Dumbrell v. The Regional Group of Companies Inc. et al. [Indexed as: Dumbrell v. The Regional Group of Companies Inc.]

85 O.R. (3d) 616

Court of Appeal for Ontario,

Doherty, Moldaver and Sharpe JJ.A.

January 31, 2007

Contracts -- Breach of contract -- Damages -- Employment contract providing that employee was entitled to 50 per cent of profits received by employer for particular project as defined in agreement -- Nothing in language of contract limiting employee's potential remuneration to projects that were completed and closed as of date of termination of his employment contract -- Trial judge properly finding employer liable under contract for 50 per cent of profit earned by employer but erring in awarding employee 50 per cent of profit earned by investors brought into project by employer.

Contracts -- Breach of contract -- Liability -- Trial judge finding that corporate employer breached employment contract and that G was personally liable as president and directing mind of employer -- Trial judge erring in finding G personally liable -- Employment contract between employee and corporate employer -- Employee having no reasonable expectation of recovery upon breach of contract from any entity other than corporate employer -- Employee not pleading that G induced employer's breach of contract and adducing no evidence capable of establishing such inducement.

Contracts -- Interpretation -- Employment contract providing that employee was entitled to 50 per cent of profits received by employer for particular project as defined in agreement -- Nothing in language of contract limiting employee's potential remuneration to projects that were completed and closed as of date of termination of his employment contract -- Context in which contract was made contraindicating imposing any such limitation on profits.

R Inc. operated a real estate business. G was the president, CEO and directing mind of R Inc. The plaintiff had expertise in finding commercial real estate projects. He was employed by R Inc. for about one year. His position involved investigating and, where appropriate, bringing potentially profitable large- scale commercial developments to R Inc. The employment agreement contemplated that the plaintiff would receive nothing unless he brought projects to R Inc. which earned profits for R Inc. If he did, his compensation was to be 50 per cent of the profits. After leaving R Inc.'s employ, the plaintiff sued R Inc. and G, claiming that he was owed 50 per cent of the profit earned on a particular commercial real estate transaction (the "project"). The action was allowed. The trial judge found that the plaintiff was contractually entitled to 50 per cent of the profit earned on the project even though the profit was earned long after the termination of his employment contract. The defendants appealed, arguing that the trial judge erred in reaching that conclusion and also erred in awarding the plaintiff 50 per cent of the profit earned by entities other than R Inc. or G, and in holding G personally liable for the breach of contract.

Held, the appeal should be allowed in part. [page617]

In interpreting a contract, the focus is on the meaning of the words used in the contract. At least in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. Emphasis on subjective intention denudes the contractual arrangement of the certainty that reducing an arrangement to writing was intended to achieve. Moreover, many contractual disputes involve issues on which there is no common subjective intention between the parties. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text which they adopted, but rather to determine the meaning of the contract against its objective contextual scheme. The text of the contract must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the agreement.

In this case, the parties who negotiated the agreement were sophisticated, experienced, successful businessmen who could reasonably be expected to negotiate a commercially sensible and workable agreement. The agreement contemplated a relatively short working relationship of between six months and a year. In tying the plaintiff's compensation to profits as opposed to, for example, fees earned by R Inc., the parties anticipated that the plaintiff's entitlement to commissions would not be known until a project was complete and R Inc.'s net profit on the project could be determined. Nothing in the language of the contract limited the plaintiff's potential remuneration to projects that were completed and closed as of the date of termination of the employment contract. The context in which the contract was made contraindicated imposing any limitation of this kind on profits. Reasonable people in the position of the parties would have appreciated that R Inc.'s involvement in the kind of complex large-scale commercial projects that it was anticipated the plaintiff would bring to it might well not be completed within the relatively short time span contemplated by the employment contract. The trial judge did not err in finding that the plaintiff was contractually entitled to 50 per cent of R Inc.'s profits even if the profits were earned after the employment contract was terminated.

The trial judge erred in awarding the plaintiff 50 per cent of the profit earned by investors who were brought into the project by G.

The trial judge erred in finding G personally liable. The contract was between the plaintiff and R Inc. There was no basis for piercing the corporate veil. The plaintiff knew that he was contracting with R Inc., and could only reasonably expect to look to R Inc. for compensation in the event of a breach of the terms of the contract. G could not be liable for inducing a breach of the contract. That cause of action was not pleaded and no evidence was adduced which was capable of establishing inducement.

APPEAL from the order of Métivier J., [2005] O.J. No. 2609, [2005] O.T.C. 525 (S.C.J.), for the plaintiff in an action for damages for breach of contract.

Cases referred to Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, 161 D.L.R. (4th) 1, 227 N.R. 201, 80 C.P.R. (3d) 321, apld Other cases referred to BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, [1993] S.C.J. No. 1, 75 B.C.L.R. (2d) 145, 99 D.L.R. (4th) 577, 147 N.R. 81, [1993] 2 W.W.R. 321, 14 C.C.L.T. (2d) 233; Charles P. Rowen & Associates Inc. v. Ciba-Geigy Canada Inc. (1994), 1994 CanLII 1585 (ON CA), 19 O.R. (3d) 205, [1994] O.J. No. 1233, 14 B.L.R. (2d) 125, [1994] I.L.R. ÂI-3068 (C.A.) [Leave to appeal to S.C.C. refused [1994] S.C.C.A. No. 400]; Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. ÂI-1176; [page618] H.W. Liebig & Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, [1986] S.C.J. No. 6, 14 O.A.C. 159, 25 D.L.R. (4th) 161, 65 N.R. 209, 38 R.P.R. 201; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98, [1998] 1 W.L.R. 896 (H.L.); Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott's Food Services Inc., 1998 CanLII 4427 (ON CA), [1998] O.J. No. 4368, 114 O.A.C. 357, 41 B.L.R (2d) 42, 83 A.C.W.S. (3d) 382 (C.A.); Kepic v. Tecumseh Road Builders, [1987] O.J. No. 890, 23 O.A.C. 72 (C.A.); Mount Joy Farms Ltd. v. Kiwi South Island Co- operative Dairies Ltd., [2001] NZCA 372; Pagnan SpA v. Tradax Ocean Transportation SA, [1987] 3 All E.R. 565, [1987] 2 Lloyd's Rep 342 (C.A.), affg [1987] 1 All E.R. 81(Q.B.); Prenn v. Simmonds, [1971] 1 W.L.R. 1381, [1971] 3 All E.R. 237 (H.L.); Said v. Butt, [1920] 3 K.B. 497 (H.L.); ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481, [1995] O.J. No. 3556, 129 D.L.R. (4th) 711 (C.A.); Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1999), 1999 CanLII 3778 (ON CA), 45 O.R. (3d) 417, [1999] O.J. No. 3290, 178 D.L.R. (4th) 634, 50 B.L.R. (2d) 64 (C.A.); Truckers Garage Inc. v. Krell, 1993 CanLII 1138 (ON CA), [1993] O.J. No. 3141, 68 O.A.C. 106 (C.A.) Authorities referred to Hall, G.R., "A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords" (2004) 40 Can. Bus. L.J. 20 Lewison, K., The Interpretation of Contracts, 3rd ed. (London: Sweet & Maxwell, 2004) McCamus, J.D., The Law of Contracts (Toronto: Irwin Law, 2005) Staughton, Sir C., "How Do the Courts Interpret Commercial Contracts?" (1998) 58 Cambridge L.J. 303 Steyn, L.J., "The Intractable Problem of the Interpretation of Legal Texts" (2003) 25 Sydney L. Rev. 5 Swan, J., Canadian Contract Law (Markham, Ont.: Butterworths, 2006) Sullivan, R., "Contract Interpretation in Practice and Theory" (2000) 13 S.C.L.R. (2d) 369 Welling, B.L., Corporate Law in Canada: The Governing Principles, 2nd ed. (Markham, Ont.: Butterworths, 1991)

