Court File and Parties
COURT FILE NO.: 26776/15 DATE: 2016-05-16 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
TERRY BALL Plaintiff – and – 189557 ONTARIO INC., carrying on business as INNOVATIVE COMPOSITES INTERNATIONAL INC. Defendant
COUNSEL: J. Cond, Counsel for the Plaintiff No one appearing
HEARD: April 15, 2016
RASAIAH J.
Reasons on Motion
Overview
[1] The plaintiff was terminated by the defendant from his employment. Following the plaintiff’s termination from his employment, the plaintiff and defendant entered into a settlement agreement regarding the termination.
[2] One of the terms of the settlement agreement required the defendant to make twelve salary payments to the plaintiff on a biweekly basis commencing from the date of its execution. The defendant failed to pay all of the salary payments set out in the settlement agreement. The defendant paid only six of the twelve salary payments.
[3] The plaintiff made alternate claims in his statement of claim. First, a claim for a declaration of breach of the settlement agreement, and damages for the breach and; second, in the alternative, for a declaration of wrongful termination with a connected punitive damages claim.
[4] The defendant failed to deliver a statement of defence and was noted in default by the registrar. The claim was not exclusively for a debt or liquidated demanded money and was not therefore an appropriate case for the registrar to sign judgment under Rule 19.04 of the Rules of Civil Procedure, R.R.O 1990, Reg. 194. The plaintiff therefore brought a motion seeking default judgment against the defendant pursuant to Rule 19.05 of the Rules of Civil Procedure.
[5] The plaintiff filed three affidavits with his motion, namely his affidavit, sworn November 2, 2015, the affidavit of Valerie MacGillvary (law clerk for the Plaintiff’s counsel’s firm) sworn December 14, 2015, and a supplementary affidavit of Valerie MacGillvary sworn February 1, 2016, a factum and a casebook.
[6] At the hearing of the motion, the plaintiff pursued only the claim for the breach of the settlement agreement and damages for the breach. The plaintiff claimed fundamental breach with the remedy of rescission, and in the alternative, claimed repudiation.
[7] The plaintiff submitted that fundamental or repudiatory breach entitles the plaintiff to judgment on the basis of the termination provisions of his employment contract because the settlement agreement is null and void as a result of the breaches. He claims $141,040.00 CAD. The amount is calculated on what the plaintiff says he would otherwise have been entitled to receive under the termination provisions of the employment contract, less what he had received pursuant to the settlement agreement, and less an outstanding loan the plaintiff had at the date of termination that was forgiven by the defendant.
[8] In the further alternative, if the court did not find that fundamental breach with the remedy of rescission, or repudiation applies, the plaintiff claims he is entitled to damages for breach in the amount of the outstanding payments. The six unpaid settlement payments amount to $25,000.00 USD.
[9] The plaintiff also seeks pre-judgment and post-judgment interest and costs.
Facts from the Statement of Claim
[10] The plaintiff was employed with the defendant corporation 1859557 Ontario Inc., carrying on business as Innovative Composites International Inc. He was a founder of the defendant and held various roles with the company, including positions as chief executive officer, president and chief operating officer. He was employed as the president and chief executive officer from June 12, 2008 to April 2013 and thereafter as chief operating officer until June 13, 2013. The defendant carried on business in the field of thermoplastics.
[11] The plaintiff was provided with an employment agreement by the defendant on June 12, 2008. Pursuant to the employment agreement the plaintiff was to be paid a base salary of $250,000.00 US dollars per year. In addition he was eligible to receive benefits and bonuses, participate in stock option programs and be reimbursed for all reasonable and documented business expenses. The employment agreement provided that if the plaintiff should be terminated without cause, he would be provided with twelve months prior written notice, or paid a severance allowance equal to twelve months of his base salary plus an annual bonus for the calendar year ending immediately prior to the date of termination (5% of the defendant’s consolidated pre-tax profit for each full fiscal year completed during the Plaintiff’s employment).
[12] The plaintiff was terminated on June 13, 2013 without cause.
[13] The parties executed a settlement agreement on June 21, 2013 by which the plaintiff agreed to settle all claims he may have had against the defendant arising from the termination of his employment. The defendant was to provide to the plaintiff three months of his base salary, namely $62,500.00 US dollars to be paid biweekly commencing on the date of the agreement over a period of six months with the first two biweekly payments being in the amount of $10,416.66 followed by ten biweekly payments of $4,166.67 until paid in full. In addition, the plaintiff would be entitled to benefits under the employee benefits plan for six months.
[14] The plaintiff had a loan in the amount of $150,000.00 Canadian dollars. The loan was to be forgiven and the 1,050,000 common shares pledged in connection with the loan were to be released from their security and returned to the plaintiff upon execution of the settlement agreement.
[15] The defendant made the first six scheduled payments [$37,500.00 USD] under the settlement agreement, however, did not make the remaining six payments.
