CITATION: Hepburn v. The Trust Company of the Bank of Montreal, 2008 ONCA 847
DATE: 20081216
DOCKET: C48346
COURT OF APPEAL FOR ONTARIO
Weiler, Juriansz and MacFarland JJ.A.
BETWEEN
Vic Hepburn
Plaintiff (Respondent)
and
Jannock Limited, Vicwest Corporation, Magnatrax Corporation and The Trust Company of the Bank of Montreal
Defendants (Appellants) (Respondent, The Trust Company of the Bank of Montreal)
John L. McDougall, Q.C. and Tiffany D. Soucy, for the appellants
Matthew L.O. Certosimo and Lisa De Piante, for the respondent, Vic Hepburn
Craig Lockwood, for the respondent, The Trust Company of the Bank of Montreal
Heard: December 9, 2008
On appeal from the judgment of Justice John C. Murray of the Superior Court of Justice, dated January 11, 2008.
By the Court:
[1] The issue on this appeal is whether the trial judge erred in holding that the respondent, Hepburn, was entitled to an enhanced supplementary pension based on crediting him with an additional 36 months service towards his pensionable earnings. The trial judge based his decision on equitable principles of rectification, trust law and promissory estoppel.
[2] The appellant submits that the wording of the letter agreement entered into by the parties governs and that the trial judge erred in granting relief on equitable principles.
The Facts
[3] In 1998, Jannock’s Board of Directors decided to sell a division of the company, the Brick Group. The President (Atkinson) and VP, Human Resources (Kerry) began a process of negotiating an agreement with the respondent Hepburn, who was President of the Brick Group at the time. Jannock encouraged Hepburn to obtain independent legal advice and agreed to pay for that advice. Hepburn took them up on the offer and retained a partner at BLG in Toronto.
[4] The agreement was eventually reduced to writing in the form of a Letter Agreement. The Letter Agreement contained a termination upon sale of business clause as follows:
- Termination of Employment Upon Sale of Business
In the event that a Sale of Business is concluded and you do not accept employment with the purchaser(s), with Jannock or with any of its affiliates and your employment is terminated by Jannock, you will receive:
(b) Your insured health benefit and life insurance coverage (with the exception of disability benefits) will be continued for the lesser of a period of 36 months or until you are eligible to receive reasonably equivalent benefit coverage through other employment, and subject to the terms of the insurance contracts in effect between Jannock and its insurers. The pension benefit shall be calculated and paid out as if accrual continued for a 36-month period following termination, regardless of whether new employment is obtained. The accrual of retirement benefits will be based upon compensation in effect at the time of termination of employment. Vacation accrual will cease as of the date of termination of employment.
[5] Hepburn provided his counsel with a copy of the Letter Agreement and subsequently met with his counsel to discuss its terms.
[6] Hepburn testified at trial that he received advice from his counsel that if he wanted to “bullet-proof” s. 3(b), the words “with the purchaser or otherwise” should be added after the words “whether new employment is obtained” to ensure that he would be entitled to the 36-month credit if he took up employment with the purchaser of the Brick Group. Hepburn further testified that he told this to Kerry who in turn told him that the recommended language was redundant. In addition, he testified that Kerry had promised that the 36-month credit would be payable in any event.
[7] Kerry does not recall such a discussion and, as a result, the appellant takes issue with whether a specific assurance to Hepburn was provided by Kerry prior to the execution of the Letter Agreement. The trial judge appears to have accepted Hepburn’s evidence on this point. Kerry’s evidence is consistent with previous change of control agreements between Jannock and the executives regarding pension benefits.
[8] There is no issue that Kerry always understood that the 36-month credit would be payable in any event.
[9] The sale of the Brick Group closed on May 14, 1999. Hepburn then took up employment with the purchaser, Hanson Building Materials America. Prior to the sale, Kerry and Atkinson knew that Hepburn would be taking up employment with Hanson and Kerry had earlier requested that Jannock’s pension actuary prepare illustrations setting out the pension entitlements of Hepburn. According to the respondent, these illustrations were consistent with Hepburn’s and Kerry’s understanding, that he would receive the 36-month credit if he took up employment with Hanson.