Benjamin Zarnett and Alexa Abiscott, for appellants. R.G. Slaght, Q.C., for respondent.

The judgment of the court was delivered by

DOHERTY J.A.:--

I

Overview

[1] The respondent, J. Michael B. Dumbrell ("Dumbrell"), was employed by the appellant, the Regional Group of Companies Inc. ("Regional"), for about one year beginning in November 1998. [page619] The appellant, Steven H. Gordon ("Gordon"), was the president, CEO and directing mind of Regional.

[2] Dumbrell left Regional's employment in November 1999. He subsequently sued Regional and Gordon claiming he was owed 50 per cent of the profit earned on a commercial real estate transaction referred to as the "Queen Street project". The trial judge found that Dumbrell was entitled, under the terms of his employment contract, to 50 per cent of the $1 million profit earned on the Queen Street project.

[3] Regional and Gordon appeal. Counsel raises three issues:

-- Did the trial judge err in holding that Dumbrell was entitled to 50 per cent of the profit earned on the Queen Street project even though that profit was earned long after the termination of his employment contract?

-- Even if Dumbrell was entitled to the profits under the terms of the employment contract, did the trial judge err in awarding him 50 per cent of the profit earned by entities other than Regional or Gordon? [See Note 1 below]

-- Did the trial judge err in holding Gordon personally liable?

[4] I would allow Regional's appeal in part. I would hold Regional liable under the contract but only for commission on profits earned by Gordon's company and his wife and children. I would not hold Regional liable for commission on profits earned by other investors brought into the project by Gordon.

[5] I would allow Gordon's appeal. Dumbrell alleged various causes of action against Regional and Gordon at trial. The trial judge found a breach of contract, but rejected the other claims made by Dumbrell. Dumbrell's contract was with Regional and only Regional. He could have no reasonable expectation of recovery upon breach of the contract from any entity other than Regional. I see no legal basis upon which Gordon could be found personally liable for a breach of the contract made between Dumbrell and Regional. Nor can Gordon be liable for inducing Regional's breach of contract. Dumbrell did not plead that cause of action and did not adduce evidence capable of establishing that Gordon induced a breach of contract. [page620]

II

The Facts

[6] The trial lasted two weeks. The trial judge heard different versions of many events, some of which are not relevant to this appeal. I will summarize only those facts germane to the issues raised on appeal. My summary also reflects the trial judge's findings of fact and her credibility assessments. Neither are challenged on appeal. The trial judge preferred Dumbrell's version of events over Gordon's whose evidence she found to be unworthy of belief in many respects.

(a) Dumbrell's employment with regional

[7] In the summer of 1998, Dumbrell was living in British Colombia. He had spent most of his working life in the real estate development business and was looking for an opportunity to get back into that business in Ottawa where he had previously worked for many years.

[8] Regional operated a large, well-established real estate business in the Ottawa area. Gordon had been Regional's CEO since 1984. He held all the voting shares. Regional provided a variety of services, including property management, property appraisals, land acquisitions, land development and consulting.

[9] Regional would sometimes put together groups of investors or syndicates to purchase and develop properties. The properties would be located by Regional and purchased in trust by a shell company for the investors. Regional would earn various fees for arranging the purchase, syndication, management and development of the property. Investors in the syndicate often were officers or employees of Regional or relatives of Gordon. Gordon sometimes took an equity position in these developments through Regional or various other corporate entities he controlled.

[10] Gordon had the final say in respect of all facets of Regional's operation. He decided which projects in which Regional would become involved, the fees Regional would charge, which corporate entities would be used, the roles those entities would play in a transaction and which investors would be invited to join which syndicates.

[11] Dumbrell met with an employee of Regional in the summer of 1998 to discuss the possibility of Dumbrell working with Regional. Dumbrell met with Gordon either at the same meeting or in a subsequent meeting shortly afterward. Dumbrell had considerable expertise in the commercial real estate field, an area in which Gordon wanted Regional to become more involved. [page621]

[12] Gordon and Dumbrell agreed that Dumbrell would work for Regional and would have the title Vice-President, Commercial Development. Dumbrell understood that he would find commercial real estate projects, bring them to Regional and that Regional would then become involved in the purchase and development of those properties. Dumbrell would be paid a commission on the profits earned from the projects that he brought to Regional.

[13] On Gordon's instructions, Regional's lawyer drafted an employment contract between Dumbrell and Regional. Three drafts were prepared and reviewed by Dumbrell, Gordon and their respective lawyers. There were several changes made in the various drafts of the contract. Almost all of these changes reflected Gordon's and not Dumbrell's preferences. Eventually, in November 1998, they agreed on the terms and both signed the agreement. Gordon signed as president of Regional.

[14] Some of the contract terms are set out in full below. Generally speaking, the contract provided that Dumbrell would be compensated exclusively on a commission basis. His commission would be calculated as a percentage of the profit generated from projects that he brought to Regional.

