 at 775 (S.C.C.). The first such
criterion is that "[t]he evidence should generally not be admitted if, by due diligence, it could
have been adduced at trial" In relation to this issue, the Court of Appeal said as follows (at
para. 16) :
Although the respondents [Cloutier et al] state in their factum that this evidence
was discoverable even before trial, they advance no persuasive argument in
support of this proposition.
The Court of Appeal went on to admit the fresh evidence, holding that the due diligence criterion
has been satisfied. It follows that Cloutier is attempting to re-litigate an issue that has already
been decided against him. The principles of res judicata and issue estoppel preclude a party from
raising in a subsequent proceeding a question that has been definitively determined against him.
however, have more to say on the subject of secret commissions when I deal with Cloutier's
counterclaim for wrongful dismissal.
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[253] The test for the preclusive effect of a court order under the doctrine of issue estoppel was
set out by the Supreme Court of Canada in Danyluk v. Ainsworth Technologies Inc., [2001] 2
S.C.R. 460. In that case, Binnie J. summarized the preconditions to the operation of issue
estoppel as being:
(1)
that the same issue had been decided;
(2)
that the judicial decision which was set to create the estoppel was final; and
(3)
that the parties to the judicial decision or their privies were the same persons as
the parties to the proceedings in which the estoppel is raised for their privies.
As Binnie J. succinctly put it (at para. 18):
A litigant is entitled to only one bite of the cherry.
[254] In my view, all three of the Danyluk criteria are satisfied in the present case. Cloutier had
full warning that the Court of Appeal was being asked to decide whether the Codlin transactions
met the test for admissibility of fresh evidence. He had ample opportunity to assemble the
evidence to support his contention that Zesta had known all along about the Codlin transactions.
The Court of Appeal decision reveals no evidence relied upon by him to support the position that
he now seeks to advance. In my view, to allow Cloutier to revisit this issue in this trial on the
basis of evidence he failed to adduce previously, would be contrary to the basic concept
underlying issue estoppel, namely finality in judicial proceedings.
[255] I am therefore not prepared to accede to Cloutier's argument that Zesta knew and should
have raised this issue previously: the Court of Appeal decided that it had not and therefore could
have done so.
[256] It is common ground that, through Codlin, Husky Buffalo purchased a total of 1,806
heaters between June 1997 and October 1999, at a total price of US$132,209.88. Zesta's
evidence was that it had not been able to locate in its inventory some 2,316 heaters of the type
sold by Codlin. On this basis Zesta seeks a finding that all 2,316 heaters were sold by Cloutier to
Husky Buffalo via Codlin. There are gaps, however, in Zesta's records, particularly in relation to
credits received from Watlow for goods returned. In light of that missing evidence and in the
absence of any further positive evidence that additional heaters were sold through Codlin to
Husky Buffalo (such as would, presumably, have been available in Codlin's records) I am not
prepared to find that there were any such additional sales.
In my view, the decision of the Court of Appeal respecting the fresh evidence application falls
into this category.
[257] Considerable time was also spent at trial in relation to the question whether the heaters
sold by Codlin were heaters that Zesta had purchased, or were returns from Husky Bolton, or
otherwise came from Zesta's stock of so-called "obsolete inventory". In my view, there is no
need to resolve that question, since it has no bearing on the outcome, in light of Cloutier's
concession that 1,806 heaters were sold in this fashion. There can be no doubt that Cloutier had
the opportunity to effect the Codlin sales by reason of his position as a senior Zesta executive:
that is how he had access to the goods and that is why he had access to a purchaser. Even if one
were to accept Cloutier's explanation for why he involved Codlin in the transactions (i.e. to
disguise their true nature from Husky and Watlow) according to him, the proceeds of sale were
to come back to Zesta, to be divided between Zesta and Watlow in due course. Thus, regardless
of the origins of the heaters, the proceeds of sale should have come to Zesta. By conducting the
sales through Codlin and diverting the proceeds via Codlin, 798 and Peatling, and ultimately
back to his own investment account, Cloutier improperly diverted funds that were the property of
Zesta. It is therefore a matter of no moment whether Zesta had purchased the heaters itself or had
them in its obsolete inventory stock.