[16] The plaintiff in the statement of claim states that despite several attempts to recover the remaining payments, the defendant refused to comply with the terms of the settlement agreement.
[17] The plaintiff in the statement of claim states that the defendant fundamentally breached the settlement agreement by failing to make all payments as required therein.
[18] The plaintiff states he has suffered various damages, including lost severance pay and lost benefits participation and is entitled to damages for breach of the settlement agreement.
[19] The validity, construction and performance of the settlement agreement are to be governed by the laws in force and effect in the Province of Ontario and in Canada.
Additional Facts from the Court File and Information from Affidavits Filed
[20] The settlement agreement was attached to the plaintiff’s affidavit. It contains a preamble which states “AND WHEREAS the parties wish to settle all claims the Employee may have against the Company arising from the termination of his employment on the terms set out in this Settlement Agreement”.
[21] Paragraph 10 of the settlement agreement states:
This Settlement Agreement, including its Schedules, constitutes the entire settlement agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, oral or written, representations, statements, negotiations and undertakings as the relate to the employment of the Employee by the Company, save in respect of those which expressly survive termination of the Employment Agreement, including but not limited to, subsections 10(a), (b), and (e) of the Employment Agreement.
[22] Paragraph 15 of the settlement agreement is an acknowledgement by the plaintiff to having had sufficient time to review it, that he understood the terms and that he had obtained independent legal advice concerning the interpretation and effect of the settlement agreement.
[23] In paragraph 4 of the settlement agreement the Defendant was to provide to the plaintiff three months of his base salary, namely $62,500.00 US dollars to be paid biweekly commencing on the date of the agreement over a period of six months with the first two biweekly payments being in the amount of $10,416.66 followed by 10 biweekly payments of $4,166.67 until paid in full.
[24] Paragraph 5 set out that the plaintiff would be entitled to benefits under the employee benefits plan for six months.
[25] In paragraph 6, the plaintiff ‘s loan in the amount of $150,000.00 CDN Dollars would be forgiven, and the shares pledged in connection with the loan would be released from their security and returned to the plaintiff.
[26] Pursuant to paragraph 3 of the settlement agreement, the plaintiff was to resign from the board of directors and all other positions and did so by the schedules attached.
[27] The defendant in paragraph 8 of the settlement agreement waived the non-competition provisions of the employment agreement as against the plaintiff.
[28] The validity, construction and performance of the settlement agreement by paragraph 12 are to be governed by the laws in force and effect in the Province of Ontario and in Canada.
[29] In his affidavit filed, the plaintiff stated that following his termination, his desire was to end his relationship with the defendant on the most agreeable terms possible because he (the plaintiff) had been one of the founders of the company. Additionally, he stated that the parties had discussions and agreed that the plaintiff would continue on, doing some consulting work following his termination and he negotiated a settlement due to the fact that there had been discussions between the parties that he would have an opportunity to do some consulting work with the defendant following his termination.
[30] A series of emails pre-dating the settlement agreement were filed:
(a) In an email dated June 17, 2013 to Mark Rivers, the defendant’s then Chief Executive Officer, the plaintiff outlines the terms of the settlement he was looking for which included, amongst other things, a request for salary to be paid and a position on the advisory board so that he could potentially support the company under a consulting contract for its technical and operational needs. (b) In an email dated June 17, 2013, from Mark Rivers to the plaintiff, Mr. Rivers wrote, “Terry we will discuss with the board but I don’t see this as reasonable on most fronts it is much more than what we discussed last week and this company is in a turnaround and Terry the reason for the change we have discussed. I will bet back to you with our final offer”. (c) In an email dated June 17, 2013, to Mark Rivers from the plaintiff, the plaintiff wrote, “Mark its 3 months and half the vacation 3 months is what we talked about”. (d) In an email dated June 17, 2013 from Mark Rivers to the plaintiff, Mr. Rivers wrote, “Terry I can’t see the options happening I can see doing the health care benefits for 6 months (not 12) and I can support three months pay not the four but in order to do that I need guaranteed access to you for up to ten days a month for consulting relating to ensuring we are ready for business with two days notice. Vacation pay I will have to get back to you and we will probably have to discuss this. We will not pay all up front – we will pay biweekly. I can certainly get you some money quickly but there is no way I am spending 60 grand or so upfront on anything other than inventory and even then I am going to negotiate ☺. Once I have verified vacation and that is being disputed I will get back to you once I know our position on this I will get Josh to write this up and send you the revised document.” (e) In an email dated June 17, 2013 to Mark Rivers from the plaintiff, the plaintiff wrote, “Mark I really want to do this on a friendly basis I could be facing another heart surgery hopefully not 9 months benefits might let me sleep at night. I will need to understand what you mean on the work front I can definitely prepare ICI for a run at rate for the automotive group that will ultimately visit the SOO if your referring to developing a process for load floors that will need to be a team effort between equipment and process something I would be glad to lead. Mark as a positive foot forward I would like to know that I will be paid this week as a regular pay to keep a x-wife off my back as we figure out how we will move forward. Thanks.”