(b) The Queen Street property

[15] Like most people familiar with the Ottawa real estate market, Dumbrell knew of the Queen Street property in November 1998. The property was owned by Canadian Real Estate Investment Trust ("CREIT"). It occupied a full downtown city block in Ottawa and in late 1998 was being used as a parking lot. It was zoned for use as office space. Dumbrell believed that the price of the property would increase dramatically in the immediate future as the need for office space increased in Ottawa. He also believed that the property was ripe for development in late 1998. The property was not on the market, but Dumbrell mentioned it to Gordon as a potential project for development by Regional. Gordon encouraged him to look into the possibility of acquiring the Queen Street property.

[16] In early 1999, Dumbrell began to assemble a file on the Queen Street property. He received information from an employee of CREIT pertaining to possible development plans for the property and certain rent schedules. CREIT gave the information to Dumbrell on the undertaking that it would be kept confidential.

[17] Shortly after Dumbrell acquired information from CREIT, he contacted an architect who had worked on development plans for that property some years earlier. Dumbrell and the architect [page622] spoke at length and the architect gave Dumbrell a great deal of background information pertaining to the property. Based on the information he had accumulated, Dumbrell concluded that the Queen Street property was under priced and presented an excellent opportunity for a profitable development as an office tower. Regional decided to proceed with efforts to acquire the Queen Street property.

[18] In February 1999, on Gordon's instructions, Dumbrell prepared and submitted an offer to purchase the Queen Street property for $7,745,000. That offer was in the name of Canadian Gateway, a consortium of five companies, including Regional, that had been assembled by Gordon. CREIT was not interested in selling the property on the terms of the offer.

[19] Gordon instructed Dumbrell to submit a second offer in February 1999. This offer, also in the name of Canadian Gateway in the amount of $9 million, was rejected by CREIT. In March 1999, a third offer, also at $9 million, but providing for a shorter due diligence period, was submitted by Dumbrell on Gordon's instructions. This offer was also rejected.

[20] The trial judge described, at para. 35, Dumbrell's role in these three offers as follows:

Mr. Dumbrell was the point man in these negotiations, drafting these offers at Mr. Gordon's direction and reporting back the reactions of Mr. Dansereau [the vendors' representative] who communicated only with Mr. Dumbrell.

[21] Some time after the third offer was rejected, some of the partners in Canadian Gateway decided they were no longer interested in purchasing the Queen Street property. In July 1999, Dumbrell, on Gordon's direction, prepared a fourth offer. This offer showed Regional as the purchaser at a purchase price of $9.3 million. It also provided for a $300,000 commission payable to Regional on closing by CREIT. The corporate identity of the purchaser was irrelevant to Dumbrell. As far as he was concerned, he was working on a "Regional" project and it was up to Gordon to decide what corporate entities would be used to effect the transactions and subsequent development of the property.

[22] CREIT knew that Regional would not be the ultimate purchaser and developer of its property. It, therefore, wanted to know the identity of Regional's investors. Negotiations broke down when Regional could not or would not identify its investors. The July offer was rejected in August 1999.

[23] In August, Gordon told Dumbrell that he was no longer interested in the Queen Street property. Dumbrell had spent [page623] most of his time since he commenced employment with Regional in November 1998 working on the Queen Street property. His interest in the property continued even after Gordon told him that he was no longer interested in the property.

[24] In October 1999, Gordon spoke with a government official who told him that there would be a significant increase in the demand for downtown office space in Ottawa in the immediate future. This information made the Queen Street property more attractive.

[25] In late October 1999, Mr. Samuel Grosz, a friend of Gordon's and a real estate developer whose Ottawa properties were managed by Regional, visited Ottawa primarily to look at his properties. Gordon showed Mr. Grosz the Queen Street property and gave him all of the information that Dumbrell had assembled, including the confidential information that had been provided to him by CREIT in January 1999. Mr. Grosz soon became interested in the Queen Street property.

[26] Shortly after Gordon alerted Mr. Grosz to the possibility of purchasing the Queen Street property, Mr. Grosz learned that Philip Reichman and his company, O. & Y. Properties Inc. ("O. & Y."), were about to make an offer to purchase the Queen Street property. Mr. Grosz and Mr. Reichman knew each other well and decided to proceed by way of a joint venture with each holding a 50 per cent interest in the Queen Street property if they were able to purchase it from CREIT.

[27] By early November 1999, it was clear that the working relationship between Gordon and Dumbrell was not going to last. None of the projects that Dumbrell had worked on had produced any profit for Regional. Dumbrell had not received any remuneration in the year he had been at Regional. Gordon had refused Dumbrell's request for an advance on his commissions. Gordon was also systematically excluding Dumbrell from meetings and the decision-making process at Regional. On November 4, 1999, Dumbrell resigned effective November 22, 1999. He had decided to go into business for himself.

[28] On November 19, 1999, after Dumbrell had tendered his resignation from Regional, but while he was still employed there, Mr. Grosz told Gordon that Mr. Grosz and O. & Y. were considering making an offer on the Queen Street property. Mr. Grosz asked Gordon to determine the status of the property. He also told Gordon that because Gordon had brought the property to his attention, he was prepared to allow Gordon to participate with he and O. & Y. in the joint venture. Mr. Grosz indicated that Gordon could purchase one-half of Mr. Grosz's 50 per cent interest in the joint venture. This would mean that Gordon would have a 25 per [page624] cent interest in the Queen Street property if the joint venture could acquire it.

[29] Mr. Grosz and O. & Y. were respected and high profile participants in the Ottawa commercial real estate market. They did not need Regional's participation to complete the purchase. Gordon wanted to be involved in a joint venture with them. At Mr. Grosz's suggestion, Gordon prepared an offer to purchase the Queen Street property in the name of Regional. When he did so, he anticipated that Regional would purchase the property in trust for Mr. Grosz (25 per cent), Gordon or his corporate nominee (25 per cent), and O. & Y. (50 per cent).

[30] The offer to purchase the Queen Street property prepared by Gordon in November 1999 was very similar to the offer prepared by Dumbrell in July 1999. Both offers provided for a purchase price of $9.3 million with a commission of $300,000 payable to Regional. The only significant difference between the two offers was that the July offer identified Dumbrell as the contact person at Regional and the November offer identified Gordon as the contact person.

