Proulx et al. v. Sahelian Goldfields Inc. et al., 2001 ONCA 6255

Proulx et al. v. Sahelian Goldfields Inc. et al. [Indexed as: Proulx v. Sahelian Goldfields Inc.]

55 O.R. (3d) 775

[2001] O.J No. 3728

Docket No. C35066

Court of Appeal for Ontario

Abella, Laskin and Borins JJ.A.

September 21, 2001

Corporations -- Directors -- Liability for debts of corporation -- Expenses incurred by an employee in the course of providing services constituting a debt of the corporation for which its directors are liable -- Ontario Business Corporations Act, R.S.O. 1990, c. B.16, s. 131(1).

Employment -- Employees' remedies -- Liability of corporate directors -- Expenses incurred by an employee in the course of providing services constituting a debt of the corporation for which its directors are liable -- Ontario Business Corporations Act, R.S.O. 1990, c. B.16, s. 131(1).

The respondents were hired by Sahelian Goldfields Inc. ("Sahelian") to provide services at its gold mine in West Africa. Their employment contracts entitled them to be reimbursed for reasonable travel and out-of-pocket expenses incurred in connection with their duties. Sahelian failed, and it was unable to pay the respondents their salaries, vacation pay and expenses. The respondents sued Sahelian's directors as liable under s. 131(1) of the Ontario Business Corporations Act ("OBCA") to employees for "all debts not exceeding six months' wages that become due and payable while they are directors for services performed for the corporation". On a motion for a partial summary judgment, Spence J. held that the directors were liable to reimburse the employees for expenses they incurred on behalf of the corporation in carrying out their employment contracts. The directors appealed.

Held, the appeal should be dismissed.

The authorities established that directors are liable under s. 131 of the OBCA for debts for services performed for the corporation. Contrary to the submission of the directors, the issue was not whether unpaid expenses constituted a claim for wages, and it was not necessary to determine whether expenses fell within the meaning of wages. This followed because under s. 131(1) expenses incurred by an employee in the course of providing services constitute a debt of the corporation for which its directors are liable. Liability imposed by s. 131(1) is not limited to the unpaid wages of an employee, although the maximum liability is limited to six months' wages. On the uncontested evidence of the employees there was no doubt that the expenses claimed resulted from the performance of their individual employment contracts with the corporation and were included within the provisions from remuneration contained in the contracts. Accordingly, the appeal should be dismissed.

APPEAL from a partial summary judgment.

Cases referred to Barrette v. Crabtree Estate, 1993 CanLII 127 (SCC), [1993] 1 S.C.R. 1027, 101 D.L.R. (4th) 66, 150 N.R. 272, 10 B.L.R. (2d) 1, 47 C.C.E.L. 1 (sub nom. Crabtree (Succession de) v. Barrette); Mesheau v. Campbell (1982), 1982 CanLII 2063 (ON CA), 39 O.R. (2d) 702, 141 D.L.R. (3d) 155 (C.A.); Mills- Hughes v. Raynor (1988), 1988 CanLII 4660 (ON CA), 63 O.R. (2d) 343, 25 O.A.C. 248, 47 D.L.R. (4th) 381, 38 B.L.R. 211, 68 C.B.R. (N.S.) 179, 19 C.C.E.L. 6 (C.A.), revg in part (1985), 32 B.L.R. 118, 10 C.C.E.L. 180 (Ont. H.C.J.); Zavitz v. Brock (1974), 1974 CanLII 839 (ON CA), 3 O.R. (2d) 583, 46 D.L.R. (3d) 203 (C.A.) Statutes referred to Business Corporations Act, R.S.O. 1990, c. B.16, s. 131(1) Canada Business Corporations Act, 1975, S.C. 1974-75-76, c. 33, s. 114(1) Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 119(1) Canada Joint Stock Companies Letters Patent Act, 1869, S.C. 1869, c. 13, s. 49 Corporations Act, R.S.O. 1960, c. 71, s. 73(1) Joint Stock Companies Letters Patent Act, 1874, S.O. 1874, c. 35, s. 52 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 20

Deborah Berlach, for appellants. Mary Anne Cummings, for respondents.

