Palumbo et al. v. Research Capital Corporation [Indexed as: Palumbo v. Research Capital Corp.]
72 O.R. (3d) 241
[2004] O.J. No. 3633
Court of Appeal for Ontario,
Catzman, Laskin and Borins JJ.A.
September 7, 2004
Employment -- Wrongful dismissal -- Constructive dismissal -- Employee hired as sole head of corporate finance department -- Employer constructively dismissing employee by demoting him from sole head to co-head of department -- Employment agreement containing provision giving employer latitude to assign added or different duties to employee but latitude circumscribed by agreement that employee was to be sole head of department.
Employment -- Wrongful dismissal -- Damages -- Employer's remuneration under employment agreement including broker warrants earned on corporate finance transactions -- Employment agreement providing that employer was required to pay employee "Additional Remuneration . . . calculated to the Termination Date" -- Trial judge erring in holding that employee was entitled to award of damages for broker warrants exercised by employer after employee left company -- Broker warrants having no value on Termination Date so employee not entitled to any compensation for them.
Employment -- Wrongful dismissal -- Resignation -- Employee's resignation cannot be "constructive" -- Employee must unequivocally manifest intention to resign -- Employer cannot avoid onus of establishing just cause for dismissal by telling employee that by behaving contrary to employer's direction he will be taken to have resigned.
The plaintiff was hired by the defendant to head its corporate finance department. He was to be paid an annual salary and additional remuneration consisting of commissions and broker warrants earned on corporate finance transactions. The plaintiff began to experience difficulty in his job after the defendant hired P, who was effectively made the co-head of the corporate finance department. The plaintiff contended that the defendant was attempting to undermine his authority; the defendant insisted that it was simply reorganizing the department and assigning the plaintiff and P responsibilities that best suited each's abilities. The defendant gave the plaintiff an ultimatum to accept his assigned responsibilities. When the plaintiff refused to do so, the defendant ended his employment. The plaintiff brought an action for damages for wrongful dismissal. The defendant took the position that the plaintiff had "constructively resigned" and counterclaimed to hold him responsible for specified "principal trading losses". The trial judge found that the plaintiff was constructively dismissed. The award of damages included an award of almost $500,000 for broker warrants exercised by the defendant after the plaintiff left the company and an award of interest on the plaintiff's capital for the three-month period during which the defendant failed to deposit the amount owing in a special bank account. The trial judge dismissed the defendant's counterclaim. The defendant appealed.
Held, the appeal should be allowed in part.
An employee's resignation cannot be "constructive". For a resignation to be effective, the employee must unequivocally manifest an intention to resign. An employer cannot avoid its onus of establishing just cause for dismissal by telling [page242] an employee that by behaving contrary to the employer's direction the employee will be taken to have resigned.
The plaintiff was clearly hired as the sole head of the corporate finance department. The defendant did not suggest that he performed his job incompetently. While the employment agreement gave the defendant latitude to assign additional or different duties to the plaintiff, the defendant's latitude to do so was circumscribed by the agreement that the plaintiff alone was to head the department. Any additional or different duties could be assigned to the plaintiff only in his role as department head. The defendant's ultimatum amounted to a demand that the plaintiff accept being demoted from sole head to co-head of the finance department. He was being asked to accept a position of lower status. Even though the demotion in status was not accompanied by a change in salary, it constituted a fundamental change to the terms under which the plaintiff was hired. The trial judge did not err in finding that when the defendant insisted that the plaintiff share the role of head of corporate finance, it constructively dis missed him or, in her ultimate conclusion, that when the defendant ended the plaintiff's employment for failing to accept his new responsibilities, it dismissed him without cause.