[31] The asking price for the Queen Street property had dropped by about $1 million since July when Regional had submitted its offer at $9.3 million. Unlike Dumbrell, Gordon was not familiar with the commercial real estate market in Ottawa and was unaware that the asking price for the property had gone down. Gordon did not speak to Dumbrell before preparing this offer. The offer prepared by Gordon was reviewed by his putative partners. Mr. Reichman of O. & Y. learned that the offer prepared by Gordon was about 1 million more than the current asking price for the Queen Street property. He decided that he would take over any negotiations to purchase the Queen Street property. He submitted an offer in the name of O. & Y. at $8 million. That offer did not provide for any commissions payable to Regional.

[32] The offer submitted by O. & Y. was accepted by CREIT on or about November 25, 1999. The transaction was completed on December 2, 1999 and closed on January 24, 2000. The Queen Street property was purchased in trust by a numbered company. The numbered company was owned 50 per cent by O. & Y., and 50 per cent by a numbered company owned equally by Mr. Grosz and a company controlled by Gordon. Gordon's company held its 25 per cent interest in the property in trust for a syndicate assembled by Gordon. The syndicate consisted of Gordon, his wife and children, several cousins and his lawyer. Gordon, his wife and his children owned 73.33 per cent of the syndicate. In total, the syndicate advanced about [page625] $1,200,000 toward the project. Some of the payments went through Regional.

[33] Gordon acknowledged in cross-examination that this was not a typical syndication for which Regional would charge a fee for bringing the investors together. Regional did all of the work that had to be done for the syndicate on the project, but did not charge any fees until it submitted an invoice in late May 2002 after the interest in the property was sold. The trial judge was dubious as to the bona fides of that invoice.

[34] Early in 2000, Dumbrell learned through a contact at O. & Y., that O. & Y. had agreed to purchase the Queen Street property. Dumbrell spoke with Gordon and asked him about his or Regional's involvement in that purchase. Gordon lied to Dumbrell. He told him that he was unaware of the proposed purchase of the Queen Street property by O. & Y. and that neither Regional nor Gordon had anything to do with the purchase. Dumbrell subsequently learned of Gordon's involvement and commenced this lawsuit in October 2000. At that time, the syndicate put together by Gordon still held a 25 per cent interest in the Queen Street property.

[35] Under the terms of the agreement between O. & Y., Mr. Grosz and Gordon's syndicate, O. & Y. had an option to purchase the interests held by the other partners. In May 2002, O. & Y. exercised its option and bought out Gordon's syndicate. The syndicate's 25 per cent interest was sold at a profit of slightly more than $1 million. Dumbrell amended his statement of claim and alleged that he was entitled to 50 per cent of that profit.

III

Issue No. 1 -- Did the Trial Judge Err in Holding that Dumbrell Was Entitled to 50 per cent of the Profit under the Terms of the Employment Contract?

(a) The trial judge's analysis

[36] The trial judge found that the potential value of the Queen Street property as a development was made known to Gordon and Regional through Dumbrell's efforts. She further held that it was through those efforts that Regional established contacts with CREIT, assembled a file containing a great deal of information on the property, and was in a position to provide that information to Mr. Grosz when he expressed an interest in the property in October 1999. Mr. Grosz in turn offered Regional/Gordon a 25 per cent interest in the property because of the information he had received from Gordon. [page626]

[37] On the trial judge's findings, Dumbrell was directly responsible for the syndicate, under Gordon's direction and control, obtaining a 25 per cent interest in the Queen Street property. The syndicate ultimately made a $1 million profit from its involvement in the transaction.

[38] The trial judge rejected Gordon's evidence that he and Dumbrell had agreed that the Queen Street project would not be covered by the terms of Dumbrell's employment contract. She noted that it made no sense that Dumbrell would spend the vast majority of his time over several months trying to secure a property that was excluded from the terms of his employment contract. She then turned to the terms of that agreement.

[39] The contract was between Regional and Dumbrell. It described Dumbrell as "an employee". The services to be provided to Regional by Dumbrell were described in Schedule "A" to the agreement:

The Corporation and the Employee agree that the Employee will be charged with the responsibility to provide the Corporation with Development, Acquisitions, Financing and Syndications and Consulting Services. Employee to research, investigate, report and recommend real property capital asset purchases suitable for development or syndication. Employee shall not bind the Corporation to any contract or legal commitment without the prior written authority of the Corporation.

(Emphasis added)

[40] The contract was for a term of six months with an expiry date of May 1, 1999, and provided for renewal for an additional term of six months on mutual agreement of the parties. Although the contract was not formally renewed, the parties agreed that it was renewed and was in effect when Dumbrell resigned in November 1999.

[41] The agreement provided for termination "at the end of the Term hereof", and further provided that neither party could commence an action under the contract more than one year after the expiration of the term of the contract. Dumbrell commenced this action in October 2000, less than one year after he quit. This initial claim eventually developed into one for commission on a profit realized more than two years after the contract was terminated.

[42] The provision of the contract governing Dumbrell's compensation is found under the heading "Employee Earnings":

1. EMPLOYEE EARNINGS

The Corporation shall pay to the Employee the sum of [as per the commissions payable as set out in Schedule "B" attached]. The Corporation is responsible for making source deductions, including payments on account of Canada Pension Plan and Employment Insurance. Employee shall be [page627] entitled to participate in Corporation's Health Benefit Package as exists as of the date hereof and as amended from time to time.

(Emphasis in original)

[43] Schedule "B" referred to in the above clause reads as follows:

SCHEDULE "B"

DESCRIPTION OF REMUNERATION PACKAGE TO EMPLOYEE

1(1) The remuneration package for the Employee will be based on performance of the Employee payable as follows: [See Note 2 below]

(a) For each project, profits to be split 50% to the Employee and 50% to the Corporation.

1(2) For purposes of this Agreement, "profit" shall include monies earned and actually received by the Corporation as completed Acquisition Fees, Development Fees and Syndication Fees earned as a result of the Employee's direct involvement for completed and closed projects in accordance with standard operating policy of the Corporation on the following business activities:

(a) Development projects;

(a) Syndication projects;

(a) Special consulting and brokerage fees payable to the Division.

1(3) "Profit" shall be defined as the Gross Revenues received for a particular Project less expenses directly related to the negotiation, acquisition, development and sale of the project. All such expenses shall be deducted from Gross Revenues as would a prudent accountant applying generally accepted accounting principles. Expenses shall include, but not limited to:

(a) Acquisition cost of the property;

(a) Governmental and development fees;

(a) Professional advice (accountants, engineers, lawyers, third party consultants);

(a) Financing fees, brokers fees, interest and carrying charges;

(a) Fees paid to investors for the project;

(a) Costs and disbursements paid pursuant to any syndication agreement;

(a) Realtor's fees; and

(a) Construction costs and related site improvements.