The judgment of the court was delivered by

[1] BORINS J.A.: -- The only issue in this appeal is the liability of the directors of a corporation to its employees "for all debts not exceeding six months' wages that become due and payable while they are directors for services performed for the corporation" under s. 131(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). On the employees' motion for partial summary judgment pursuant to Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Spence J. held that the directors were liable to reimburse the employees for expenses they incurred on behalf of the corporation in carrying out their contracts of employment with the corporation, which had ceased to operate. The directors have appealed, contending that the motion judge erred in his interpretation of s. 131(1) of the OBCA. For the reasons that follow, I would dismiss the appeal.

Background

[2] The facts on which the motion judge relied are brief and are not in dispute. Indeed, the directors did not cross-examine the employees on their affidavits filed in support of their motion and failed to file any responding evidence.

[3] The respondents were hired by Sahelian Goldfields Inc. ("Sahelian") to provide their services at the corporation's mine in West Africa. Typical of the provisions for the remuneration of the employees are those contained in the contract between the respondent Roy and Sahelian:

4. Remuneration

a. You shall be paid an annual salary for your services of Cdn. $10,000 per month. No additional salary shall be payable to you and any vacation pay payable to you shall be included in, and not in addition to, your annual salary. Your annual salary shall be payable on the first day of each month, less any deductions or withholdings required by applicable law.

b. We shall provide you with the following benefits:

(i) return airfare for yourself when you are required to work in Burkina Faso; and

(ii) life and foreign worker's compensation insurance, together with health and international SOS coverage with Telfer International or such other insurer as we may deem appropriate from time to time; and

c. We shall provide you with food and lodgings while working overseas for the Company.

7. Expenses -- You may be required to travel to various destinations in North America, Europe and Africa in furtherance of our business. You shall be reimbursed for all reasonable travel and out-of-pocket expenses incurred by you in connection with carrying out these duties. You shall supply us with originals of all invoices or statements for all expenses for which you seek reimbursement. The Company shall also pay for all the costs associated with running your office.

[4] The employees worked for the corporation until it failed and was unable to pay their salaries, vacation pay and expenses which they had incurred in carrying out their employment duties, such as air fare and food and lodging while at the mine site. The appellants were directors of Sahelian during all relevant times.

[5] Consequently, the employees commenced an action against Sahelian and its directors to recover unpaid wages, vacation pay and expenses that they had incurred while performing their employment contracts. Their claim against the directors is based on s. 131(1) of the OBCA which provides as follows:

131(1) The directors of a corporation are jointly and severally liable to the employees of the corporation for all debts not exceeding six months' wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than twelve months under the Employment Standards Act, and the regulations thereunder, or under any collective agreement made by the corporation.

(Emphasis added)

[6] Thereafter, the employees moved for partial summary judgment against the directors for a total of $83,527.47 for vacation pay and a total of $60,556.86 for unpaid expenses. Before the motion judge, the directors contested their liability for unpaid expenses on the ground that expenses do not constitute wages within the meaning of s. 131(1) of the OBCA. The motion judge rejected the directors' contention and awarded the employees the amounts claimed for vacation pay and unpaid expenses.

[7] The motion judge provided the following brief reasons for his decision:

Counsel made helpful submissions. The plaintiffs provided affidavit evidence as to the factual matters. Defendants did not cross-examine or submit their own material as to the facts. From the submissions, I cannot conclude I should not rely on the Plaintiffs' material. As to the points of law, the court can order interest, as the Plaintiffs submit, and the corporate expenses are properly to be regarded as wages since they were to be compensation in respect of services performed. Accordingly, summary judgment to go for the plaintiffs as to vacation pay, expenses and interest. The bonus matter was not pursued for this motion. Interest is to be per the Courts of Justice Act. Costs of $2,000 payable forthwith to the plaintiffs.

[8] The directors' appeal is limited to the employees' claim for unpaid expenses.

