DATE: 20021003
DOCKET: C35856
COURT OF APPEAL FOR ONTARIO
FINLAYSON, CHARRON and SIMMONS JJ.A.
BETWEEN:
ZESTA ENGINEERING LTD.
Timothy Pinos and Jacqueline L. Wall for the appellants
Plaintiff (Appellant)
- and -
DAVID CLOUTIER, MICHAEL JEFFERIES, HI-CAP TECHNOLOGIES, GUISEPPE DURANTE, KEITH SANGER, JAMES WHITE and KELVIN TECHNOLOGIES INC.
Douglas Christie and Jill M. Knudsen for the respondents
Defendants (Respondents)
A N D BETWEEN:
DAVID CLOUTIER, GUISEPPE DURANTE, KEITH SANGER and KELVIN TECHNOLOGIES INC.
Plaintiffs by Counterclaim (Respondents)
-and-
VINCENT EASTMAN, RUTH EASTMAN, MARCEL JONES, DONALD STEPHEN LOCK and ZESTA ENGINEERING LTD.
Defendants to the Counterclaim (Appellants)
Heard: September 16 and 17, 2002
On appeal from the judgment of Justice Blenus Wright dated February 22, 2001, reported at 2001 28294 (ON SC), [2001] O.J. No. 621, 7C.C.E.L. (3d) 53 (S.C.J.).
BY THE COURT:
[1] At the outset of the hearing in this appeal, this court entertained the appellants’ motion to introduce fresh evidence. At the conclusion of the parties’ submissions on the motion, this court admitted the fresh evidence and, as a result, allowed the appeal and ordered a new trial in respect of all claims, except as they related to two of the respondents, Guiseppe Durante and Kelvin Technologies Inc. (“Kelvin”), for reasons to follow. We reserved our decision on the motion with respect to these two respondents and, without regard to the fresh evidence, commenced to hear the appeal on the merits on the remaining issues. At the commencement of the second day of hearing, we rendered our decision on the motion to introduce fresh evidence as it related to Durante and Kelvin, allowing the appeal on the basis of the fresh evidence and ordering a new trial on all claims, again for reasons to follow. As a result of our decision on the motion, it was not necessary to continue the hearing on the merits of the appeal. These are our reasons for ordering a new trial on the basis of the fresh evidence.
[2] In a nutshell, this litigation arose out of the breakdown of the business relationship between Zesta Engineering Ltd. (“Zesta”) and its long term employee, David Cloutier. Zesta is a distributor of electric heaters, temperature controls, temperature sensors, power controls and like equipment. It also manufactures certain equipment of this kind. Zesta was founded in 1968. It is based in Mississauga but it has offices in several Canadian cities. It is a private corporation owned by its sole shareholders Vincent Eastman and his wife Ruth Eastman. David Cloutier, who was married to the Eastmans’ daughter, worked at Zesta since 1978 and rose to the position of assistant general manager and vice-president. He was largely credited at trial with building Zesta’s success.
[3] Cloutier separated from his wife, temporarily in 1997, and permanently in 1998. The trial judge found that the marriage break-up played a significant role in this litigation. The marriage break-up caused a strain in Cloutier’s previously strong relationship with Vincent Eastman and, by early 1999, the two men hardly spoke to one another. The other individual parties to the litigation are also senior employees of Zesta who, in some way, became involved with one or the other side of the conflict between Eastman and Cloutier.
[4] The issues between the parties at trial were succinctly summarized by the trial judge as follows:
The Claims
[6] The claims stem from two separate actions, which are being tried together. In November 1999, Zesta uncovered information which, it alleges, proves that the defendants, led by Cloutier, were planning to set up a new company in direct competition with Zesta using Zesta confidential information and appropriating Zesta customer opportunities. As a result, Zesta commenced legal proceedings, and terminated the employment of the defendants.
[7] Zesta alleges that the defendants are involved with Kelvin Technologies Inc. (Kelvin) which was incorporated in January 2000, and opened for business in Mississauga on March 1, 2000. Zesta maintains that Kelvin is a mirror image of Zesta.
[8] Zesta submits that it has a constructive trust interest in the business of Kelvin, which should result in Kelvin’s profits being disgorged to Zesta with specific continuing injunctions ordered against Kelvin and the individual defendants.