(Emphasis added) [page628]

[44] The trial judge did not find that the contract of employment provided for payment of commission to Dumbrell on profits earned after the termination of the employment agreement. Rather, she equated the relationship between Regional and Dumbrell with a principal-agent relationship. Relying on Charles P. Rowen & Associates Inc. v. Ciba-Geigy Canada Inc. (1994), 1994 CanLII 1585 (ON CA), 19 O.R. (3d) 205, [1994] O.J. No. 1233 (C.A.), the trial judge held that since Regional accepted the benefit of the work done by Dumbrell regarding the Queen Street property, Regional was obligated to pay for that work in the absence of an agreement to the contrary. Next, she examined the language of the employment contract and concluded at para. 131:

The fact that crystallization of the deal [the sale of the syndicate's interest in the Queen Street property], and the culminating events occurred after the employee left his employment, is not, in my view, relevant. . . . The contract did not deal with this situation and therefore the entitlement is as set out in Charles P. Rowen & Associates Inc. et al. v. Ciba-Geigy Canada Inc., supra.

(Emphasis added)

[45] I agree with the trial judge's conclusion that Dumbrell was entitled to compensation for profits earned after the termination of the agreement, but my analysis is somewhat different than hers. I do not regard Charles P. Rowen, supra, as controlling. In Charles P. Rowen, the court was faced with a true principal-agent relationship, the terms of which had not been reduced to writing by the parties. The reasoning of the majority blends notions of quantum meruit and implied terms of a contract to resolve a problem that the parties had not addressed when establishing their relationship.

[46] In the present case, the parties did consider the nature of their working relationship. After considerable negotiation and legal assistance, they entered into an employment contract which described Dumbrell as an "employee" and addressed the nature of his compensation. In my view, the question of whether Dumbrell was entitled to commission on the profits earned on the Queen Street project depends on an interpretation of the language used in the contract. If he is entitled to commission on the profits from the Queen Street property, that entitlement must be found in the language of the agreement he entered into with Regional.

(b) Contractual interpretation

[47] Judges spend most of their working time deciphering the meaning of various kinds of legal documents, including written [page629] contracts: see e.g., Lord Justice Johan Steyn, "The Intractable Problem of the Interpretation of Legal Texts" (2003) 25 Sydney L. Rev. 5; Sir Christopher Staughton, "How Do the Courts Interpret Commercial Contracts?" (1998) 58 Cambridge L.J. 303. Most Canadian judges faced with interpreting a written commercial contract, cite either or both of Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, at p. 901 S.C.R., and Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, at paras. 52-56. Professor Ruth Sullivan has observed that these two authorities can be read as advancing different notions of contractual intent. She observes that Consolidated-Bathurst, supra, arguably looks to the subjective intention of the contracting parties at the time the contract was made, while Eli Lilly, supra, looks to the intent as discerned from the words used in the written contract. Professor Sullivan refers to the former approach as the intentionalist approach, and the latter as the textualist approach: see Ruth Sullivan, "Contract Interpretation in Practice and Theory" (2000) 13 S.C.L.R. (2d) 369, at 375-86, 392.

[48] In Eli Lilly, supra, at paras. 52-54, Iacobucci J. refers to Consolidated-Bathurst, supra, with approval. He clarifies, at para. 54, what is meant in Consolidated-Bathurst by "the true intent of the parties" for contractual purposes:

The trial judge appeared to take Consolidated-Bathurst to stand for the proposition that the ultimate goal of contractual interpretation should be to ascertain the true intent of the parties at the time of entry into the contract, and that, in undertaking this inquiry, it is open to the trier of fact to admit extrinsic evidence as to the subjective intentions of the parties at that time. In my view, this approach is not quite accurate. The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time.

[49] On the approach taken in Eli Lilly, supra, the focus is on the meaning of the words used in the contract. Evidence of the subjective intention of the parties has "no independent place" in the interpretative process: Eli Lilly, at para. 54; see also Staughton, "How Do the Courts Interpret Commercial Contracts?", supra, at 304-06; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98, [1998] 1 W.L.R. 896 (H.L.), at pp. 114-15 All E.R.

[50] In my view, when interpreting written contracts, at least in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. This is so for at least two reasons. First, emphasis on subjective intention denudes the [page630] contractual arrangement of the certainty that reducing an arrangement to writing was intended to achieve. This is particularly important where, as is often the case, strangers to the contract must rely on its terms. They have no way of discerning the actual intention of the parties, but must rely on the intent expressed in the written words. Second, many contractual disputes involve issues on which there is no common subjective intention between the parties. Quite simply, the answer to what the parties intended at the time they entered into the contract will often be that they never gave it a moment's thought until it became a problem: see Kim Lewison, The Interpretation of Contracts, 3rd ed. (London: Sweet & Maxwell, 2004) at 18-31.

[51] Eli Lilly, supra, instructs that the words of the contract drawn between the parties must be the focal point of the interpretative exercise. The inquiry must be into the meaning of the words and not the subjective intentions of the parties. In this sense, my approach is textualist. However, the meaning of the written agreement must be distinguished from the dictionary and syntactical meaning of the words used in the agreement. Lord Hoffmann observed in Investors Compensation Scheme Ltd., supra, at p. 115 All E.R.:

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

[52] No doubt, the dictionary and grammatical meaning of the words (sometimes called the "plain meaning") used by the parties will be important and often decisive in determining the meaning of the document. However, the former cannot be equated with the latter. The meaning of a document is derived not just from the words used, but from the context or the circumstances in which the words were used. Professor John Swan puts it well in Canadian Contract Law (Markham, Ont.: Butterworths, 2006) at 493:

There are a number of inherent features of language that need to be noted. Few, if any words, can be understood apart from their context and no contractual language can be understood without some knowledge of its context and the purpose of the contract. Words, taken individually, have an inherent vagueness that will often require courts to determine their meaning by looking at their context and the expectations that the parties may have had.

[53] The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement: see [page631] BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, [1993] S.C.J. No. 1, at pp. 23-24 S.C.R.; H.W. Liebig & Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, [1986] S.C.J. No. 6, at pp. 80-81 S.C.R., La Forest J.; Prenn v. Simmonds, [1971] 1 W.L.R. 1381, [1971] 3 All E.R. 237 (H.L.), at pp. 1383-84 W.L.R.; Staughton, "How Do the Courts Interpret Commercial Contracts?", supra, at 307-08.