Analysis

[9] Before this court the directors maintained their contention that they were not liable to pay the employees' unpaid expenses on the ground that the expenses do not constitute wages within the meaning of s. 131(1) of the Act. They focused on the clause "all debts not exceeding six months' wages . . . for services performed for the corporation", and submitted that as expenses do not constitute wages, they incurred no liability under s. 131(1). As neither debts nor wages are defined in the OBCA, they provided a number of definitions of these terms from dictionaries and other legislation which they contended supported their position. In addition, they relied on the decision of the Supreme Court of Canada in Barrette v. Crabtree Estate, 1993 CanLII 127 (SCC), [1993] 1 S.C.R. 1027, 101 D.L.R. (4th) 66. As I will explain, on the view that I hold of the proper interpretation of s. 131(1), there is no need to determine whether expenses fall within the meaning of wages. This is because expenses which an employee incurs in the course of providing services for a corporation constitute a debt of the corporation for which its directors are liable.

[10] As I will explain, the directors have misconstrued the language of s. 131(1) of the OBCA. The issue is not whether the employees' claim for the unpaid expenses constitutes a claim for wages. Rather, the issue is whether their claim for unpaid expenses constitutes a debt for services which they performed for the corporation. Thus, on the facts of this appeal, there is no need to determine whether "wages" can include expenses incurred by an employee on behalf of his or her employer.

[11] As Arnup J.A. pointed out in Zavitz v. Brock (1974), 1974 CanLII 839 (ON CA), 3 O.R. (2d) 583 at p. 588, 46 D.L.R. (3d) 203 (C.A.), the first legislation protecting employees of a corporation whose wages were unpaid, and imposing a limited liability on its directors to pay the wages, was s. 52 of the Ontario Joint Stock Companies Letters Patent Act, 1874, S.O. 1874, c. 35. As such, it is an exception to the principle that normally directors are not liable for the debts of a corporation absent an express statutory provision imposing such liability on them. Significantly, the clause "all debts . . . due for services performed for the company" in s. 52 of the 1874 legislation is virtually identical to the clause "all debts . . . for services performed for the corporation" in s. 131(1) of the OBCA.

[12] A provision similar, but not identical to s. 131(1) of the OBCA, imposing liability on directors of federally incorporated corporations for unpaid wages of employees is contained in s. 119 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"). Section 119(1) of the CBCA contains language similar to that of s. 131(1) of the OBCA, imposing liability for "all debts . . . payable to each employee for services performed for the corporation". Both provisions limit the amount of a director's liability to six months' wages. For more than a century, these provisions have been the subject of judicial scrutiny.

[13] In Zavitz, this court interpreted s. 73(1) of the Corporations Act, R.S.O. 1960, c. 71 which, although somewhat different from s. 131(1) of the OBCA, contained the clause "all debts due . . . for services performed for the company". From the reasons of Arnup J.A., it is clear that liability imposed by s. 131(1) is not limited to the unpaid wages of an employee. At p. 590 O.R. he stated:

Some further limited assistance is gained from the fact that the right of a person in the prescribed class to sue is a right to claim "for all debts due . . . for services performed for the company, not exceeding six months wages, and for the vacation pay. . . ."

[14] In Mesheau v. Campbell (1982), 1982 CanLII 2063 (ON CA), 39 O.R. (2d) 702, 141 D.L.R. (3d) 155 (C.A.), this court interpreted s. 114(1) of the Canada Business Corporations Act, 1975, S.C. 1974-75-76, c. 33, which is identical to s. 119(1) of the CBCA. At p. 704 O.R., Weatherstone J.A. interpreted s. 114(1) as follows:

The history of the section and its manifest purpose make it perfectly clear that the words "all debts" are modified by the phrase "for services performed for the corporation" and are subject to the quantitative limit of six months' wages payable to each such employee.

This interpretation was applied in Mills-Hughes v. Raynor (1988), 1988 CanLII 4660 (ON CA), 63 O.R. (2d) 343, 47 D.L.R. (4th) 381 (C.A.).

[15] As I have stated, the appellants relied on the decision of the Supreme Court of Canada in Barrette in support of their submission they are not liable for payment of the respondents' expenses. In my view, this reliance is misplaced as the reasons of L'Heureux-Dubé J. in Barrette confirm the interpretation which this court has placed on s. 131(1) of the OBCA and s. 119(1) of the CBCA in the cases to which I have referred.