. (f) In an email dated June 18, 2013 from Mark Rivers to the plaintiff, Mr. Rivers wrote, “Terry, I have tried from the beginning to be positive and supportive you keep saying that I we need to make some signs of good faith you seem to miss that this initial offer is good faith it should be for cause and I have grounds for criminal proceedings You keep saying you are innocent but even what Bryce has done you supported he got his power from you a lot of people trusted you and backed you Staff board investors me you need to get real here and honest with yourself. I have virtually no support to extend anymore cash comp to this and have been told that what we are doing from a public perspective is very generous based on the condition of the company and it is on you to hand this well not me we will pay when you have signed off and if we don’t have sign off by Wednesday then I will withdraw our offer altogether. Terry any work we will do together is with you in a consulting capacity not leading it will be to help Chris and the team get ready if you need an operation then get it done in the next six months your benefits are worth nearly twenty grand a year and we are in a turnaround and I don’t have the cash. Please can we get on with this and stop positioning as though you are owed anything the board and this team are trying to make this positive”. (g) An email June 18, 2013 from Josh to Mark Rivers and the plaintiff, attaches a revised settlement agreement and refers to needing to put a consulting agreement together that he (Josh) is working on but in the interest of time wanted to get the settlement agreement and release circulated. (h) In an email, dated June 19, 2013, reference was made to a change to the offer (to settle) and at the end of the email the writer refers to the group being owed a revised document to reflect the change as well as the consulting agreement. (i) In an email dated June 20, 2013 to Mark Rivers from the plaintiff, the plaintiff is requesting to be placed on the advisory board and when his health allows he would like to help the company be successful and roll up his sleeves if need be. He states that first and foremost he needs to get a grip on his health.
[31] The plaintiff’s assertion regarding his retention for consulting work is expanded on in the supplementary affidavit of Valerie MacGillvary, plaintiff’s counsel’s law clerk, who deposes this information as information from plaintiff’s counsel that she believes to be true. In addition emails were attached to this affidavit which were post the signing of the settlement agreement:
(a) An email dated August 14, 2013 from the plaintiff to Mark Rivers appears to suggest that that the plaintiff was providing information to the defendant regarding a Mr. Robinson. (b) In an email dated November 21, 2013 from the plaintiff to Mark Rivers, the plaintiff discusses a plan of action in preparation for a Saudi trip (and he raises his illness and the extent he can be involved and he writes “we will talk about my role with ICI in the next few months…and a consulting role is what I would desire as my health is a priority” He then goes on to discuss the payment for consulting services that he would be looking for as the parties figure out how they will work together in the future. (c) An email dated November 23, 2013 from the plaintiff to Mark Rivers, the plaintiff was providing information regarding the Lennox uv issue but I am not certain as to how this email came about.
[32] In an email dated February 4, 2014 attached to the plaintiff’s affidavit, the plaintiff is offering information about a company the defendant purchased and is offering to help in the due-diligence process regarding that company if the board of directors was interested.
[33] In his affidavit, the plaintiff states that he believes that in failing to comply with the settlement agreement, the defendant has fundamentally breached the same.
[34] Emails were attached to the affidavits filed regarding communications between the parties regarding payments:
(a) In an email dated August 13, 2013 to Mr. Rivers from the plaintiff, the plaintiff advises that he just received an email the he was not getting paid this week and advises that he needs to get paid as he has commitments. (b) In email dated August 14, 2013 to the plaintiff from Mark Rivers, Mr. Rivers indicates the company is on the verge of announcing financing but that the financing will not close until the end of the month and they are running very tight. Every cash management measure they can take they are. The email indicates an intention to get caught up and back on track as soon as they close. (c) An email dated January 29, 2014 to the plaintiff from Ken Keely, Chairman of the Board of the Defendant stated “Still out of money, payroll is questionable this week, trying to do a small raise, things are very slim”. (d) In an email dated February 4, 2014 attached to the plaintiff’s affidavit, the plaintiff writes that he needs the severance to begin as soon as possible. (e) In another email dated April 1, 2014 to the plaintiff from Ken Keely, Mr. Keely stated “Terry, its day to day now with no funds, to long lead time for order releases to kick in, minimal expenses ate up all cash and can’t pay the bills. I don’t know what will happen its not pretty. Will let you know.” (f) Another email dated April 30, 2014 to the plaintiff from Ken Keely, stated “Terry: still day by day, still trying to raise funds and keep business running, big debts yet.” (g) In an email dated July 6, 2014 to the plaintiff from Ken Keely, Mr. Keely stated “Terry: some new business was awarded however ICI is short on funds and can’t buy enough material to get it going as usual. A new deal seems to all ways be in the works which as you know takes three times as long as we all think which eats up any funds you get, that along with the delays on starting every project by the company awarding them to ICI has continued to put everything behind. It’s not good, I can’t tell you there is day light yet. Contact me in a couple of weeks.”
