Sep 1, 2020

COURT OF APPEAL SUMMARIES (August 24 – 28, 2020)

Pohl v. Palisca, 2020 ONCA 531 (CanLII)

[Feldman, Fairburn and Nordheimer JJ.A.]

Counsel:

Marc Munro, for the appellant

Hedy Epstein, for the respondents

Keywords: Breach of Contract, Share Purchase Agreements, Employment Agreements, Wrongful Dismissal, Corporations, Oppression, Ontario Business Corporations Act, R.S.O. 1990, c. B. 16, s. 248, 2082825 Ontario Inc. v. Platinum Wood Finishing Inc. (2009), 96 O.R. (3d) 467 (Div. Ct.), Walters v. Harris Partners Ltd., [2001] O.J. No. 1560 (S.C.)

Facts:

The appellant owned a milling production company named Die-Metric Tools Inc. (“DMT”). In an agreement signed on August 9, 2010, the appellant sold DMT to Palcam Technologies Ltd. That same day, the appellant signed an agreement giving his written approval for Palcam Technologies to assign its contractual rights and obligations over to Palcam Solutions Inc. The respondent P was the principal and operating mind of both Palcam Technologies and Palcam Solutions. The appellant and P signed an employment agreement. P signed as the new president and CEO of DMT. The appellant agreed to work for DMT for two years. He was there to promote the goodwill of DMT with suppliers, vendors and bankers, but did not retain any decision-making powers.

Until new financing was arranged, the appellant remained personally liable as guarantor for DMT’s operating line of credit loan. Things did not go well for DMT. Less than two months after the agreement had been signed, the bank froze the line of credit because it discovered that DMT’s ownership had changed. Within days of that occurring, P discharged the appellant from his employment with DMT and, within a short time of that, P had DMT assigned into bankruptcy. This left the appellant personally exposed on the remaining amount owing on the line of credit. The appellant claimed for damages for breach of contract and oppression pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B. 16 (“OBCA”), wrongful dismissal and punitive damages.

The trial judge found a total amount of $225,297.20 had been misdirected from DMT to Palcam Technologies Ltd. This constituted a breach of the implied term of fair and honest dealing in the contract between the Palcam entities and the appellant. As the president, sole director and operating mind of DMT, P was found to be jointly and severally liable with the Palcam entities. In the alternative, the trial judge also found that the appellant was entitled to the same relief under s. 248(2) of the OBCA. Being personally responsible for the DMT line of credit, the trial judge concluded that the appellant was a creditor of DMT and, as such, he had a reasonable expectation that the line of credit would be paid down. The trial judge found that, instead of paying down the DMT line of credit, P improperly sent monies to the benefit of the Palcam entities.

The trial judge dismissed all other claims for breach of the agreement, wrongful dismissal and punitive damages. Therefore, out of a claim involving a total request for damages in the amount of over $1,700,000, the appellant was awarded $225,297.20 in addition to prejudgment and post-judgment interest calculated in accordance with the rate that the bank was charging the appellant on the guarantee. That judgment has been satisfied.

Issues:

Did the trial judge err in:

1. failing to address the express term of the contract that imposed an unconditional obligation to pay the appellant a minimum of $750,000 for his shares;

2. failing to appreciate that the basis of the claim relating to lost employment was rooted in an oppression remedy, rather than contract; and

3. failing to award punitive damages?

Holding:

Appeal allowed in part.

Reasoning:

1. Yes. Section 9 of the contract was clear on its face that, at a minimum, whether the company was making a profit or not, $750,000 was owing to the appellant “immediately” at the five-year mark. Read contextually, the sole purpose of s. 9 was to ensure that a minimum payment of $750,000 was given to the appellant for the shares, and that payment had to be made at the latest within five years of closing. While the respondents argue that the factual matrix behind the contract supported the interpretation that nothing was owing given that the business failed, the Court did not agree. While the Court accepted that the respondents purchased the appellant’s shares in a struggling business with the intention of making it profitable again, the contract still reflected the purchase of a business. It would simply make no sense for the appellant to give his business away, while remaining personally liable for the line of credit. The benefit to him, and the way to keep things honest, was the requirement that at least $750,000 would be paid by the five-year point. That is the factual matrix against which the August 9, 2010 agreement was struck. While the Court agreed with the trial judge that this was not a claim for breach of contract that could result in the full purchase price being awarded to the appellant, a payment of $750,000 was required on the plain wording of s. 9.

2. No. Based upon his conclusion that the appellant had been fired for something he did not do, the trial judge concluded that he had been wrongfully dismissed. Even so, the trial judge concluded that the appellant could not succeed in his claim for wrongful dismissal because his employment contract was with DMT, which was bankrupt. Accordingly, the appellant had to prove his wrongful dismissal claim in the bankruptcy of DMT for the amounts he was entitled to under that contract and he could not, in law, “enforce that breach of employment contract against the named defendants.”

The appellant argued that dismissing his claim for wrongful dismissal on this basis was in error because the claim was not founded in contract but in an oppression remedy. The appellant emphasized that compensation for lost employment can be within the scope of the oppression remedy, the key question being whether the case “is an oppression claim with a wrongful dismissal component” or a “wrongful dismissal claim that happens to have an oppression component to it”.

The Court saw no error in how the judge decided the matter. Even if this claim was one rooted in an oppression remedy, it could not have succeeded. The appellant was no longer an officer, director, shareholder or owner of DMT at the time that he was dismissed from DMT. Moreover, his employment was not terminated because of a pattern of oppressive conduct, but because his employer thought that he had triggered a chain of events that resulted in the bank freezing DMT’s line of credit. While the trial judge concluded as a fact that this was not true, the trial judge’s reasons make clear that there was no oppressive conduct linked to the appellant’s dismissal. As the trial judge found, “this was not a nefarious scheme hatched by P and his companies to strip DMT of its assets and to simply allow it to go into bankruptcy.” Rather, the trial judge found “ample evidence” of significant efforts having been made to try and make the company viable and profitable again. He specifically found that the respondents were under no obligation to get refinancing. In any event, they did try.

3. No. There was no error in the trial judge’s conclusion that the respondents’ conduct “falls short of the high handed, harsh, vindictive, reprehensible and malicious conduct required” to award punitive damages. The trial judge’s decision was owed deference in this regard and there was no basis to interfere.