Article 2.2 of the employment agreement provided that, in addition to salary, the plaintiff was entitled to "broker warrants equal to his percentage share of the aeCorporate Pool' of broker warrants earned on corporate transactions". Under Article 4.2 of the employment agreement, the defendant was required to pay the plaintiff "Additional Remuneration . . . calculated to the Termination Date". The phrase "calculated to the Termination Date" had to be interpreted in the context of all of Article 4.2. In that context, the phrase entitled the plaintiff to what the broker warrants allocated to him were calculated to be worth on the Termination Date had they been exercised on that date. As none of the broker warrants allocated to the plaintiff had value on the Termination Date, the plaintiff was not entitled to any compensation for them.
The trial judge did not err in dismissing the defendant's counterclaim for principal trading losses. Neither the employment agreement nor the agency agreement between the defendant and the plaintiff's wholly owned company specified that the plaintiff or his company was to be responsible for principal trading losses. The trial judge's finding that the plaintiff accepted responsibility for trading losses only rarely and then only with his written consent was well supported by the evidence.
Under his employment agreement, the plaintiff was entitled to purchase 65,000 common shares of the defendant. He did so. His purchase was governed by the terms of a unanimous shareholder agreement. That agreement provided for a "closing" no later than 20 business days after termination. At the closing, the plaintiff was required to transfer his shares to the defendant and to give the defendant a general release of all claims. In return, the defendant was required to pay the plaintiff his capital. Under Article 4.05 of the agreement, if the plaintiff failed to deliver a general release at the closing date, the defendant was required to deposit the amount of his capital into a special bank account. The trial judge erred in awarding interest on the plaintiff's capital for the three-month period during which the defendant failed to deposit the amount owing in a special bank account. Neither Article 4.05 nor any other provision of the shareholder agreement entitled the plaintiff to interest if the defendant fail ed to deposit the amount of his capital into a special bank account. Article 4.06 of the agreement provided that the plaintiff was entitled to receive payment of his capital on delivery of a general release, but "without interest". Article 4.06 expressly disentitled the plaintiff to interest. [page243]
APPEAL by the defendant from a judgment of MacFarland J., [2004] O.J. No. 4475 (S.C.J.) for the plaintiff in an action for damages for wrongful dismissal.
Cases referred to Kieran v. Ingram Micro Inc., 2004 4852 (ON CA), [2004] O.J. No. 3118, 33 C.C.E.L. (3d) 157, 189 O.A.C. 58 (C.A.) Authorities referred to Harris, D., Wrongful Dismissal, looseleaf, Vol. 1 (Toronto: Carswell, 1984)
Alan J. Lenczner, Q.C., and Michael T. Tamblyn, for appellant. M. Norman Grosman and Jeff C. Hopkins, for respondent.
The judgment of the court was delivered by
LASKIN J.A.: --
A. Overview
1In the fall of 1993, Patrick Walsh, the Chief Executive Officer of the appellant Research Capital Corporation ("RCC"), hired the respondent, John Palumbo, to head RCC's corporate finance department. RCC and Palumbo entered into a written employment agreement. Palumbo was to be paid an annual salary and additional remuneration consisting of commissions and broker warrants earned on corporate finance transactions. Palumbo was also given an option to purchase common shares of the company, which he exercised. As well, RCC and Palumbo's wholly owned company, Palumbo Resources Inc. ("PRI"), entered into a written agency agreement, which allocated to PRI a percentage of the commissions RCC earned on corporate finance and capital market transactions.
2Palumbo began to experience difficulty in his job after RCC hired Gord Pridham in the fall of 1996. Palumbo contended that Walsh tried to undermine his authority by making Pridham the co-head of the corporate finance department. Walsh contended that he was simply reorganizing the department, and assigning Palumbo and Pridham responsibilities that best suited each's abilities. In late January 1999, Walsh gave Palumbo an ultimatum to accept his assigned responsibilities. When Palumbo refused to do so, RCC ended his employment.
