CITATION: Reservoir Group Partnership v. 1304613 Ontario Ltd., 2009 ONCA 278
DATE: 20090403
DOCKET: C46672
COURT OF APPEAL FOR ONTARIO
MacPherson, Sharpe and Rouleau JJ.A.
BETWEEN:
Reservoir Group Partnership, Reservoir Group Inc. and Joseph Harris
Plaintiffs (Appellants)
and
1304613 Ontario Ltd. and Timothy Lychy
Defendants (Respondents)
Alan Lenczner and Nadia Campion for the plaintiffs (appellants)
Robert Hine for the defendants (respondents)
Heard: March 30, 2009
On appeal from the part of the judgment of Justice David M. Brown of the Superior Court of Justice dated January 22, 2007.
By the Court:
[1] The trial judge found that the respondent Lychy breached a restrictive covenant in a partnership agreement by soliciting and accepting business from several partnership clients. The covenant embraced the fiduciary duties the respondent owed to the appellants. The restrictive covenant had a two year term. The trial judge awarded the appellants damages measured by the earnings the appellants lost from the clients solicited for the two year period covered by the covenant, less 25% for the contingency that the clients would have left the appellants in any event.
APPEAL
[2] The appellants appeal the quantum of the damages, arguing that the trial judge erred by limiting the damages to the two year period and by deducting 25% for contingencies. They submit that the damage award fails to reflect the full loss of their right to bar the respondent from competing for their clients for a two year period. They say that loss included the opportunity to secure the loyalty of the clients and that as a “faithless fiduciary”, it does not lie in the respondent’s mouth to argue that they would have lost the clients in any event.
[3] The trial judge was alive to the nature of the loss claimed by the appellants, namely, that “[a]s a fiduciary, Mr. Lychy was required to retire from the field of dealing with [clients] for a period of time to afford Reservoir a reasonable period in which to attempt to preserve the client relationship” (at para. 78). He correctly observed that as the case involved a breach of fiduciary duty, the appellants had the option of claiming either:
(1) disgorgement of the benefit accruing to the respondent from his breach of duty, or
(2) recovery of the loss suffered as a result of the breach.
[4] The appellants elected to claim recovery of the loss. Having done so, it was for the appellants to prove the quantum of the loss, even though they sued for breach of fiduciary duty: Martin v. Goldfarb (1998), 1998 4150 (ON CA), 41 O.R. (3d) 161 (C.A.) at para. 67. The appellants did not and could not satisfy that burden or somehow shift it to the respondent simply by proving a breach of fiduciary duty without also proving the loss suffered.
[5] The quantification of the appellants’ loss was essentially a question of fact. The trial judge carefully assessed the evidence of what the appellants lost. He found that there was no evidence and no rationale to support the appellants’ proposed use of a five-year period to measure the loss. The fact that the clients had been with the appellants for an average period of five years did not prove that they would remain for five more years. The trial judge’s finding to the effect that the appellants offered no rational basis for the five year period was plainly a reasonable one, particularly in light of the balance of the evidence. The appellants’ business, that of an insurance broker, operated in a highly competitive environment. The clients were free to cancel their contracts on 30 to 90 days notice and pursue more advantageous arrangements elsewhere. There was considerable evidence that several of the clients were unhappy with the service provided by the appellants following the respondent’s departure. There was also considerable evidence that several of the clients were determined to retain the respondent’s services at the earliest possible opportunity.
[6] We conclude that on this record, it was clearly open to the trial judge to conclude that even if the respondent had not solicited the clients and accepted their business, the clients would not have remained for five years and, indeed, that some or all of them likely would have left the appellants well within two years, a finding that justified a damage award aptly measured the lost earnings for the two year period, less 25%.
[7] We do not accept the submission that this damage assessment cannot be sustained in the face of a finding of breach of fiduciary duty. As noted, the appellants elected to sue for the earnings they lost, not for disgorgement of the profits the respondent and his new employer gained. As the contract embraced and shaped the fiduciary duty the respondent owed the appellants, the trial judge did not err in holding that in the circumstances of this case, the damages were the same in contract as for breach of fiduciary duty. As La Forest J. stated in Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377 at para. 94, where “[t]he relevant contractual duty breached by the respondent is of precisely the same nature as the equitable duty considered in the fiduciary analysis” the damages that flow from either breach are the same. Nor do we agree that the damages awarded, measured by the loss the appellants suffered, were inadequate because they failed to punish the breach of fiduciary duty: see Hodgkinson v. Simms, at para. 81:
Equity is not so rigid as to be susceptible to being used as a vehicle for punishing defendants with harsh damage awards out of all proportion to their actual behaviour. On the contrary, where the common law has developed a measured and just principle in response to a particular kind of wrong, equity is flexible enough to borrow from the common law. This approach is in accordance with the fusion of law and equity. Courts should strive to treat similar wrongs similarly, regardless of the particular cause or causes of action that may have been pleaded.
[8] Accordingly, the appeal is dismissed.
CROSS-APPEAL
[9] The respondent raised several issues on the cross-appeal but essentially relied upon his factum in that regard. We did not call on the appellants to respond to the cross-appeal. In our view, there is no merit to the submission that the trial judge erred by failing to rule that the covenant was unreasonable given the nature of the appellants’ business and the central role the respondent played in that business. Nor do we see any merit in the submission that because some of the clients approached the respondent, he did not breach the covenant which precluded him from accepting as well as soliciting their business. Finally, with respect to damages, the trial judge’s factual findings are supported by the evidence and there is no basis upon which we could or should interfere.
[10] Accordingly, the cross-appeal is dismissed.
CONCLUSION
[11] For these reasons both the appeal and cross-appeal are dismissed with costs. In view of the divided success, the respondent is entitled to costs fixed at $5,000, inclusive of disbursements and GST.
“J.C. MacPherson J.A.”
“Robert J. Sharpe J.A.”
“Paul Rouleau J.A.”
RELEASED: April 3, 2009