[9] Zesta claims it also uncovered secret commissions being earned by Cloutier from a supplier for which Zesta acts as a direct agent. Zesta submits that this is further cause for dismissing Cloutier.
[10] Zesta alleges that Cloutier is in contempt of one of the existing injunction orders.
[11] The defendants deny that there is any evidence that they were intending to set up a competing business. They allege that any documentary evidence referring to a new business was a sham with the sole purpose of setting up a sting operation to trap a Zesta salesman, Marcel Jones, who was being disloyal to Zesta and who was intending to take business away from Zesta.
[12] The defendants submit that there was no cause for their termination and, with the exception of [James] White, counterclaim for damages for wrongful dismissal. They also submit that any remedy due Zesta should be damages rather than any continuing injunction since, in their view, any fiduciary duties owed to Zesta would have expired at the end of twelve months.
[13] Mr. Cloutier claims that Mr. Eastman promised him a share ownership in Zesta, which was never fulfilled. He claims damages for the value of that promised interest in Zesta.
[14] Zesta and Michael Jefferies have settled their differences and, therefore, Jefferies is no longer a party to this proceeding.
[5] On the whole, the trial was a resounding success for David Cloutier and his business associates. The trial judge found that Cloutier had a motive to leave Zesta and start a new business. However, he accepted the defendants’ position that the evidence uncovered by Zesta relating to a new business, Hi-Cap Technologies, was merely a sham and part of a sting operation to trap a disloyal employee. He rejected Zesta’s contention that Hi-Cap Technologies was a precursor to Kelvin. Kelvin was incorporated by the defendants in the weeks following their dismissal and was producing in the same line of business as Zesta within a few months thereafter. The trial judge held further that the individual defendants’ participation in the sting operation, without Vincent Eastman’s knowledge, did not constitute cause for their dismissal.
[6] As a result of these findings, the trial judge found that Durante was wrongfully dismissed and he awarded him damages in the sum of $198,452 plus interest. The defendant Keith Sanger was found to have resigned from his employment and his counterclaim for damages for wrongful dismissal was dismissed. In so far as Cloutier’s dismissal was concerned, a further issue arose having regard to Zesta’s allegation that he had received secret commissions.
[7] The trial judge found that, from March 1999 to September 1999, Cloutier had in fact received commissions from a major customer, and as a result Zesta’s own commissions were reduced. Since Cloutier did not tell Eastman about these commissions, he was ordered to pay Zesta damages in the amount of $100,042 including interest. The trial judge held, however, that Cloutier’s receipt of secret commissions did not constitute cause for his dismissal since he concluded, at para. 243 that “[w]ithout the marriage breakdown, … [t]he indiscretion of the son-in-law would be considered an isolated occurrence in a long and unblemished career”. Cloutier was therefore awarded damages for wrongful dismissal in the amount of $503,100 plus interest.
[8] Finally, the trial judge rejected Zesta’s claims relating to the defendants’ use of confidential information. He found that the information which formed the basis for Kelvin’s production of thermocouples, although acquired during the course of the defendants’ employment with Zesta, was not confidential. He also found that any continuing fiduciary obligation owed by the individual defendants as former employees of Zesta did not survive their wrongful dismissal. In his view, they should have been able to compete head to head with Zesta without any consequences. The trial judge therefore dissolved the interim injunctions and awarded resulting damages to Kelvin in the amount of $70,000 plus interest.
[9] The counterclaim against the individual shareholders and employees of Zesta was dismissed without costs. A motion for contempt brought by Zesta against David Cloutier and Kelvin Technologies in relation to the interim injunctions also was dismissed. The judgment against Zesta was ordered to take priority over any monies owed to its shareholders, Vincent Eastman and Ruth Eastman. Finally, Zesta was ordered to pay costs, including one set of solicitor-client costs.
[10] Zesta appealed from the judgment on several grounds. The individual appellants, Vincent Eastman, Ruth Eastman, Marcel Jones and Donald Stephen Lock joined Zesta in its appeal. No cross-appeal was brought by Sanger with respect to the dismissal of his counterclaim or by Cloutier with respect to the secret commissions.