[54] A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.

[55] There is some controversy as to how expansively context should be examined for the purposes of contractual interpretation: see Geoff R. Hall, "A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords" (2004) 40 Can. Bus. L.J. 20. Insofar as written agreements are concerned, the context, or as it is sometimes called the "factual matrix", clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made: Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott's Food Services Inc., 1998 CanLII 4427 (ON CA), [1998] O.J. No. 4368, 114 O.A.C. 357 (C.A.), at p. 363 O.A.C.

[56] I would adopt the description of the interpretative process provided by Lord Justice Steyn, "The Intracticable Problem of the Interpretation of Legal Texts", supra, at 8:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce. [See Note 3 below]

(Emphasis added) [page632]

(c) The interpretation of this contract

[57] The context in which the written words used in this agreement must be understood begins with the parties who negotiated the agreement. Both were sophisticated, experienced, successful businessmen who could reasonably be expected to negotiate a commercially sensible and workable agreement. When they agreed to work together, it was anticipated that Dumbrell, whose expertise lay in finding commercial real estate projects, would investigate and, where appropriate, bring potentially profitable large-scale commercial developments to Regional. Regional had the ability to finance and develop these projects. It did so in various ways using whatever corporate vehicle Gordon deemed appropriate.

[58] The agreement reached by the parties contemplated a relatively short working relationship of between six months and one year. It also contemplated that Dumbrell would receive nothing unless he brought projects to Regional which earned profits for Regional. If he did that, his compensation would be significant (50 per cent of the profits). In tying Dumbrell's compensation to profits as opposed to, for example, fees earned by Regional, the parties anticipated that Dumbrell's entitlement to commissions would not be known until a project was complete and Regional's net profit on the project could be determined.

[59] Given Regional's business history, it could reasonably be anticipated when the employment agreement was made that when projects were brought to it by Dumbrell, Regional would be involved in various ways and that its involvement could yield profits through a variety of methods at different stages of Regional's involvement in any given project. On the findings made by the trial judge, Dumbrell was not taking employment with a company whose sole source of profits came through various forms of fees, but was taking employment with a company whose profits could come through various kinds of involvement in different projects.

[60] I turn from the context in which the employment agreement was made to the words used in the agreement and in particular the words used in Schedule "B". Schedule "B" begins by stating that Dumbrell's remuneration will be based on his performance. He must produce to be paid. Schedule "B" then describes his remuneration as 50 per cent of "profits" for each project. "Profits" are described in paras. 1(2) and 1(3).

[61] Paragraph 1(2) makes it clear that profits must be earned as a result of Dumbrell's direct involvement in the project. In addition, the project must be "completed and closed ... in [page633] accordance with standard operating policy of the Corporation". The reference to "standard operating policy" is of no assistance as it is common ground that there was no such thing.

[62] Paragraph 1(2) sets out certain kinds of fees that are included in the meaning of profits, such as acquisition fees, development fees and syndication fees. The fees described in para. 1(2) are not an exhaustive list of the kinds of payments to Regional that can constitute profits. Lastly, para. 1(2) refers to business activities which constitute projects for the purpose of the calculation of profits, including "Syndication projects".

[63] Paragraph 1(3) sets out a formula by which profits are to be determined by deducting certain expenses from "Gross Revenues". The reference in para. 1(3) to "Gross Revenues" and the types of expenses identified in that paragraph indicates two things. First, the question of whether Regional earned any profit and, if so, the amount of that profit may well not be determined until the end of Regional's involvement in a particular project. Second, Regional's involvement in projects could take forms other than a fee for service basis. The reference to "Gross Revenues" and many of the expenses described in para. 1(3) are consistent with Regional taking equity positions in a project and realizing a profit upon a sale of that equity position.

[64] On my reading of Schedule "B", Dumbrell was entitled to a 50 per cent commission on profits if:

-- he was directly responsible for the project in that it was secured for Regional through his efforts;

-- Regional had earned and actually received moneys on the project;

-- the project was "completed and closed", that is Regional's involvement was completed; and

-- using the method described in para. 1(3), Regional had earned a profit.

[65] Nothing in the language of Schedule "B" limits Dumbrell's potential remuneration to projects that are completed and closed as of the date of termination of his employment contract. The context in which the contract was made contraindicates imposing any such limitation on profits. Reasonable people in the position of Dumbrell and Gordon would have appreciated that Regional's involvement in the kind of complex large scale commercial projects that it was anticipated Dumbrell would bring to it may well not be completed within the relatively short time [page634] span contemplated by the employment contract. Similarly, the method used for calculating Dumbrell's compensation by reference to profit as calculated in para. 1(3) contemplates that the projects could well extend over a considerable period of time with the ultimate determination of whether any profit was made and, therefore, any remuneration owed to Dumbrell being based on events that occurred well after the relatively brief period of employment contemplated by the agreement. On my reading of Schedule "B", Dumbrell was entitled to 50 per cent of Regional's profits even if the profits were made after the employment contract was terminated.

[66] The appellants rely on the termination provision:

1.1 This contract shall terminate:

1.1.1 at the end of the Term hereof.

1.1 Upon termination or other expiration of this contract the Employee shall forthwith return to the Corporation all papers, materials, equipment and other properties of the Corporation held for the purpose of execution of the contract. In addition, each party will assist the other party in the orderly termination of the contract and the transfer of all aspects hereof, tangible and intangible, as may be necessary for the orderly, non-disrupted business continuation of the Corporation.

1.1 Neither party may commence an action under this contract more than one (1) year after the expiration of its term, or, in the event of default, more than one (1) year after the occurrence of said default.

(Emphasis added)

[67] The termination provision does not assist in defining profits for the purpose of calculating Dumbrell's compensation. The first part of the termination clause speaks to the point at which the contractual relationship ends. It does not purport to terminate obligations that existed under the contract when the contract came to an end. If, as I would hold, profits as defined in Schedule "B" include profits earned and calculated after the termination of the contract, the obligation to pay those profits, when and if they arise, is an obligation that exists under the contract as of the date of termination albeit in an inchoate form.