[258] There is also not much controversy about what became of the sale proceeds. Between
June 1997 and December 1999, Husky paid to Codlin four separate cheques, totalling
US$132,209.88. Between June 1997 and February 1999, Codlin paid Cloutier a total of
C$105,464.36 by way of five separate cheques. In addition, the President of Codlin testified that
he signed over to Cloutier a Husky cheque in the amount of US$41,999. This evidence was not
challenged. Cloutier testified that he placed the funds received by him from these transactions in
an investment account jointly held in his name and that of his father. Cloutier never informed
Zesta about the heater sales or the funds received, nor did he pay the money over. In due course,
as mentioned previously, he was charged with fraud and ultimately pleaded guilty to a charge of
theft over $5,000. Although a restitution order in favour of Zesta for US$26,788.55 was part of
Cloutier's sentence, there was no evidence that he paid anything to Zesta pursuant to that term.
No other proceeds of sale came to Zesta.
B. What was the involvement of Christie, 798 and Peatling in the Codlin-Husky Buffalo
transactions?
[259] Following the payments to Cloutier described above, Codlin still retained some funds that
had been paid to it by Husky. On Cloutier's instructions, Codlin paid the remaining funds to 798,
in response to two invoices prepared and submitted by Christie, as follows:
(a)
798 Invoice No. 00-001 dated April 3, 2000 requested payment for "… all
services rendered in connection with consultation and management respecting
special projects assignments, product procurement and delivery to Buffalo, New
York, USA between February 12, 2000 and April 16, 2000 inclusive at CAD125
per hour [211.2 hours total]". The total amount billed on Invoice No. 00-001 was
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(b)
798 Invoice No. 00-002 dated May 4, 2000 requested payment for "… all services
rendered in connection with consultation and management respecting special
projects assignments, product procurement and delivery to Buffalo, New York,
USA between April 17, 2000 and April 30, 2000 inclusive at CAD125 per hour
[122.4 hours total]". The total amount billed on Invoice No. 00-002 was $16,371.
Once again, 798 did not actually perform any of the services for Codlin
referenced in this invoice.
Codlin used monies received from Husky to pay the total amount of these invoices, being
C$44,619.
[260] The records of 798 reflect the following payments out:
Date
Amount of the Cheque
Payee
May 29, 2000
$26,400
Derek Peatling
August 22, 2000
$9,300
Cash
October 3, 2000
$1,848
Receiver General
June 14, 2001
$6,371
Debit memo for cash
The foregoing payments, according to Christie, were made on Cloutier's instructions. The August
22, 2000 cheque payable to cash was, according to Christie, either given to Cloutier, or cashed
and the proceeds given to him. There was no evidence as to the recipient of the proceeds of the
June 14, 2001 debit memo in the amount of $6,371.
[261] According to Peatling's witness statement to the police in 2001, the $26,400 payment to
him represented a reimbursement for legal fees that Kelvin had paid to Christie on behalf of
Cloutier. Although in his testimony before me Peatling resiled from his statement to the police, I
did not find him a credible witness. I therefore do not accept his testimony on that point. Rather,
I find that he was aware that funds were coming from the Christie's management company, on
the instructions of Cloutier, and that he used them to fund Kelvin in order to pay legal expenses.
[262] That said, I am unable to find that Peatling was aware that the original source of the funds
that passed through his hands was the sale of heaters by Cloutier to Husky Buffalo. While there
is good reason to suspect that he knew, in the absence of clear evidence upon which to base such
a finding, I am unable to reach that conclusion.
$28,248. 798 did not actually perform any of the services for Codlin referenced in
Invoice No. 00-001.