[11] It is in the context of the issues at trial and the findings of the trial judge that we must consider the motion to introduce fresh evidence. This court has the power to receive further evidence on appeal pursuant to s.134(4)(b) of the Courts of Justice Act R.S.O. 1990, c. C.43. The test for admitting fresh evidence is well established. The proposed evidence must meet the four criteria set out in Palmer v. The Queen, 1979 8 (SCC), [1980] 1 S.C.R. 759 at 775:
(a) the evidence should generally not be admitted if, by due diligence, it could have been adduced at trial provided that this general principle will not be applied as strictly in a criminal case as in civil cases;
(b) the evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial;
(c) the evidence must be credible in the sense that it is reasonably capable of belief; and
(d) the evidence must be such that if believed it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result.
[12] The admission of fresh evidence on appeal will not always result in a new trial. The power to order a new trial is reserved for the exceptional case as set out in s.134(6) of the Courts of Justice Act:
134(6) A court to which an appeal is taken shall not direct a new trial unless some substantial wrong or miscarriage of justice has occurred.
[13] The fresh evidence relied upon by the appellants forms the basis of an outstanding criminal charge against Cloutier laid on November 16, 2001 more than nine months after the conclusion of the trial. The charge alleges that, during the 32 months preceding December 17, 1999, Cloutier defrauded Zesta of a sum of money exceeding $5,000 contrary to s.380(1)(a) of the Criminal Code.
[14] In summary, if accepted, the evidence would show that, during the relevant time period, Cloutier sold more than 1800 heater units to one of Zesta’s regular customers for approximately $200,000, that he caused payment of these monies to be made to a corporation, unrelated to Zesta and unconnected to this type of business, and that he directed the monies to be paid out to himself and to others for his benefit. The evidence would also show that, shortly before these sales by Cloutier, Zesta had ordered, received and paid for more than 2,300 heater units of the same specification, that these units had been destined to be stamped for this same customer, and that no further records could be found for these units. The units seemed to have simply vanished from Zesta’s inventory.
[15] There is no serious contention that the proposed fresh evidence does not meet the second, third and fourth Palmer criteria. The evidence is undoubtedly relevant to the issues in the trial in the Palmer sense. The evidence is also credible. It does not simply consist of the hearsay evidence of P.C James Barker on the results of his investigation as contended by the respondents. The appellants have filed direct evidence in support of many of the officer’s findings. The evidence is reasonably capable of belief and, indeed, in some respects, it is compelling. Finally, if believed it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result. Indeed this evidence, in and of itself, could well have been decisive of many issues directly related to Cloutier and could have led to an entirely different result had it been available at trial. Further, given Cloutier’s pivotal role in the events that precipitated this litigation, it is our view that that evidence could potentially have affected the result on the issues related to Durante and Kelvin as well.
[16] The sole remaining issue is whether the appellants have met the due diligence criterion. Although the respondents state in their factum that this evidence was discoverable even before trial, they advance no persuasive argument in support of this proposition. Their main argument on this issue is that the appellants failed to move before the trial judge for a re-opening of the trial when this evidence became available before the trial judgment was issued and entered on June 20, 2001. They submit that the appellants’ failure to seek relief before the trial judge when they had an opportunity to do so is fatal to their motion before this court.
[17] The appellants submit that, although some of the fresh evidence was discovered before the judgment was entered, there was an insufficient basis at that point in time to move for a re-opening of the trial. They submit that until the fruits of the police investigation were disclosed to them some time after the charge was laid, the evidence was largely speculative and that any motion to re-open the proceedings would likely have been dismissed summarily.
[18] In our view, the evidence supports the appellants’ contention on this point. The trial ended on February 6, 2001 and the trial judge’s reasons for judgment were delivered on February 22, 2001. Judgment was issued and entered some months later on June 20, 2001. The following events transpired following the trial.
[19] On February 14, 2001, approximately one week after the conclusion of the trial, John Eastman, a sales representative with Zesta, attended a sales meeting with Alice Wilson, a buyer for one of Zesta’s customers “Husky Buffalo”. During the discussion, Wilson asked John Eastman: “What’s this Codlin thing about?” When John Eastman replied that he did not recognize the name, Wilson advised him that she had purchased heaters from Cloutier for Husky Buffalo through Codlin Graphics Inc., and not through Zesta. She then showed John Eastman a number of documents relating to the purchases in question.