3Palumbo sued for wrongful dismissal and PRI sued for unpaid commissions. RCC took the position that Palumbo had "constructively resigned" and counterclaimed to hold him and PRI responsible for specified "principal trading losses". [page244]
4MacFarland J. found that Palumbo had been wrongfully dismissed. She awarded him and PRI various heads of damages, of which only two are in issue on this appeal: an award of almost $500,000 for broker warrants exercised by RCC after Palumbo left the company; and an award of interest on Palumbo's capital for the three-month period during which RCC failed to deposit the amount owing in a special bank account. The trial judge dismissed RCC's counterclaim.
5RCC raises four issues on appeal:
The trial judge erred in holding that Palumbo had been wrongfully dismissed;
In awarding Palumbo damages for broker warrants, the trial judge wrongly interpreted Article 4.2 of the employment agreement;
The trial judge erred in failing to allow RCC's counterclaim for principal trading losses; and
The trial judge erred in awarding interest on Palumbo's capital from February 24 to May 27, 1999.
B. Discussion
First Issue: Did the trial judge err in finding that Palumbo had been wrongfully dismissed?
6The factual background to the dispute between Walsh and Palumbo over the latter's responsibilities is detailed in the reasons of the trial judge, which may be found at [2002] O.J. No. 4475. Here I repeat only what is necessary for my decision.
7In the fall of 1998, Walsh wanted Palumbo to head up a newly created capital markets committee. He wrote to Palumbo setting out the responsibilities assigned to him and to Pridham. Palumbo believed that Walsh no longer considered him to be the sole head of the corporate finance department. The trial judge agreed with Palumbo. At para. 44, she found"that by fall 1998, Patrick Walsh wanted Pridham and Palumbo to jointly head up the corporate finance department . . . [h]is plan did not include Palumbo continuing as the single head of corporate finance". If Palumbo did not comply with Walsh's demand, in the trial judge's view"his days at RCC were numbered" (at para. 45). The trial judge concluded that by insisting Palumbo could no longer solely head the corporate finance department, RCC had constructively dismissed him (at para. 51): [page245]
Any duties assigned must, in my view, have been in keeping with Palumbo's clear role as head of corporate finance. It was not open to RCC to take from Palumbo his role as head of corporate finance and demote him to a position where he was obligated to share that role with another. When RCC did this to John Palumbo, they constructively dismissed him. Palumbo made every effort to work with RCC in defining his role and demonstrated his willingness to take on assigned tasks within his mandate. He refused, however, to step down as sole head of corporate finance, and in my view, he was justified in so doing.
8In November and December 1998 and January 1999 Walsh and Palumbo exchanged a series of memos. Most were acrimonious in tone. On January 29, 1999, Walsh delivered his ultimatum to Palumbo. He claimed that they had "reached an impasse", that Palumbo was refusing to accept the duties assigned to him, and that Palumbo's actions had begun to impair the company's morale and operations. Walsh ended his ultimatum by requiring Palumbo's "written acceptance of the assignment of the stated duties to yourself and Gord, without equivocation by February 3, at 5:00 p.m.". The trial judge accepted Palumbo's evidence that he tried to meet with Walsh to discuss the ultimatum letter but Walsh was unavailable.
9On February 4, 1999, Walsh handed Palumbo a memo, which asserted that as Palumbo had not accepted his new duties he had constructively resigned his employment. Walsh demanded that Palumbo remove his personal effects from the building, leave his building pass and office keys, and return all company property. The trial judge found (at para. 54) "[o]n all of the evidence . . . Mr. Palumbo was terminated without cause."
10RCC contests this finding. In this court it wisely did not seek to support Walsh's claim that Palumbo had constructively resigned. An employee's resignation cannot be "constructive". For a resignation to be effective, the employee must unequivocally manifest an intention to resign: see Kieran v. Ingram Micro Inc., 2004 4852 (ON CA), [2004] O.J. No. 3118, 33 C.C.E.L. (3d) 157 (C.A.). Put differently, an employer cannot avoid its onus of establishing just cause for dismissal by telling an employee that by behaving contrary to the employer's direction the employee will be taken to have resigned: see David Harris, Wrongful Dismissal, looseleaf (Toronto: Carswell, 1984), Vol. 1, p. 3-14.