[68] The last paragraph in the termination clause is also a relevant consideration. That paragraph answers one of the arguments relied on by the appellants. They submitted that a definition of profits that included profits made after the termination date of the contract would create indefinite and potentially open-ended liability by Regional to Dumbrell for profits earned on projects many years down the road. The limitation provision in the termination clause excludes any claim by Dumbrell that is [page635] not advanced within one year of the termination of the contract. This provision effectively places limits on Regional's potential liability to Dumbrell. As it happens, the limitation clause does not assist Regional here because Dumbrell had commenced his action within the one-year period.

[69] In summary, like the trial judge, I conclude that Dumbrell was entitled to 50 per cent of the profits earned by Regional on the Queen Street project. I reach that conclusion through a reading of Schedule "B" of the agreement in the context of the circumstances in which the agreement was made. I do not read the termination clause as modifying the meaning of profits in the agreement.

IV

Issue No. 2 -- Was Dumbrell Entitled to 50 per cent of the Profits Earned by Entities Other than Regional/Gordon?

[70] As outlined above, through Dumbrell's efforts, and at Mr. Grosz's invitation, Regional/Gordon acquired a 25 per cent interest in the Queen Street property early in 2000.

[71] At Gordon's direction, the 25 per cent interest in the Queen Street property was held by one of his companies in trust for a syndicate of investors. Another Gordon company (LPH), his wife and his children held 73.33 per cent of the syndicate. Several of Gordon's cousins and his lawyer, who practised with one of the cousins, held the other 26.67 per cent of the syndicate.

[72] The accounting breakdown on the syndicate's investment in the Queen Street property, prepared at Gordon's request, but accepted by Dumbrell at trial, showed that the syndicate advanced about $1,200,000 on the Queen Street project and received about $2,200,000 on that project resulting in a profit of just over $1 million. The accounting records indicate that the funds were distributed in accordance with the percentage of ownership in the syndicate. Gordon and his immediate family received about $732,000 of the $1 million profit earned by the syndicate.

[73] In oral argument, Mr. Zarnett acknowledged that if Dumbrell was entitled to compensation on the Queen Street project under the terms of the employment contract, no distinction could be drawn between profits earned directly by Regional and profits earned by other corporate entities used by Gordon to generate the profit. I would extend the same reasoning to cover profits earned by Gordon's wife and children. On this approach, Dumbrell was entitled to 50 per cent of the profits earned by LPH, Gordon's wife and Gordon's children. [page636]

[74] Counsel submits, however, that profits earned by other investors in the syndicate cannot be treated as the same as Regional's profits. The accounting records demonstrate that profits were paid out to the other investors when the syndicate sold its 25 per cent interest in the Queen Street property to O. & Y.

[75] In her reasons, the trial judge accepted, at para. 158, that there were "third parties investing and risking money". I take this to mean that the trial judge accepted that Gordon's cousins and his lawyer were bona fides investors who helped finance the 25 per cent interest in the Queen Street property. She went on to hold, however, that Gordon's resort to other investors could not affect the compensation owed to Dumbrell. She said, at paras. 159-60:

In calculating damages, there is no evidentiary foundation of any kind on which to assess legitimate costs which might have been set off against this profit.

Without a scintilla of such evidence, the court is unable to do other than order damages of $500,000, pursuant to the first part of the paragraph in the employment contract dealing with employee remuneration.

[76] I cannot agree with this analysis. To the extent that the syndicate was owned by third parties who genuinely invested funds in the project, I do not see how profits payable to those investors can become the profits of Regional for the purposes of calculating Dumbrell's compensation. The accounting records do provide evidence that 26.67 per cent of the profit realized on the sale of the 25 per cent interest in the Queen Street project was paid to third party investors and not to Regional, Gordon, his companies, or his immediate family. The calculation of Dumbrell's compensation on the Queen Street project should not have extended to a percentage of the profits earned by third party investors. If my arithmetic is correct, Dumbrell should have received 50 per cent of the profits realized by a 73.33 per cent interest in the syndicate.

V

Issue No. 3 -- Did the Trial Judge Err in Holding Gordon Personally Liable for Breach of Contract?

[77] In his statement of claim, Dumbrell alleged several causes of action against Regional and Gordon. At trial, he succeeded only on the breach of contract claim. In the statement of claim, Dumbrell alleged a breach of contract against only Regional. In her initial reasons for judgment, the trial judge [page637] found both Regional and Gordon liable for breaching the contract. She did not separately address Gordon's personal liability for breaching a contract to which he did not appear to be a party. Gordon's liability for breach of contract as distinct from Regional's liability was not addressed by counsel in closing argument.

[78] After the trial judge released her initial reasons, and at the request of counsel for Regional and Gordon, she heard further argument on Gordon's personal liability for breach of contract. The trial judge gave additional reasons in which she confirmed her initial finding that Regional and Gordon were both liable for the breach of contract.

[79] I have difficulty understanding the basis upon which the trial judge found Gordon liable for breach of contract. She spoke of "piercing the corporate veil" and described Regional as Gordon's agent for the purposes of the contract. However, she found both Regional and Gordon liable for breaching the contract. I agree with Mr. Zarnett's submission that if Regional acted as Gordon's agent for the purposes of the contract, only Gordon could be liable for breaching that contract. The trial judge's finding that Regional was liable along with Gordon for breaching the contract was also inconsistent with the trial judge's conclusion, at para. 187, that she should "pierce the corporate veil" and hold Gordon liable. Either Regional had a separate legal persona for the purposes of the contract or it did not.

[80] The concepts of piercing the corporate veil and holding that a corporation acts as an agent for the individual who controls that corporation achieve the same result in that they both impose personal liability for what appear to be corporate actions. They achieve that result, however, in different ways. The agency relationship assumes that the corporation and the controlling mind are distinct, but that on the relevant facts the former acted as agent for the latter. Piercing the corporate veil ignores the legal persona of the corporation: Bruce L. Welling, Corporate Law in Canada: The Governing Principles, 2nd ed. (Markham, Ont.: Butterworths, 1991) at 122-36.

[81] There is no basis in this record for describing Regional as Gordon's agent for the purpose of entering into the employment contract with Dumbrell. Dumbrell did not plead that Regional acted as Gordon's agent. The terms of the contract offer no suggestion that Regional was acting in an agency capacity. Finally, Dumbrell's evidence does not suggest that he regarded Regional as Gordon's agent for the purposes of the contract. [page638]

[82] Nor is any case made out for ignoring Regional's separate legal persona. There can be no doubt that Dumbrell contracted with Regional and only Regional in November 1998. The employment contract clearly describes Dumbrell as Regional's employee. Dumbrell's pleadings and his evidence do not suggest otherwise. Gordon's total ownership and control of Regional and the fact that he made all decisions on behalf of Regional in respect of its dealings with Dumbrell does not detract from Regional's standing as a separate and distinct legal entity. Corporations must necessarily act at the instance and under the direction of those fixed with the responsibility and authority to direct the affairs of the corporation: see ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481, [1995] O.J. No. 3556 (C.A.), at p. 492 O.R.