[35] In his affidavit, the plaintiff stated that he would not have entered into the settlement agreement and would have sought the full compensation he was entitled to under the employment contract had he known that the defendant would not comply with the settlement agreement terms. He relied on the assertions made to him that the defendant would carry out their portion of the settlement agreement.
[36] The plaintiff states he took steps to attempt to resolve the nonpayment without success.
[37] Plaintiff’s counsel wrote to the chief executive officer and chairman of the Board of Directors of the defendant on two occasions namely December 16, 2014 and February 2, 2015. In these letters, the plaintiff’s position was set out, including the plaintiff’s position that the defendant’s failure to fulfil the obligations under the settlement agreement rendered the settlement agreement null and void. The letters also sought payment pursuant to the termination provisions of the plaintiff’s employment contract less what had been paid under the settlement agreement. No response was received to either letter.
[38] Having received no response to letters, the plaintiff commenced the within claim by way of statement of claim issued April 22, 2015. This claim was served on the vice president of the defendant namely Mr. Fraser Wray on May 9, 2015; personally by process server Christina Callander as per her affidavit sworn May 12, 2015.
[39] The defendant did not deliver and file a statement of defence. On July 22, 2015 the Plaintiff requisitioned that the defendant be noted in default and brought the within motion.
Main Issues
[40] The main issues are:
- Do the deemed admissions and adduced admissible evidence entitle the plaintiff to judgment for fundamental breach and to the remedy of rescission?
- Alternatively do the deemed admissions and adduced admissible evidence establish that the settlement agreement was repudiated?
- If fundamental breach, rescission, or repudiation is not found to apply, what are the damages that the plaintiff is entitled to on the deemed admissions and adduced admissible evidence as a result of the breach?
Law
Default Judgment
[41] Rule 19.02(1) of the Rules of Civil Procedure sets out the consequences of noting default. The defendant who has been noted in default is deemed to admit the truth of all allegations of fact made in the statement of claim.
[42] Rule 19.05(3) of the Rules of Civil Procedure provides that on a motion for judgment, the judge may grant judgment, dismiss the action or order that the action proceed to trial and that oral evidence be presented.
[43] Rule 19.06 of the Rules of Civil Procedure provides that a plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.
[44] The Court must determine if the evidence entitles judgment: Nikore v. Jarmain Investment Management Inc. (2009), 2009 ONSC 46655, 97 O.R. (3d) 132, 180 A.C.W.S. (3d) 603 (S.C.J.).
[45] Strathy J. stated in Salimijazi v. Pakjou, [2009] CarswellOnt 2013 (Ont. S.C.J.) at paras 34 and 35, with which I agree:
It seems to me that a judge hearing the motion for judgment under Rule 19.05(1) has a duty to both parties, even though the defendant is not present. That duty is part of the court’s duty in the administration of justice. The duty to the plaintiff is to dispense expeditious and cost-efficient justice where the defendant has ignored the court process. The duty to the absent defendant and to the public is to ensure that justice is indeed done and that manifestly unsustainable claims are not mechanically processed. Rule 19.06 codifies this obligation by requiring the judge to make certain that the facts pleaded do indeed entitle the plaintiff to judgment. It seems to me, as well, that where the plaintiff sees fit to adduce evidence going to liability, and that evidence establishes that part or all of the plaintiff’s claims cannot succeed, justice is not served by granting judgment, simply because the defendant has failed to defend. As Quinn J. noted in footnote 9 to para. 52 in Plouffe v. Roy, where the plaintiff’s evidence at an undefended trial conflicts with the facts as pleaded, the trial judge must necessarily make findings of fact. I can see no reason in principal why the same logic should not apply to a motion for judgment under Rule 19.05(1), where the plaintiff has filed affidavit evidence as to liability.
If the motions judge is required, by rule 19.06, to consider whether the facts pleaded entitle the plaintiff to judgment, it seems to me that where the plaintiff has sworn to additional facts the judge is entitled to consider whether those additional facts show that the plaintiff is not entitled to judgment. A judge presented, as I am, with alternate and inconsistent pleadings on the one hand, and affidavit evidence on the other hand, is not obliged to accept the truth of the pleaded facts that are inconsistent with the plaintiff’s sworn evidence. To this extent, I respectfully express a qualification to the observations of Murray J. in Halton (Regional Municipality) v. Rezaizadeh, above. In doing so, I note that in the case before him, the issue was whether sworn evidence could be used to augment the facts pleaded. In this case, I have concluded that the sworn evidence can be used to qualify or contradict the inconsistent facts pleaded. Without this qualification, judgment might be given to a plaintiff who, on his or her own sworn evidence, is not entitled to judgment.