[20] John Eastman reported back on this discussion to Vincent Eastman and to Zesta’s counsel. Neither had ever heard of Codlin or of any connection between Cloutier and Codlin. A corporate search performed on Codlin Graphics Inc. on February 15, 2001 revealed that the corporation was incorporated on June 1, 1995 and that Brian Burtch was the president. On February 21, 2001, Zesta reviewed Cloutier’s cellular telephone bills, which were filed in evidence at trial, and noted that Cloutier had made eleven calls to Codlin Graphics between October 26, 1999 and November 16, 1999.
[21] On February 26, 2001, John Eastman telephoned Wilson and asked to meet with her to discuss the matter further and asked her to provide him with copies of the documents she had shown him. Wilson declined his requests and advised John Eastman that she did not wish to be involved any further.
[22] On March 14, 2001, a further search of Zesta’s computer files uncovered a letter from Cloutier to Burtch, president of Codlin Graphics. The letter did not refer to anything of relevance to the sale of heaters to Husky Buffalo but it seemed from its tone to indicate a personal and friendly relationship between Cloutier and Burtch.
[23] On March 20, 2001, as a result of a search of Zesta’s records on an unrelated matter concerning Husky Buffalo, invoices relating to the purchase in 1998 and 1999 of heaters similar to those mentioned by Wilson were discovered. The heaters were to be stamped with Husky part number 534192. With the exception of three heaters received after the termination of Cloutier’s employment, Zesta was unable to locate any of these heaters in its inventory. Further searches also failed to reveal any sale records for these heaters.
[24] This information raised suspicions about Cloutier’s activities prior to his dismissal in November 1999. Consequently, Zesta reported the matter to the Peel Regional Police on April 18, 2001 and, on May 8, 2001, P.C. Barker was assigned to investigate Zesta’s allegations.
[25] The police investigation revealed that Cloutier had caused Husky Buffalo to purchase some heaters through Codlin and that Husky Buffalo had paid $132,209 US to Codlin for some 1,806 heater units. Codlin was not in the business of selling heaters and acted at Cloutier’s direction for no purpose related to Codlin’s business. Cloutier had then directed that the monies be disbursed partly to himself and partly to 798068 Ontario Ltd in payment for “fees”. In turn, 798068 Ontario Ltd disbursed the monies to Cloutier and to one Derek Peatling, who later became a shareholder of Kelvin Technologies Inc., the party to this litigation. 798068 Ontario Ltd, which is owned by Cloutier’s solicitor’s spouse, never performed services for Codlin in return for these fees.
[26] In our view, the appellants have met the criterion of due diligence. Even though Zesta was in possession of some of the information prior to the issuance of the judgment in June 2001, it is our view that the information at that point in time could not reasonably have provided grounds for a re-opening of the trial. Most of the information which forms the basis of the motion on appeal was uncovered as a result of the subsequent police investigation. Zesta was not privy to the fruits of the police investigation until some time after the criminal charge was laid in November 2001. There is no evidence that Zesta, by the exercise of due diligence, could have uncovered this evidence sooner and adduced it at trial.
[27] In our view, this fresh evidence necessitates a new trial. In essence, the entire trial was about whether Cloutier was planning to set up a company to do business in competition with Zesta for his own benefit, and whether the other defendants were collaborating with him. The trial judge found on the evidence that Cloutier had remained loyal to Zesta throughout, that his receipt of secret commissions from one client was but “an isolated occurrence in a long and unblemished career”, and that he and the other defendants had been summarily condemned as traitors without cause. Had the fresh evidence been available at trial, the trial judge may well have taken a very different view of Cloutier’s credibility and, in turn, of the underlying facts to this litigation. To allow the judgment to stand in the face of the fresh evidence would occasion a substantial wrong.
[28] It is for these reasons that we admitted the fresh evidence, allowed the appeal, set aside the trial judgment, and ordered a new trial. The appellants are entitled to their costs on the motion. They have filed a bill of costs in support of their claim for partial indemnity for a total of $72,042.02. The respondents shall have 10 days to serve and file written submissions on costs and the appellants a further 10 days to reply.
Released: Oct 03, 2002
Signed: “GS.D. Finlayson J.A.”
“Louise Charron J.A.”
“Janet Simmons J.A.”