11Palumbo did not manifest any intention to resign. Thus, the sole question was whether he was dismissed without cause or whether RCC had just cause to dismiss him.
12Underlying RCC's submission that it had just cause to dismiss him are both a factual issue and a legal issue. The factual issue is whether the evidence supports Palumbo's contention and the trial judge's finding that by the fall of 1998 Walsh no longer considered Palumbo to be the sole head of the corporate finance department, or whether the evidence supports RCC's contention [page246] that Palumbo remained the sole head of the department, but with different responsibilities. The legal issue is whether Palumbo's refusal to accept Walsh's demands gave RCC just cause to dismiss him.
13On the factual issue, some of the evidence does seem to support RCC's position. However, the company's position rests almost entirely on the evidence of Walsh. The trial judge made a strong credibility finding against him. At para. 32, she found that he was "glib, condescending, obtuse and evasive". She expressly rejected his evidence on several incidents and she found him "to be an untruthful witness" (at para. 27).
14In contrast, the record contains ample credible evidence, both oral and documentary, to support the trial judge's finding of fact that by the fall of 1998, RCC no longer considered Palumbo to be the sole head of the department, but instead insisted he share the position with Pridham. The supporting evidence includes the following:
-- Palumbo so testified and had memos to support his contention. The trial judge accepted his evidence. She found that where Walsh's evidence conflicted with the evidence of Palumbo she had "no hesitation in accepting the evidence of John Palumbo over that of Patrick Walsh" (at para. 33).
-- Until the fall of 1998, Palumbo had always been responsible for the important function of allocating the compensation (commissions and broker warrants) among the members of the corporate finance department. For the last two quarters of 1998, however, Walsh allowed Pridham to finalize the compensation allocation.
-- On November 27, 1998, Walsh wrote a memo to Palumbo to confirm a pending announcement of a new plan in the corporate finance department. Walsh said that the announcement "will also recognize the realities of the shared responsibility between yourself, and Gord, in the Corporate Finance Department". Walsh's memo went on to say that since 1997 Palumbo and Pridham had shared responsibilities for hiring and firing and for the allocation of the corporate finance pool, and had shared the corporate finance management fee. Also, according to the memo, Palumbo was to relinquish responsibility for syndication to Pridham. Until this memo was written, Palumbo alone -- as head of the department -- had assumed these responsibilities. Pridham had shared them only to the extent Palumbo had [page247] agreed that he could do so. Walsh's memo effectively undermined Palumbo's authority.
-- On December 1, 1998, Palumbo wrote a reply memo to Walsh. He said that, during previous discussions, Walsh suggested Palumbo accept the new position as head of capital markets and vacate the position of head of corporate finance. Walsh never responded denying the previous discussion.
-- On December 21, 1998, Walsh sent another memo to Palumbo in which he asserted that although Palumbo had responsibility for directing and managing RCC's corporate finance activities, he did not have "exclusive jurisdiction" to do so. In Walsh's view, Pridham had shared and would continue to share this responsibility.
15Along with this supporting evidence is the evidence that was not called. RCC did not call Pridham as a witness to support its position. The trial judge inferred, correctly in my opinion, that his evidence would not have supported RCC's position.
16In the light of this evidence, Walsh's ultimatum of January 29, 1999 that Palumbo accept the duties assigned to him must be viewed as requiring Palumbo to acknowledge that he was not the sole head of the corporate finance department.
17The legal issue is whether Palumbo's refusal to accede to Walsh's ultimatum gave RCC just cause to dismiss him. RCC maintains that it did have just cause, even accepting the trial judge's finding that Walsh insisted Palumbo and Pridham jointly head the corporate finance department. I do not agree.