[46] In Elekta Ltd. v. Rodkin, [2012] CarswellOnt 3928 (ONSC) Brown J. stated, at para. 14:
Accordingly, on a motion for default judgment the inquiry undertaken by the court is the following:
(i) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim? (ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim? (iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?
Settlement Agreements, Discharging a Contract and Remedies
[47] McLachlin C.J.C. wrote in Jedfro Investments (U.S.A.) Ltd. v. Jacyk Estate, 2007 SCC 55, [2007] 3 S.C.R. 679 (S.C.C.) at para 14:
The ways in which a contract can be discharged are well established. It may be discharged by performance, by agreement, by frustration, and by repudiatory or fundamental breach. In addition to these major categories, it is possible to end a contract by merger, alteration or cancellation of a written instrument, and in particular circumstances not relevant here, such as by the death of a party (in the case of a personal contract), bankruptcy and winding up. (See Chitty on Contracts (29th ed. 2004), ch. 21-25.)
[48] Abandonment discharges a contract only if it amounts to a new contract in which the parties agree to abandon the old one: Jedfro Investments (U.S.A.) Ltd. v. Jacyk Estate, 2007 SCC 55, [2007] 3 S.C.R. 679 (S.C.C.) at para 17.
[49] In George v. 1008810 Ontario Ltd., 2004 CarswellOnt 5811 at paras. 31 and 32, an Ontario Labour Relations Board decision, the Chair explained:
A settlement agreement is a form of contract. It is the essence of the law of contract to encourage parties to enter freely into agreements with respect to their obligations to each other by promoting the finality and certainty of those agreements. In general, each party is not only required to honour the commitment which they have made under a contract, but they are required to accept what they have agreed to receive from the other party as fully discharging the other party’s commitment under the contract. The remedy for a breach by one party is an order putting the other party in the same position that they would have been in had the first party done what they agreed to do. The law of contract provides exceptions from this strict result only when fairness requires it.
Two such exceptions are of interest here. They are the doctrines of rescission and repudiation. …
Fundamental Breach
[50] Only a fundamental breach would give the plaintiff the right to treat the settlement agreement as at an end. A fundamental breach is one which deprives the innocent party of substantially the whole benefit of the contract: Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 at para. 35, referring to Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada Ltd. (2006), 2006 ONCA 16346, 211 O.A.C. 141 (Ont. C.A.).
[51] There are five factors that can be considered when determining whether conduct has deprived the innocent party of substantially the whole benefit of the contract. The five factors are: (1) the ratio of the party's obligations not performed to that party's obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation: Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 at para. 35, referring to Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada Ltd. (2006), 2006 ONCA 16346, 211 O.A.C. 141 (Ont. C.A.).
Rescission
[52] Rescission allows the rescinding party to treat the contract as if it were void ab initio by some vitiating element with the consequent revival of the original claim. The remedy of rescission is available when a party has made a false or misleading representation. The Supreme Court of Canada in Guarantee Co. of North America v. Gordon Capital Corp., 1999 SCC 664, [1999] 3 S.C.R. 423 (S.C.C.) at paragraph 39, on rescission stated:
Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refused to be bound by it, the expression of his election if justified by the facts, terminates the contract, puts the parties in status quo ante and restores things, as between them, to the position in which they stood before the contract was entered into.
Repudiation
[53] Repudiation can be by words or conduct evincing an intention not to be bound by the contract: Jedfro Investments (U.S.A.) Ltd. v. Jacyk Estate, 2007 SCC 55, [2007] 3 S.C.R. 679 (S.C.C.) at para 20.
[54] The test is objective. The Ontario Court of Appeal in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 at para. 37 wrote:
To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it. See McCallum v. Zivojinovic (1977), 1977 ONCA 1151, 16 O.R. (2d) 721 (Ont. C.A.). Having said that, when determining whether such an intention has been evinced, the courts rely on much the same analysis as they do in respect of claims of fundamental breach. That is, in determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.
[55] Ordinary, non-repudiatory breach is consistent with ignoring the terms of an agreement. More is required to establish repudiation: Jedfro Investments (U.S.A.) Ltd. v. Jacyk Estate, 2007 SCC 55, [2007] 3 S.C.R. 679 (S.C.C.) at para 21.
[56] The Court of Appeal in Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576 stated at para. 46:
In objectively construing the purported breaching party’s intention, the surrounding circumstances must be considered. In White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, Saunders J.A. wrote, at para. 89: “Proof of such an intention requires an investigation into the nature of the contract, the attendant circumstances, and the motives which prompted the breach.” Earlier this year, Cromwell J., in his concurring opinion in Potter, confirmed the importance of considering the surrounding circumstances. At para. 164, Cromwell J. wrote: “As Lord Scarman put it in Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd., [1980] 1 All E.R. 571 (H.L.), at p. 590, the trial judge and the Court of Appeal in this case were ‘concentrating too much attention on one act isolated from its surrounding circumstances and failing to pay proper regard to the impact of the party's conduct on the other party’.”