[263] The same cannot be said of Christie. Cloutier testified that he told Christie as early as
November 1999 about the heater sales and that at the meeting at the restaurant on Sunday,
November 28, 1999, Christie told them "don't do anything" about the heaters. Jefferies supported
Cloutier's evidence in this regard. Whether that discussion actually took place is a matter of no
moment, because it is plain that by May 2000, Christie was aware that Codlin owed money to
Cloutier. The invoices drafted by Christie at that time to send to Codlin to trigger the payments
to 798 contain sufficient detail that I am satisfied on a balance of probabilities that by that point
Cloutier had told Christie about his dealings with the heaters, Husky Buffalo and Codlin. There
is no other logical explanation for the descriptions contained in the invoices.
[264] I therefore find as a fact that when Christie prepared the invoices to Codlin on behalf of
798 and, therefore, when Codlin paid funds to 798, Christie was aware that those funds
represented some of the proceeds of the heater sales. I therefore conclude that Christie and 798
knowingly participated in the conversion of $44,619 that properly belonged to Zesta. In view of
the conclusion I have reached concerning Peatling's knowledge, I do not find him liable on this
count.
Issue 8. Did Cloutier or Kelvin act in contempt of any court orders obtained by Zesta?
[265] The only specific act relied upon by Zesta as constituting contempt was the allegation
that, in breach of the injunctions granted up to that time, in May 2000 Cloutier on behalf of
Kelvin solicited business from Fisher Gauge Ltd., a long standing client of Zesta. While Zesta
brought a contempt motion in August 2000, that issue was adjourned to be determined by the
trial judge. At the first trial, Wright J. dismissed Zesta's contempt motion. The Court of Appeal
set aside the dismissal and ordered a new trial of the contempt motion.
[266] The original order of Langdon J. dated November 26, 1999 restrained Cloutier from
"directly or indirectly soliciting any suppliers … or clients of Zesta". By order dated April 11,
2000, Chapnik J. extended that order to include Kelvin. Zesta's contempt complaint is based on
the allegation that on May 4, 2000, Cloutier telephoned Keith Anderson of Fisher Gauge and
solicited business from him. Although Cloutier admitted having had a conversation with
Anderson on that date, he denied any solicitation.
[267] It is well recognized that proceedings for a finding and sanction of contempt are quasi
criminal in nature. As such, the moving party has the burden of proving the contempt beyond a
reasonable doubt. As Cumming J. said in Sussex Group Ltd. v. Fangeat, [2003] O.J. No. 3348 (at
para. 53):
To prove a person in contempt of a court order requiring that the person do an act,
or abstain from doing any act, it must be established that (1) the person had
knowledge of the nature of the terms of the Order; (2) the Order is directive and
not simply permissive: and (3) the person's conduct is in contravention of the
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[268] In the present case, it is not disputed that Cloutier had knowledge of the nature in terms
of the order that enjoined him and Kelvin from soliciting customers of Zesta. Further, it is not
disputed that the order was directive in that it prohibited any such solicitation. Finally, it is not
disputed that Fisher Gauge was, to Cloutier's knowledge, a long standing customer of Zesta and
thus was a party that fell within the scope of the solicitation prohibition contained in the order.
The dispute between the parties on this issue is focused on whether the contact between Cloutier
and Anderson on May 4, 2000 amounted to the prohibited act of solicitation.
[269] I note at the outset that the order of Langdon J., although it prohibited solicitation, did not
prohibit contact in any form or for any purpose. Thus, in my view, this issue turns on the
question whether I am satisfied beyond a reasonable doubt that Cloutier solicited business from
Fisher Gauge when he spoke with Anderson on the date in question. Cloutier denies that he did.
[270] Zesta relies on the testimony of Anderson to prove its allegation of contempt. Some of
Anderson's evidence supports that conclusion. During his testimony in chief, however, Anderson
testified that he had told Marcel Jones back in 2000 that while he had been in contact with
Cloutier, Cloutier did not solicit any business. Anderson confirmed this testimony on crossexamination. He further testified that, when he was visited by Greg Eastman and Bernie Eastman
and asked to swear an affidavit, he also told them that Cloutier had not solicited any business.