18Before elaborating on my view, I observe that RCC never suggested Palumbo performed his job incompetently. With good reason. The record shows that except for one quarter of one year, the corporate finance department grew and was profitable under Palumbo's leadership. Whether RCC had just cause turned solely on whether Palumbo effectively repudiated his contract of employment by refusing to accept the responsibilities Walsh had assigned to him in late 1998.
19Palumbo was hired to be the head of the corporate finance department. Article 1.2 of his employment agreement stated: "In particular, [Palumbo] will be responsible for directing and managing the Corporation's corporate finance activities." Other evidence showed that Palumbo was hired as the sole head of the department. Two former employees in the department testified that they considered Palumbo their boss. Palumbo also gave evidence that he was hired to head the department. And RCC's marketing [page248] material sent to clients described Palumbo as head of corporate finance. The trial judge found the evidence that Palumbo was hired to be the head of the department "overwhelming". On appeal, RCC does not dispute this finding.
20RCC submits, however, that under the terms of Palumbo's employment agreement it could assign new duties to him and could go so far as to require him to share with Pridham responsibility for heading the department. It relies on one of the recitals in the employment agreement, which provided Palumbo would "assume such administrative duties as may be assigned to [him] within the Corporation's corporate finance and mergers and acquisitions departments", and on Article 1.1 of the agreement, which provided that Palumbo would perform "such other duties and powers in connection with the Business as may from time to time be assigned to him".
21These provisions of the agreement gave RCC latitude to assign added or different duties to Palumbo. But in my view, RCC's latitude to do so was circumscribed by the agreement it made: Palumbo alone was to head the department. Any additional or different duties could be assigned to Palumbo only in his role as department head. Indeed, the employment agreement specified in Article 7.5 that it could only be amended or modified with the written consent of both parties. No written amendment was ever made.
22Therefore, Walsh's ultimatum letter amounted to a demand that Palumbo accept being demoted from sole head to co-head of the finance department. He was being asked to accept a position of lower status. Even though this demotion in status was not accompanied by a change in salary, it nonetheless constituted a fundamental change to the terms under which Palumbo was hired. Thus, I see no reviewable error in the trial judge's finding that when RCC insisted that Palumbo share the role of head of corporate finance it constructively dismissed him; or in her ultimate conclusion that in early February 1999 when RCC ended Palumbo's employment for failing to accept his new responsibilities, it dismissed him without cause.
23Accordingly, I would not give effect to this first ground of appeal.
Second Issue: In awarding Palumbo damages for the broker warrants, did the trial judge wrongly interpret Article 4.2 of the Employment Agreement?
24The trial judge awarded Palumbo $499,788 for broker warrants allocated to him while he was employed, but exercised by [page249] RCC after he left the company. RCC submits that the trial judge erred by awarding Palumbo any amount for these warrants because they had no value when his employment was terminated. I agree with this submission.
25Investment dealers typically earn broker warrants on their corporate finance transactions. A warrant is akin to an option. A warrant holder has the right to buy a prescribed number of shares of a security at a stipulated price, known as the strike price. Broker warrants are similar to ordinary warrants but are given to brokers.
26Just as broker warrants were an integral component of the fees paid to RCC, so too were they an integral component of the compensation paid to employees in the corporate finance department. Article 2.2 of Palumbo's employment agreement provided that, in addition to salary, he was entitled to "Additional Remuneration", which included "broker warrants equal to his percentage share of the aeCorporate Pool' of broker warrants earned on corporate finance transactions". Because regulators require broker warrants to be registered in the name of the investment dealer -- here, RCC -- they were notionally allocated to Palumbo and other members of the corporate finance department, but remained in RCC's name.