[83] The separate identity of a corporation can be ignored where the corporation is inserted into a transaction for a fraudulent or dishonest purpose. Corporations used in that way often have no assets, no corporate history, and no reason for existence other than facilitating a particular transaction. None of those indicia apply to Regional. Regional cannot be described as a shell or corporation of convenience put in place by Gordon for the purpose of entering into the contract with Dumbrell. As of November 1998, Regional had been a thriving well-established corporate entity for many years. It participated in many different real estate transactions and employed many people. Dumbrell chose to become one of those employees. There is no suggestion in the evidence that the creation of the employer/employee relationship between Regional and Dumbrell was tainted by fraud or dishonesty on the part of Gordon. There is simply nothing to suggest that Gordon set out to deceive or trick Dumbrell when he and Dumbrell negotiated the employment contract which created the contractual relationship between Dumbrell and Regional, and not between Dumbrell and Gordon. Dumbrell knew full well he was contracting with Regional. He could only reasonably expect to look to Regional for compensation in the event of a breach of the terms of the contract.

[84] The trial judge's reasons also suggest a second basis for holding Gordon liable. She referred to authorities that hold a directing mind of a company liable for inducing a breach of contract by that company: see e.g., Said v. Butt, [1920] 3 K.B. 497 (H.L.), at pp. 504-06 K.B.; Truckers Garage Inc. v. Krell, 1993 CanLII 1138 (ON CA), [1993] O.J. No. 3141, 68 O.A.C. 106 (C.A.), at pp. 114-15 O.A.C.; Kepic v. Tecumseh Road Builders, [1987] O.J. No. 890, 23 O.A.C. 72 (C.A.), at p. 74 O.A.C. [page639]

[85] Cases where an individual has been held liable for inducing a corporation's breach of contract have nothing to do with piercing the corporate veil or the concept of agency. These cases acknowledge the separate legal identity of the corporation and its directing mind. They hold the directing mind liable for the discrete tort of inducing the breach of contract and not for breach of contract itself. The measure of damages for inducing the breach of contract may or may not be the same as would apply to the breach of contract.

[86] Gordon cannot be liable for inducing a breach of the contract between Regional and Dumbrell. That cause of action was not pleaded. Nor do I understand counsel at trial or on appeal to have argued that Gordon's liability could be based on the separate tort of inducing a breach of contract. An allegation of inducing a breach of contract is very different from a claim that a person is liable for breaching the contract. In the absence of any pleading which expressly or impliedly alleges the tort of inducing a breach of contract, I do not think the principles underlying that tort can be relied on to render Gordon liable for the breached contract.

[87] The difficulties inherent in transforming an allegation of a breach of contract into a finding of inducing a breach of that contract are apparent in the trial judge's reasons. To establish the tort of inducing a breach of contract by the directing mind of the contracting party, it must be shown, among other things, that the conduct of the directing mind was not bona fides in the best interest of the corporation. In the addendum to her reasons, the trial judge indicates that Gordon's conduct caused Regional to lose certain fees on the Queen Street property. She states, at para. 173:

His [Gordon's] secretive and misleading conduct eventually caused a serious loss to his company when the company became unable to make the offer which would have resulted in another $300,000.-$400,000. fee.

[88] I cannot agree that anything Gordon did caused Regional to act to its detriment in respect of the Queen Street property. The trial judge found that as a result of Dumbrell's efforts, Regional/Gordon acquired a 25 per cent interest in the Queen Street property. That is the only interest that was available to Gordon in the joint venture that ultimately purchased the property. As the trial judge found, the calculation of Regional's profits and, therefore, Dumbrell's commission, did not depend on what part of the profits Regional described as fees. Had Gordon chosen to describe some of the profits generated for the syndicate from the sale of its interests as fees payable to Regional, it [page640] would not have increased the overall profit earned by the syndicate and would have had no effect on the quantification of Dumbrell's compensation. There is no evidentiary basis to hold that Gordon's conduct in respect of the Queen Street property cost Regional anything. On my reading of Gordon's cross-examination, it was not suggested to him that his conduct had somehow deprived Regional of profits that it would otherwise have earned. A finding that Gordon acted against Regional's best interests in connection with the profit earned on the Queen Street property has no foundation in either the pleadings or the evidence.

VI

Conclusion

[89] I would allow Gordon's appeal, set aside the trial judge's finding regarding Gordon's personal liability, and dismiss the action against Gordon. I would allow Regional's appeal in part and vary the trial order to provide that Dumbrell is entitled to 50 per cent of the profit from the Queen Street project earned by LPH, Gordon's wife and Gordon's two daughters.

[90] Counsel should make written submissions (no more than ten pages each) as to costs both at the trial and on appeal.

Appeal allowed in part.

Notes ----------------

Note 1: In their factum, the appellants argued that under the terms of the employment contract, Dumbrell was entitled only to 50 per cent of Regional's profits and that none of the profit from the Queen Street project was earned by Regional. In oral argument, counsel accepted that the terms of the employment contract would reach profits earned by Regional or other entities controlled by Gordon.

Note 2: In the contract, all of the paragraphs in Schedule "B" are numbered "1". For ease of reference, I have added the numbers in parentheses.

Note 3: Lord Steyn has taken the same apporach in his judgements: see Pagnan SpA v. Tradax Ocean Transportation, SA, [1987] 1 All E.R. 81 (Q.B.), Steyn J., affd [1987] 3 All E.R. 565, [1987] 2 Lloyds Rep 342 (C.A.). See also Toronto-Dominion Bank c. Leigh Instruments Ltd. (Trustee of) (1999), 1999 CanLII 3778 (ON CA), 45 O.R. (3d) 417, [1987] O.J. No. 3290, 178 D.L.R. (4th) 634 (C.A.), at p. 639 D.L.R.; Lewison, The Interpretation of Contracts, supra, at 5, 22-24; Mount Joy Farms Ltd. v. Kiwi South Island Co-operative Dairies Ltd., [2001] NZCA 372, at para. 38.