[57] The Ontario Court of Appeal in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 at para. 35, referring to Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada Ltd. (2006), 2006 ONCA 16346, 211 O.A.C. 141 (Ont. C.A.) at 155, wrote:
Repudiation does not automatically bring a contract to an end. Rather, it gives the innocent party the right to elect to treat the contract as at an end. If that election is made, the parties are relieved from further performance and the innocent party may sue for damages. As a general rule, the innocent party must make the election and communicate it to the repudiating party within a reasonable time.
[58] In Nikolaev v Fakhredinov, 2015 ONSC 6267, Justice Myers writes:
Rescission is a specific remedy that sets the parties back to the time before the contract was made in specific circumstances where restitution is required or available. A simple breach of contract is not a basis to rescind a contract. Faced with a material breach, the innocent party can sue for damages. Damages will be awarded to be put the innocent party into the position that she would have occupied had the other party performed the contract as agreed. That is a prospective remedy based on the parties’ reasonable future expectations. The remedy for repudiation is not for restitution or to be put back in time as if the agreement never existed.
[59] In BP Global Specials Products (America) Inc. v. Conros Corporation, 2010 ONSC 1094, Newbould J. wrote:
If the innocent party accepts the repudiation, the rights and obligations that have already matured are not extinguished and the prospective obligations embodied in the contract are relevant to the amount of damages. See Guarantee Co. of North America v. Gordon Capital Corp., supra, at paras. 40 and 41. In Highway Properties Ltd. v. Kelly, Douglas and Co., 1971 SCC 123, [1971] S.C.R. 562 Laskin J. stated that termination in such circumstances does not preclude a right to damages for prospective loss as well as for accrued loss. In Johnson v. Agnew [1980] A.C. 367, a case involving repudiation by a purchaser of land, Lord Wilberforce stated as applicable:
The general principle for the assessment of damages is compensatory, i.e., that the innocent party is to be placed, so far as money can do, in the same position as if the contract had been performed.
[60] The Supreme Court of Canada in Guarantee Co. of North America v. Gordon Capital Corp., 1999 SCC 664, [1999] 3 S.C.R. 423 (S.C.C.) at paragraph 40, stated:
Contrary to rescission, which allows the rescinding party to treat the contract as if it were void ab initio, the effect of repudiation depends on the election made by the non-repudiating party. If that party treats the contract as still being in force and effect, the contract remains in being for future on both sides. Each party has a right to sue for damages for past or future breaches… If, however, the non-repudiating party accepts the repudiation, the contract is terminated and the parties her discharge from future obligations. Rights and obligations that have already matured are not extinguished…
[61] The Court of Appeal in Place Concorde East Limited Partnership v. Shelter Corporation of Canada (2006), 2006 ONCA 16346, 270 D.L.R. (4th) 181 (Ont. C.A.), at para. 51, wrote:
A breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided.
[62] The Court of Appeal in Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576 referred to the courts being motivated for strong policy reasons to enforce settlements, and agreed that repudiation should be considered a particularly exceptional remedy in the context of settlement agreements.
[63] The question of whether a party repudiated an agreement is a question of fact.
Analysis
Fundamental Breach
[64] In my view, there is no question that the settlement agreement was valid and that it was breached. However, I do not find based on the deemed admissions and the materials filed that the facts support judgment for fundamental breach. I do not find that the plaintiff was deprived of substantially the whole benefit of the contract.
[65] Based on the copy of the settlement agreement filed, the salary payments in this case were not the only obligations under the settlement agreement. The defendant’s obligations also included the provision of employee benefits for a further six months; the forgiveness of a substantial loan owed by the plaintiff in the amount of $150,000.00; the return to the plaintiff of 1,050,000 shares held as security for the loan; and waiver of the employment agreement’s non-competition provisions. In my view, these additional foregoing obligations were not insignificant obligations.
[66] As to ratio of obligations not performed to obligations performed, the plaintiff did not assert that he did not receive the six months of employee benefits; or that his substantial loan for $150,000.00 was not forgiven; or that he did not receive the 1,050,000 shares after the loan was forgiven. The waiver obligation of the non-competition provisions was met directly by the term contained in the settlement agreement. Finally, the plaintiff received $37,500.00 USD of the $62,500.00 USD he was to receive which is just over fifty percent of the salary payment obligations under the settlement agreement (in analyzing the relationship of the part of the obligation performed to the whole of this particular obligation).
