Court of Appeal for Ontario

Citation: Protectron Inc. v. Henderson Security Solutions Inc., 2008 ONCA 60

Date: 2008-01-28

Docket: C46919

Before: Sharpe, Cronk and Gillese JJ.A.

Between:

Protectron Inc.

Plaintiff (Appellant)

and

Henderson Security Solutions Inc. and Douglas Henderson

Defendants (Respondents)

Counsel:

Scott Kugler, for the appellant

Andrew J.F. Lenz and Christopher P. Morris, for the respondents

Heard: January 23, 2008

On appeal from the judgment of Justice M. Linhares de Sousa of the Superior Court of Justice dated March 2, 2007.

Endorsement

[1] The appellant, Protectron Inc., challenges the trial judge's dismissal of its action and her award of punitive damages against it on several grounds. For the following reasons, we would set aside the punitive damages award but dismiss the appeal in all other respects.

[2] We do not accept the trial judge's legal reasoning on the issues of waiver and the imposition of an implied term in the waiver agreement that the trial judge concluded had been entered into by the parties. However, for the following reasons, we agree with her ultimate holding that, in all the circumstances, the appellant's conduct precludes insistence by it on the sale to it by the respondents of the monitoring accounts in issue or the recovery by it of damages on account of the respondents' retention, for their own benefit, of the relevant accounts.

[3] The trial judge explicitly found that during the negotiations between the parties concerning a possible new contract, the appellant waived its existing contractual right to compel the respondents to sell it the monitoring accounts and to prevent the respondents' sale of those accounts to anyone other than the appellant.

[4] The trial judge also held that the respondents' ability to retain accounts for their own exclusive benefit was a significant item of discussion during the negotiations between the parties and that the appellant's offer that the respondents monitor their own accounts, something not permitted under the terms of the existing Master Contract between the parties, was intended as a device to drive the respondents to the bargaining table and to entice them to enter into a new contract. The trial judge further held that this strategy was "consistent with the conclusion that [the monitoring] accounts were to be [the respondents'] absolutely" and that this, in turn, was "consistent with the fact that those accounts were discussed and described as a possible pension fund for [the individual respondent]".

[5] These findings, which were open to the trial judge on the evidence, grounded her ultimate conclusion that the respondents were entitled to retain the 299 accounts in issue for their own exclusive use. There is no suggestion that these findings are tainted by palpable and overriding error so as to justify appellate interference with them.

[6] While we do not agree that the trial judge's waiver and "implied term" analysis is legally sustainable, the trial judge also stated: "Having found waiver, it is not necessary for this Court to consider in detail the arguments of estoppel put forward by counsel for the defendants. Needless to say, on the facts of this case, such arguments would have found favour with this Court."

[7] In our view, in combination, the findings we have identified support the conclusion that, by virtue of its negotiating strategy, the appellant is estopped from insisting on any entitlement to the accounts accumulated by the respondents during the contract negotiations that the respondents elected not to sell to the appellant in accordance with the Master Contract. Based on the trial judge's findings, the appellant cannot seek to now resile from the consequences of this self imposed strategy.

[8] In the end, therefore, with the exception of the punitive damages award, we are not persuaded that a miscarriage of justice occurred in this case.

[9] However, the trial judge's award of $50,000 punitive damages must be set aside. The trial judge found that the appellant could not be faulted for taking a "hard bargaining position" or for "the colourful and abrasive negotiating style" of its representative, Mr. Waddell. She based her award of $50,000 in punitive damages on a finding that by withholding deferred payments owing to the respondents "to get a reaction", the appellant's conduct "does...approach the standard of conduct that is 'malicious, oppressive and high-handed' as enunciated in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595. [Emphasis added].

[10] We set aside the award of punitive damages for the following reasons. First, punitive damages are rarely awarded in commercial cases and cannot be based on a finding that conduct merely "approaches" the required standard. Second, the trial judge made no explicit finding of an independent actionable wrong and we see no basis upon which we could make such a finding.

[11] Accordingly, for the reasons given, the appeal is allowed, in part, by setting aside the punitive damages award against the appellant. In all other respects, the appeal is dismissed.

[12] If the parties are unable to agree on costs, the respondents shall deliver their brief written costs submissions to the Registrar of this court within ten days from the date of these reasons. The appellant shall deliver its responding costs submissions to the Registrar within ten days thereafter.

"Robert Sharpe J.A."

"E.A. Cronk J.A."

"E.E. Gillese J.A."