27The broker warrants of four securities are in issue on this appeal. For three of the securities the amount in dispute is small, totalling $30,138. The principal dispute concerns whether Palumbo was entitled to any amount for the 15,000 Wi-Lan broker warrants allocated to him, and, if so, how much. When his employment was terminated, the Wi-Lan warrants were not "in the money", that is, the market price of the security was less than the strike price. They had no value. Later, the warrants came into the money and RCC exercised its option on them.
28The trial judge, therefore, had to decide whether Palumbo was entitled to the proceeds of the warrants allocated to him while he was employed but exercised after his employment was terminated. The issue turns on the interpretation of Article 4.2 of Palumbo's employment agreement, which stipulates the amount RCC was required to pay him following the termination of his employment. Under Article 4.2, RCC was required to pay Palumbo "Additional Remuneration . . . calculated to the Termination Date".
4.2 Following any termination of the employment of the Executive pursuant to subclauses 4.1(b) or (d), or pursuant to subclause 4.1(c) in circumstances constituting constructive dismissal of the Executive, the Corporation, in addition to paying Salary and Additional Remuneration to the Executive calculated to the Termination Date, together with such other amounts (if any) [page250] as are owing to the Executive, as at the Termination Date, shall pay to the Executive a lump sum amount equal to one year's average Remuneration of the Executive, provided that such amount shall not be less than Seventy-five Thousand ($75,000.00) Dollars, in lieu of notice of termination and reasonable notice at common law (Termination Pay). The Executive acknowledges that upon any such termination of his employment, he or his legal personal representatives shall have no claim for the payment of any further or other Salary, Additional Remuneration, compensation or other remuneration whatsoever in respect of such termination.
29Palumbo's employment was terminated under Article 4.1(d) -- by notice in writing -- effective on February 4, 1999, the Termination Date. Palumbo, therefore, was entitled to be paid in accordance with Article 4.2. The trial judge held that the payments to which he was entitled included amounts for broker warrants exercised by RCC after his departure. In her view"calculated to the Termination Date" meant "the calculation of the number of broker warrants attributed to Palumbo as at the Termination Date" (at para. 73). She noted (at para. 71) that the agreement did not provide for "money in lieu of broker warrants" or "the monetary value of [the] warrants". She said (at para. 73) that "[i]t would be most unfair to permit an employer to unilaterally deprive an employee of that to which he or she is entitled."
30Because RCC exercised its option on the Wi-Lan warrants at different times and at different prices, the trial judge awarded Palumbo an amount equal to the average price per warrant -- $469,650. Adding in the amount of $30,138 for the other three broker warrants made the total award for broker warrants $499,788.
31In challenging this award, RCC makes two submissions. Its main submission is that the trial judge erred in her interpretation of Article 4.2. RCC contends that this provision entitled Palumbo to the value of the broker warrants on the Termination Date. As they had no value on that date, he was not entitled to any compensation for them. RCC's alternative submission is that even if Palumbo was entitled to be paid for warrants exercised after his departure, the amount the trial judge awarded for the Wi-Lan warrants was excessive. I agree with RCC's main submission.
32The standard of review of the interpretation of a contract provision ordinarily is correctness. However, even if a deferential standard of review is called for, I consider the trial judge's interpretation of Article 4.2 to be unreasonable.
33The phrase "calculated to the Termination Date" must be interpreted in the context of all of Article 4.2. In that context, I interpret the phrase to entitle Palumbo to what the broker warrants allocated to him were calculated to be worth on the Termination Date had they been exercised on that date. This [page251] interpretation best reflects what I view to be the overall purpose of Article 4.2: to finalize the rights and obligations of each party on termination. In other words, this clause seeks to effect a clean break so that neither party would have any ongoing rights or obligations towards the other. So, for example, instead of leaving the notice period on a dismissal without cause to be litigated or subsequently agreed on, the parties specified that Palumbo would receive one year's average pay. It seems to me that the trial judge's interpretation of "calculated to the Termination Date" is inconsistent with this purpose of Article 4.2.