[67] On the issue of seriousness of the breach and consequences, the plaintiff suggested it was serious because he did not receive the very thing for which he bargained and that he has incurred costs and legal fees. I disagree based on my finding that he, in my view, received substantially what he bargained for. Legal fees and costs as a consequence, in my view, fall under the determination of costs for which the plaintiff has made a claim.
[68] As to the likelihood of the breach continuing I believe it is safe to say that it is likely. The plaintiff was not aware of the current status of the defendant and has not been paid. In this case, however given the other factors and my findings on those factors, fundamental breach is not established by this factor alone.
Rescission
[69] I do not find that the remedy of rescission is available. The admitted facts and materials filed do not establish that a false or misleading representation was made.
[70] The first difficulty I have with this argument is that it is not pleaded in the statement of claim. The plaintiff pleaded a refusal to pay (repudiation), and fundamental breach for not making all of the payments. Even if the plaintiff could stretch that the claim for “fundamental breach for not making all of the payments” is one in the same, with which I disagree, I do not find the evidence entitles the plaintiff to judgment on this basis.
[71] It is not pleaded that the defendant made a false or misleading representation and as such there are no deemed admissions.
[72] The plaintiff claims that the defendant misrepresented that it would and/or could pay to the Plaintiff the agreed upon sum of money in exchange for the Plaintiff agreeing to forego the termination package he was entitled to pursuant to the employment agreement. In his affidavit, the plaintiff states that he would not have entered into the settlement agreement and would have sought the full compensation he was entitled to under the employment contract had he known that the defendant would not comply with the settlement agreement terms. He stated he relied on the assertions made to him that the defendant would carry out their portion of the settlement agreement.
[73] The emails filed of the negotiations leading to the settlement agreement do not paint a picture that the plaintiff was foregoing what he was entitled for the reason stated nor are there any statements expressing this claim in the emails. The emails suggest that the defendant (company) was not in good shape and was limited in the compensation it was prepared to or could offer. The emails suggest that opinion regarding the termination was not shared in the sense that there was suggestion by the defendant that termination should have been for cause, and that this opinion was part of the basis for the ultimate offer/ negotiated terms. This is relevant because it sheds light on the fact that it appears clear that there was more to this settlement than the plaintiff simply agreeing to take less money that could or would be paid in exchange for that agreement, or that same was an inducement to enter into the agreement. Further, the defendant complied with a significant portion of the settlement agreement and actually made several payments which demonstrated a true willingness to pay and meet its obligations. Accordingly, I find the failure to make the final six payments is not a basis to rescind the contract.
[74] At the hearing of the motion and in the affidavit material, the plaintiff also says that he negotiated a settlement due to the fact that there had been discussions between the parties that he would have an opportunity to do some consulting work with the defendant following his termination. Again, this claim was not pleaded and there are no deemed admissions therefore on this.
[75] Next, the preamble of the settlement agreement is clear that all claims arising from the plaintiff’s termination are settled on the terms set out in the settlement agreement. There is no clause in the settlement agreement referring to a consulting agreement as being part of the settlement. Paragraph 10 of the settlement agreement clearly states that it constitutes the entire settlement between the parties. The plaintiff acknowledged that he had obtained independent legal advice and had sufficient time to review the settlement agreement.
[76] The emails provided do not in my view establish that a consulting agreement was part of the settlement agreement. While there are emails referring to a consulting agreement and a consulting role, these two agreements (settlement agreement and consulting agreement) appear to have been treated as separate agreements and not related agreements (two separate agreements were going to be drafted). Further, the emails that pre-date the settlement agreement seem to indicate that any consulting work that was contemplated was going to be limited to get the defendant ready to go in the change-over.
[77] The emails filed also suggest that the plaintiff may not have even been in a position to provide consultation given his health at the time.
[78] There was no evidence before me of the plaintiff taking issue with or asserting that he was promised a consulting agreement as part of or related to or as consideration for the settlement after the agreement was signed and/or he did not receive it. It would seem reasonable he would have or should have raised it, but he didn’t from what I have been provided with.
[79] Lastly, the November 21, 2013 email seems to suggest the plaintiff was looking for a consulting role, which one would think he would not have to do, if he was in fact supposed to already have one; and in this email, there is no reference to him not having an agreement yet at that date, or him taking issue with that; and this email comes well after the settlement agreement is signed.
Repudiation
[80] I do not find that repudiation argument is established.
[81] There is no question, that after waiting for promised payments, the plaintiff who is the innocent party communicated to the defendant that he was treating the breach as making the contract null and void (repudiated).
[82] In my view, however, the statement in the claim that the defendant refused to comply with the terms of the settlement agreement is not quite accurate and is inconsistent with affidavit evidence filed. Looking at the surrounding circumstances, the emails filed objectively suggest a request on the part of the defendant to postpone payments until sufficient funds were available to make the payments, not an outright refusal to pay. In my view, while I agree that the defendant’s financial situation was worsening and communications seemed to suggest any chance of further payments was bleak, it cannot be said that the defendant was totally rejecting its obligation or expressing to resile from the settlement agreement. It appears the defendant found itself in a situation where it was unable at the point in time the payments were due for financial difficulties to pay. The defendant, in fact, per the last email communication filed, requested that the plaintiff check back in a couple of weeks.