[271] I am therefore confronted by conflicting evidence on the very issue in question from the
sole witness relied upon by Zesta to support its allegation of contempt. Faced with that
contradictory evidence, and in the face of Cloutier's denial, I am unable to say that I am
persuaded beyond a reasonable doubt that he acted in violation of the court order.
[272] I therefore decline to make any finding of contempt against Cloutier or Kelvin.
Issue 9 - What remedies should be granted to Zesta?
A. Main claim for relief
[273] In its claim for relief in the Amended Amended Statement of Claim, Zesta sought (as
against Cloutier, Durante Sanger, White, Kelvin and Peatling) injunctive relief, damages, an
accounting and a declaration that the defendants' business was the equitable property of the
plaintiff. The underlying premise for these claims was that these defendants were co-conspirators
whose activities breached fiduciary duties owed to Zesta and violated other rights including
conversion of confidential information and corporate opportunities. Zesta's position was that the
pre-and post-termination conduct of all these defendants was tainted by illegality, thus rendering
them all liable for losses.
Order. Each one of these elements must be proven by the moving party beyond a
reasonable doubt.
[274] Zesta presented a detailed damage calculation prepared by a forensic accountant who
quantified its losses from these activities of the defendants at $2,397,738. This sum was said to
represent Zesta's lost profits arising from sales by Kelvin to Zesta customers for the 7 year period
from 2000 through 2006. For several reasons, I do not consider that calculation to be a proper
assessment of the plaintiff's damages.
[275] To begin with (and most importantly) I do not accept the underlying premise upon which
the calculation is based, namely, that Kelvin's entire business was the illegitimate product of
unlawful conduct by these defendants. Subject to some exceptions (noted below) Kelvin's
creation and operations breached no rights of Zesta – and certainly none that would warrant or
entitle Zesta to claim lost profits on all Kelvin sales to Zesta customers for a 7 year period. I have
expressly found that the defendants did not misappropriate Zesta's business, customers or
(subject to one exception) intellectual property. There is thus no basis for the claim for equitable
ownership of Kelvin's business, nor an accounting for 7 years' worth of sales.
[276] Secondly, the so-called "customer lists" upon which Zesta premised its claim for
improper Kelvin sales, were of very questionable reliability. Zesta adopted a very loose
definition of what amounted to a claimed customer, including names of parties with whom it had
not had a sales transaction for many years prior to the creation of Kelvin; the Zesta lists also
included names of parties with whom it had not done business at all prior to the departure of the
ex-Zesta Defendants.
[277] A customer is defined in Black's Law Dictionary as "one who regularly or repeatedly
makes purchases or has business dealings with a tradesman or business … Ordinarily, one who
has repeated dealings with another. A buyer, purchaser, consumer or patron". See DiFlorio v.
Con Structural Steel Ltd, 2000 CanLII 22765 (Ont. S.C.) at para. 192. Parties with whom Zesta
had no commercial dealings for many years prior to Kelvin's incorporation, and parties with
whom Zesta had no contact at all prior to the defendants' departures from Zesta cannot properly
be protected from solicitation or competition by Kelvin, since Zesta had no existing relationship
with these parties.
[278] In any event, even if the creation of Kelvin had breached some fiduciary or other duties
owed to Zesta, a 7 year non-competition covenant (which is, in effect, what Zesta claims) is
unreasonably long to protect the plaintiff's interests. In my view, it represents over reaching by
Zesta, and cannot be justified.
B. Damages for the Cloutier-Peatling conspiracy
[279] Based on my findings of fact I conclude that Cloutier and Peatling were participants in a
civil conspiracy designed to create a competing enterprise. That effort was stillborn because
Jones disclosed the Hi-Cap – Nortel quotation to the Eastmans, resulting in Cloutier's dismissal
and the injunctive relief obtained in November 1999. Prior to his dismissal, however, Cloutier
communicated with Watlow, resulting in the termination of (a) payment of the Watlow-Gordon
Page: 66
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[280] In relation to Watlow-Gordon, these were commission payments that Watlow made to
Zesta on account of sales of this particular line of products, to accounts turned over to Zesta in
1998. The letter terminating this arrangement mentioned Watlow's belief that Zesta had not
fulfilled expectations that underpinned Watlow's willingness to make these payments. It would
thus appear that there was no formal contract that required those payments to be made, or any
termination clause requiring a defined notice period. It seems reasonable, therefore, to infer that
these payments would not have continued indefinitely; but for Cloutier's intervention, they might
have continued for another year.