34I recognize, as the trial judge noted, that the employment agreement does not expressly say Palumbo was entitled, on the termination of his employment, to the monetary value of the broker warrants allocated to him. Equally, however, Article 4.2 does not say that Palumbo was entitled to the value of his broker warrants when RCC exercised them, even if it did so after his departure. If the trial judge's interpretation were correct, one might reasonably have expected the parties to have included such a provision in the agreement. They did not do so.
35The trial judge observed that RCC's interpretation of Article 4.2 unilaterally and unfairly would deprive Palumbo of compensation to which he was entitled. Any "deprivation" would not be unilateral because it would result from the agreement the parties made. In characterizing RCC's interpretation as unfair, the trial judge no doubt had in mind the Wi-Lan broker warrants, which came into the money after Palumbo's departure from the company. But what if these warrants were in the money at the Termination Date, but RCC elected to hold them and, contrary to its expectations, the share price later fell below the strike price? In that scenario the trial judge's interpretation would penalize Palumbo. Although the meaning of the phrase "calculated to the Termination Date" in Article 4.2 may be ambiguous, an interpretation that allows the parties to finalize their rights and obligations on Palumbo's departure seems more consistent with what was intended by the termination provisions of the agreement.
36As none of the broker warrants allocated to Palumbo had value on the Termination Date, I would set aside the trial judge's award for broker warrants in its entirety. Instead, I would dismiss that part of Palumbo's claim.
Third Issue: Did the trial judge err in failing to allow RCC's counterclaim for principal trading losses?
37At trial, RCC counterclaimed against Palumbo and PRI for principal trading losses on three securities: Alphanet [page252] ($96,664), Oxbow ($59,834) and Big Rock ($8,078). The losses on these three investments for which RCC sought to hold Palumbo and PRI accountable totalled $164,576.
38The trial judge rejected RCC's counterclaim. She held that neither the employment agreement nor the agency agreement stipulated Palumbo or PRI would be personally responsible for trading losses. At para. 60, she found that in most cases "losses were borne by the corporate pool or overhead and only very rarely by individuals and then only . . . with the concurrence of the individual involved". She specifically found this to be the arrangement for Palumbo (at para. 59):
Historically and on rare occasion, Palumbo had personally accepted (on behalf of PRI) and even more rarely on behalf of others in the department, an allocation of principal trading losses. This was, however, with his full knowledge, consent and signature on the allocation or split sheets acknowledging such acceptance. Never had such losses been accepted without his concurrence.
However, Palumbo had not accepted responsibility for the principal trading losses on the three securities in issue.
39RCC contends that the trial judge erred in her finding. It submits just as PRI or Palumbo earned commissions on successful transactions, they also had to assume responsibility for losses when they occurred. Otherwise, others in the department who had a role in a particular transaction would be required to share in any trading losses that might occur. To buttress its argument RCC relies on an allocation sheet for the quarter ending September 30, 1998 and on the evidence of Walsh. The allocation sheet was sent to Palumbo in draft, as he was on a business trip in Western Canada when it was prepared. The sheet allocates losses on the three securities to Palumbo in the amounts RCC claims. Palumbo hand-wrote some notes on the draft but did not appear to question the allocation of losses. Walsh testified that, in a later conversation, Palumbo agreed to be responsible for these trading losses.
40I am unable to accept RCC's argument. The trial judge is correct in holding that neither the employment agreement nor the agency agreement specified Palumbo or PRI was to be responsible for principal trading losses. The trial judge's finding that Palumbo accepted responsibility for trading losses only rarely and then only with his written consent is a finding of fact, and is well supported by the evidence.
41First, it is supported by Palumbo's own evidence, which the trial judge accepted. Second, it is supported by the historical record of the allocation of trading losses while Palumbo was employed at RCC. For example, RCC incurred significant trading [page253]losses on two of the securities in question -- Oxbow and Big Rock -- well before the latter half of 1998, and those losses were allocated to overhead. Only when relations between Palumbo and RCC became strained did RCC try to allocate trading losses to Palumbo personally. Third, RCC cannot point to any allocation sheet or other document on which Palumbo signified his willingness to accept these losses.