[83] The plaintiff in his factum suggests that a reasonable person would have concluded that the defendant did not have an intention to be bound by the agreement by not forwarding the remaining settlement amounts owing and without providing concrete indications of its intentions to do so. While the motive is not determinative, reading the emails filed, a reasonable person could conclude that the defendant was struggling financially and that if it had the funds it would pay and be bound by the agreement.
[84] By the emails filed, it appears that in August, 2013, a payment was missed. Given the timing provisions of the settlement agreement, this would indicate that it was referring to one of the six payments that had been ultimately paid. This is important, in that it is part of the circumstances to be looked at and it demonstrates that the defendant missed payments in the past, but expressed an intention to get caught up, and it actually did until the seventh payment came due.
[85] Further, and more importantly, a breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided. I don’t find that to be the case here and I reiterate my findings set out under my analysis on fundamental breach.
[86] Finally, if I am wrong, even if the settlement agreement could be said to have been repudiated, given what was performed with respect to this agreement, the damages in this case, in my view, would not be as though the contract never existed. Damages would have been for the remaining amount owing under the settlement agreement. The plaintiff did not put forth any other damages outside of the original terms of the employment agreement.
Damages
[87] I find that the settlement contract was breached. The conditions to make the payments were breached. The plaintiff is entitled to damages but not based on fundamental breach, rescission and/or repudiation. I find the plaintiff is entitled to the balance of the payments under the settlement agreement, $25,000.00 USD.
Interest
[88] The plaintiff claims pre-judgment and post-judgment interest in accordance with the Courts of Justice Act R.S.O. 1990, c. C.43, as amended.
[89] The payments under the settlement agreement were by its wording to commence the day of execution, namely June 21, 2013. Following the biweekly payment schedule, the seventh payment would have been due September 13, 2013, which is the date the cause of action arose in relation to breach of the settlement agreement. The pre-judgment interest rate for this quarter is 1.3%.
[90] The post-judgment rate applicable is 2%.
Costs
[91] The plaintiff seeks costs. This is a case to exercise my discretion to order costs.
[92] The plaintiff submitted a bill of costs, inclusive of fees, taxes and disbursements, in the amount of $4,897.30. The rate of $150.00 per hour charged for plaintiff’s counsel having three years of experience is not unreasonable. The legal issues were straightforward. The amount claimed in my view is an amount the defendant could reasonably expect to pay in relation to the steps taken in this proceeding if the plaintiff had been successful on fundamental breach, rescission or repudiation. The defendant chose not to defend the claim, and accordingly the motion was required to obtain judgment. The plaintiff was not successful however on fundamental breach, rescission or repudiation for which some hours of research and factum preparation were devoted (seven to eight and a half hours) looking at the dockets. Accordingly, I am of the view there ought to be a reduction, and I find that costs in the amount of $3,500.00, in my view, are appropriate given all of the foregoing.
Foreign Currency
[93] Section 121(1) of the Courts of Justice Act, R.S.O. 1990, c.C.43 as amended, requires that where a person obtains an order to enforce an obligation in a foreign currency, the order shall require payment of an amount in Canadian currency sufficient to purchase the amount of the obligation in the foreign currency at a bank in Ontario listed in Schedule I to the Bank Act (Canada) at the close of business on the first day on which the bank quotes a Canadian dollar rate for purchase of the foreign currency before the day payment of the obligation is received by the creditor. There was no evidence to establish this would otherwise be inequitable nor was there any evidence that the manner of conversion was provided for.
Order
- The Defendant shall pay to the Plaintiff the principal sum of $25,000.00 USD to be converted into and paid to the Plaintiff in Canadian currency sufficient to purchase the amount of this obligation in the foreign currency at a bank in Ontario listed in Schedule I to the Bank Act (Canada) at the close of business on the first day on which the bank quotes a Canadian dollar rate for purchase of the foreign currency before the day payment of the obligation is received by the Plaintiff, together with: (a) pre-judgment interest at the pre-judgment rate of 1.3 percent per year, for the period September 13, 2013 to the date of this Order, and (b) post-judgment interest at the post-judgment rate of 2 percent per year thereafter.
- The defendant shall pay costs to the plaintiff fixed in the amount of $3,500.00 CAD.
- The balance of the plaintiff’s claims is hereby dismissed.
Rasaiah J.
Released: May 16, 2016
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: TERRY BALL - and - 189557 ONTARIO INC., carrying on business as INNOVATIVE COMPOSITES INTERNATIONAL INC. REASONS ON MOTION Rasaiah J. Released: May 16, 2016