[281] In his "Newbiz" revenue calculations, Cloutier projected revenue from the WatlowGordon line of $29,250 for the first 11 months. This equates to $32,000 per year. I accept that
these calculations were an actual projection by Cloutier of the revenues he expected his new
enterprise would earn once it diverted this line of business from Zesta. I also accept that these
sums are equal to the revenue Zesta would have earned on this account. I therefore calculate
Zesta's damages on this count at $32,000.
[282] In relation to the termination of the Watlow-Zesta-Husky relationship, Watlow gave one
month's notice of termination. Once again, however, there was no guarantee that this relationship
would continue indefinitely. It was particularly dependent upon Cloutier's continued involvement
with Zesta, something that was similarly not guaranteed, especially in light of the deteriorating
relationship between Vincent Eastman and Cloutier, and Vincent Eastman's failure to implement
a succession plan that would give Cloutier incentive to stay. In the circumstances, had Cloutier
simply left, it is reasonable to infer that the former arrangement would have remained in place
for no more than a year.
[283] In his "Newbiz" projections, Cloutier calculated the monthly revenue as the Husky
representative at $10,500 or $126,000 per year. I therefore calculate Zesta's damages on this
count at $126,000.
[284] Zesta proved no other damages that flowed from the Cloutier-Peatling conspiracy. I
therefore award it damages against these two defendants, jointly and severally, of $158,000.
C. Cloutier's further breaches of fiduciary duty
[285] With respect to quantifying the damage award in favour of Zesta arising from Cloutier's
breaches of fiduciary duty in referring the Husky enquiries to Sanger and in participating in the
road trip, Zesta did not present its damage claim by reference to specific activities of the
defendants and losses flowing from them. Rather, Zesta pointed to its overall financial
performance, as well as the financial results for Kelvin. I do not discern nor am I prepared to find
any readily quantifiable loss to Zesta arising from or attributable to this specific conduct by
holdover commissions, and (b) the Watlow-Husky-Zesta relationship. Zesta is entitled to
compensation for the losses it suffered arising from the termination of those two arrangements.
Page: 68
[286] More significant, however, are the specific factors that, quite apart from Cloutier's
misdeeds, undoubtedly played a role in Zesta's performance. Topping the list is the failure of
Vincent Eastman to put in place a formal plan of succession to ensure continuity of management
and business relationships for Zesta. There can be no question but that this was a significant
issue for Watlow for a number of years, yet Vincent Eastman, as the controlling mind of Zesta,
failed to address it satisfactorily. Viewed from this perspective, it is not surprising that Watlow
was prepared to end the Watlow-Gordon holdover commissions and the Watlow-Zesta-Husky
special arrangements. In other words, even if Cloutier had merely resigned, Zesta's relationships
with Watlow and Husky would have been imperiled in any event. Zesta had no guarantee or long
term commitment from Watlow in relation to either of these special arrangements; in my view,
therefore, it would be wrong to assume that Zesta would continue to enjoy the revenues
generated by them for an indefinite period.
[287] Another major factor in Zesta's post-1999 financial performance was the move by Husky
to implement a world-wide purchasing policy. Zesta was an unsuccessful competitor in the
selection process. The inevitable result of Husky's independent decision was an adverse impact
on Zesta's revenues, a development that had no connection to the activities of the defendants.
[288] It is therefore difficult to find any link or cause and effect relationship between the
activities of the defendants and the financial performance of Zesta following their departure.