[10] In March, 2000, Jannock was acquired by the appellant Magnatrax. Prior to the closing of the sale to Magnatrax, Kerry was involved with preparing a valuation of pension entitlements. At the time, Kerry confirmed to Jannock’s pension plan actuary that Hepburn was entitled to the additional 36-month accrual. In accordance with the actuary’s advice, Jannock paid $1,052,000 into trust on March 9, 2000, an amount which represented the expected eventual payout to Hepburn.
[11] Magnatrax subsequently amalgamated into a new company, the appellant, Vicwest. Following the amalgamation, Vicwest’s counsel wrote to Hepburn and advised him of the company’s position that Hepburn was not entitled to the 36-month credit since he had taken up employment with Hanson. Hepburn then commenced his action.
[12] In 2003, the appellants filed under the CCAA and chapter 11 of the United States Bankruptcy Code resulting in a stay of Hepburn’s action. Following these applications, a plan of arrangement was sanctioned by the Superior Court of Justice on August 12, 2003. Hepburn was granted leave to continue this action for the purpose of obtaining a declaration as to his entitlement to the 36 months credit.
Decision
[13] The trial judge held that Vicwest should not be allowed to take back the money that Jannock had put in place to fund Hepburn’s entitlement to the 36-month credit when it sold the Brick Group division. There is ample evidence to support the trial judge’s conclusion.
[14] The clear intention of the parties was that the respondent would receive the additional 36-month credit towards his pensionable earnings irrespective of whether he took up a position with the company to which the Brick Group was sold.
[15] In relation to rectification, the trial judge found that the parties had a prior oral agreement that the respondent would receive the 36 month credit. The wording that the parties chose to use did not give effect to this mutual intention. They were mutually mistaken in thinking that the letter agreement did implement their intention. Actions by Kerry that reinforce the notion of this mutual oral understanding include the fact that he:
• prepared cost models for the Compensation Committee which included the cost of an additional 36 months of pension accrual for Hepburn;
• obtained for Hepburn pension illustrations reflecting the entitlement;
• instructed the actuary to prepare a valuation of the pension obligations inclusive of the 36-month entitlement; and
• ultimately saw that Jannock paid into the pension trust the amount required to fully fund Hepburn’s entitlement.
[16] To allow Vicwest to take advantage of this mistake would be unfair and satisfies the “equivalent of fraud” requirement for rectification as that term is defined in Sulvan Lake Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678 at para. 39 to mean unfair dealing and unconscionable conduct. In this case, Vicwest would be taking unfair advantage of a mutual mistake by Jannock and Hepburn to obtain that which it had not bargained for if it is allowed have the return of the money.
[17] The fact that the letter agreement was not amended, although Hepburn obtained independent legal advice that he could bullet proof the wording of the letter agreement by adding the phrase “whether employment is obtained with the purchaser or otherwise”, does not detract from the conclusion that a mutual mistake was made. In Sylvan Lake, supra, at para. 66, the Supreme Court rejected the argument that due diligence was a condition precedent to rectification. The trial judge did not err in rectifying the letter agreement.
[18] We also agree with the trial judge’s alternative conclusion that promissory estoppel applied to prevent the appellant from succeeding. Kerry, on behalf of Jannock, made an unequivocal assurance that was intended to affect the legal relations between the parties upon which Hepburn acted when he took up employment with Hancock. The successor to the person who made the assurance cannot claim to revert to the situation as if such assurance had not been made. In light of the foregoing there is no need for us to address the time issue.
[19] Accordingly, we would dismiss the appeal.
[20] Costs of the appeal are agreed at $30,000 all inclusive on a partial indemnity basis. We therefore order that costs of $30,000 all inclusive be paid by the appellant to the respondent Hepburn. The respondent Trust Company of the Bank of Montreal took no position on this appeal and no costs are awarded for or against it.
RELEASED: Dec 16, 2008
“KMW” “K.M. Weiler J.A.”
“R.G. Juriansz J.A.”
“J. MacFarland J.A.”