[16] In Barrette, as in Mesheau, the Supreme Court was required to interpret s. 114(1) of the 1975 federal Act. The reasons of L'Heureux-Dubé J. are instructive. She traced the remedy provided by s. 114(1) to a New York state law dating from 1848. The earliest version of s. 114(1) appeared in s. 49 of the Canada Joint Stock Companies Letter Patent Act, 1869, S.C. 1869, c. 13, which, as in the earliest version of the Ontario legislation, contained the clause "all debts . . . due for services performed for the Company". At p. 1039 S.C.R., p. 74 D.L.R., she stated that the purpose of the legislation is to place "the liability for certain debts of the corporation to its employees on the shoulders of the directors", adding at p. 1041 S.C.R., p. 75 D.L.R.:

The primary purpose of the remedy provided for in s. 114(1) C.B.C.A. is to protect employees in the event of bankruptcy or insolvency of the corporation.

[17] L'Heureux-Dubé J. continued at p. 1044-45 S.C.R., p. 78 D.L.R.:

In this regard, there are two important parameters in connection with employees' remedy. First, the directors' maximum liability is set at six months' wages. This parameter provides a ceiling which, while establishing a quantitative limit to the liability of the directors, does not in so doing determine the nature of the amounts covered by the action. The nature of the sums which Parliament had in mind must be considered instead from a second angle: regardless of quantum, the amounts claimed must be "debts . . . for services performed for the corporation". I therefore cannot subscribe to the appellant's arguments that the first question to be answered is whether the job loss compensation falls within the broad concept of "wages". In the context of s. 114(1) C.B.C.A., the word "wages" refers solely to the quantum of the director's liability and cannot in itself guide the Court in disposing of the present case.

The parameter which is at the heart of the appeal is therefore not the concept of "wages", but the expression "debts . . . for services performed for the corporation". In thus limiting the debts covered by the remedy, Parliament indicated that directors will not be personally liable for all debts assumed by the corporation to its employees.

[Emphasis in original]

[18] At pp. 1048-49 S.C.R., p. 81 D.L.R., L'Heureux-Dubé J. stated the following as the two critical factors in defining the remedy provided by the legislation:

Section 114(1) C.B.C.A. establishes a quantitative limit on the amounts for which directors will be personally liable, and that is a sum equivalent to six months' wages. Directors are therefore in a position to know in advance the maximum amount of their potential liability in the event the company becomes bankrupt or insolvent.

In the absence of additional legislative indicia, the performance of services by the employee remains the cornerstone of the director's personal liability for debts assumed by the corporation.

At p. 1050 S.C.R., p. 82 D.L.R., she concluded that "the only benchmark provided by the wording of s. 114(1) C.B.C.A. is the performance by the employee of services for the corporation."

[19] In summary, it is clear from the above authorities that under s. 131(1) of the OBCA and s. 119(1) of the CBCA directors are not liable for all debts owed by a corporation to its employees. Rather, liability will be imposed only where the debts are for "services performed for the corporation". The maximum amount for which a director may be held liable is an amount equivalent to six months' wages payable to each employee. Although not relevant to this appeal, I would note that under the OBCA, unlike the CBCA, a director has an additional liability for up to 12 months' vacation pay of each employee.

[20] Based on the foregoing analysis of s. 131(1), it was unnecessary for the motion judge to decide whether the employees' unpaid expenses were "properly to be regarded as wages". All that had to be decided was whether the expenses they incurred constituted a debt owed to them for services that they had performed for the corporation. On the uncontested evidence of the employees there is no doubt that the expenses which the employees claimed resulted from the performance of their individual employment contracts with the corporation and were included within the provisions for remuneration contained in the contracts. The expenses constitute a debt of the corporation owing to the employees for services which they had performed for the corporation within the meaning of s. 131(1) of the OBCA which the directors are required to pay. Although my analysis differs somewhat from that of the motion judge, I am satisfied that he reached the correct result.

Conclusion

[21] For the foregoing reasons, the appeal is dismissed with costs.

Appeal dismissed with costs.