That said, it is likely that Kelvin did achieve some benefit from the breaches by Cloutier: it
procured a US supplier to represent at the commencement of its operations, and it developed a
contact at Husky. While it is difficult to quantify those benefits in precise monetary terms, both
contributed to Kelvin's ability to "get up and running" as a distributor/manufacturer sooner than
it otherwise might have. Although the fashion in which the evidence was presented makes this
calculation a challenge, I am required to do the best I can in the circumstances: see Martin v.
Goldfarb (1998), 41 O.R. (3d) 161 (C.A.) at para. 75. I would quantify that benefit as having a
value of $100,000, and would order Cloutier and Kelvin to pay that sum, jointly and severally, as
damages to Zesta.
D. Kelvin's misuse of costing information
[289] I have further found that Kelvin breached Zesta's rights by exploiting its production
costing information, when White used the information he had acquired while working for Zesta
to cost out products for Kelvin. Once again, Zesta did not quantify its damage claim by reference
to this specific wrong. I have estimated, however, that it would have taken Kelvin approximately
six months to develop this body of knowledge on its own. In other words, instead of being able
to cost its thermocouple products accurately at the commencement of its operations in March
2000, on its own Kelvin would have taken until September 2000 to be able to do so.
Cloutier. As it had in the past, Zesta's financial performance continued to experience ups and
downs such as one would expect in the ordinary turns of the business cycle.
[290] In assessing damages for this wrong, once again it is difficult to correlate any specific
loss or damage to Zesta. I am nevertheless required to do the best I can. In my view, the proper
award is the value of the benefit gained by Kelvin in wrongfully exploiting this confidential
information. I am prepared to assume that Zesta would have been able to make the thermocouple
sales that Kelvin did during this period.
[291] According to Kelvin's operating statements, in its first year of operation Kelvin had
$496,135 in sales, and a contribution margin of $271,513. As with Zesta, not all of Kelvin's
business was comprised of thermocouple manufacturing and sales, however, so not all of that
revenue is connected to the misuse of the production costing information. At Zesta,
manufacturing represented approximately 25 to 35% of annual revenues. If one assumes the
same ratio at Kelvin, the manufacturing portion of the contribution margin of $271,513 is
reduced to between $68,000 and $95,000 approximately. Allowing for six months of improper
use of the information would reduce that sum to between $34,000 and $47,500. Erring on the
side of the innocent party, I award Zesta damages of $45,000 against Kelvin on this count.
E. The Codlin transactions
[292] I have previously found that Cloutier arranged to sell 1,806 heaters Husky Buffalo via
Codlin, and that he converted all of the proceeds by diverting them to Codlin. Some, but not all
of those funds came back to Cloutier; other amounts were used by 798 to pay GST, or paid to
Peatling and then to Kelvin. Despite the fact he did not receive the full proceeds himself, as the
individual who masterminded the Codlin scheme, Cloutier effectively converted the full value of
the heaters, and he is answerable for that full amount.
[293] Zesta submits that Cloutier should be required to pay an amount even greater than the
total price paid by Husky Buffalo. While the initial Codlin sales to Husky Buffalo were at a unit
price of US$83.98, Cloutier agreed to sell the final batch of heaters at a unit price of US$44.90.
Had this last batch been sold at the higher price, an additional US$19,540 would have been
realized, and Zesta seeks that further sum.
[294] The reason for the lower price for the final shipment is that the purchaser, Husky Buffalo,
had found another supplier willing to supply the product at the lower price. Thus, in order to
effect the sale at all, Cloutier agreed to the lower price. Zesta did not tender any evidence to
establish that these heaters could have been sold to another customer at a higher price. Given
that, based on some evidence, these heaters were considered superseded models or "scrap", I find
that the price paid by Husky Buffalo was the prevailing market price, and Cloutier is not
responsible for absorbing the discount.
[295] The evidence thus establishes that Cloutier is responsible for converting the full amount
paid by Husky Buffalo, or US$132,209.88. I am unaware that Cloutier paid any sum to Zesta by
way of restitution pursuant to his criminal sentence; to the extent he has done so, his liability on
Page: 69

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