42The September 30, 1998 allocation sheet does not assist RCC's argument. I view it as a neutral piece of evidence. Palumbo did not note on the sheet his denial of responsibility for the losses, but nor did he note his acceptance of responsibility. Moreover, the sheet was prepared at a time when Palumbo's relationship with RCC had started to deteriorate, and thus little weight can be attached to it. Walsh's evidence of an oral agreement runs up against the trial judge's credibility findings. Palumbo denied the existence of an oral agreement. The trial judge preferred his evidence to the evidence of Walsh.
43Therefore, I would not give effect to RCC's argument on the allocation of principal trading losses.
Fourth Issue: Did the trial judge err in awarding interest on Palumbo's capital from February 24 to May 27, 1999?
44On termination, Palumbo was entitled to the return of his capital. Both sides agree that Palumbo's capital amounted to $2,044,900. The trial judge awarded interest on that amount for the period of February 24, 1999 to May 27, 1999. RCC submits that she erred in doing so. I agree with that submission.
45Under Article 6 of his employment agreement, Palumbo was entitled to purchase 65,000 common shares of RCC. He did so. His purchase of these shares was governed by the terms of a unanimous shareholder agreement. That agreement provided for a "closing" no later than 20 business days after termination. At the closing, Palumbo was required to transfer his shares to RCC and to give RCC a general release of all claims. In return, RCC was required to pay Palumbo his capital.
46Two provisions of the unanimous shareholder agreement are relevant to this appeal: Articles 4.05 and 4.06. Under Article 4.05, if Palumbo failed to deliver a general release at the closing date, RCC was required to deposit the amount of Palumbo's capital into a special bank account. The deposit "shall constitute valid and effective payment to [Palumbo] of the purchase price of the shares being transferred". Under Article 4.06, on delivery of a general release Palumbo was entitled to receive payment of his capital, but "without interest". [page254]
47On being terminated, Palumbo did not deliver a general release to RCC because he had outstanding claims against the company. Consequently, RCC refused to pay him his capital. However, instead of depositing the amount in a bank account by February 24, 1999, as it was required to do under Article 4.05, RCC waited until May 27, 1999 to do so. The trial judge, therefore, awarded interest for this approximate three-month period. She then rejected Palumbo's claim for interest after May 27, 1999, holding that Article 4.06 precluded such an award.
48It seems to me that Article 4.06 precluded any award of interest on Palumbo's capital, even for the three-month period when RCC breached Article 4.05. Neither Article 4.05 nor any other provision of the unanimous shareholder agreement entitled Palumbo to interest if RCC failed to deposit the amount of his capital into a special bank account. Article 4.06, on the other hand, expressly disentitled Palumbo to interest. Until Palumbo gave RCC a general release RCC had no obligation to pay him his capital; when RCC did receive a general release it had no obligation to pay Palumbo interest on the capital it had withheld.
49I would, therefore, allow the appeal on this issue and set aside the trial judge's award of interest on Palumbo's capital for the period from February 24 to May 27, 1999.
C. Conclusion
50I would allow the appeal in part. I would not interfere with the trial judge's conclusion that Palumbo was dismissed without cause or with her conclusion that neither Palumbo nor PRI are responsible for the principal trading losses claimed by RCC.
51However, I would set aside the trial judge's award for broker warrants and her award of approximately three months' interest on Palumbo's capital. Instead, I would dismiss those parts of Palumbo's claim.
52Because RCC has succeeded on the appeal it is entitled to its costs on a partial indemnity basis. However, in view of its partial success, I would fix RCC's costs in the amount of $15,000 inclusive of disbursements and GST.
Appeal allowed in part. [page255]
