CITATION: Orr v. Magna Entertainment Corp., 2009 ONCA 776
DATE: 20091106
DOCKET: C48360 & C48366
COURT OF APPEAL FOR ONTARIO
Weiler, Sharpe and Rouleau JJ.A.
BETWEEN
Graham J. Orr
Plaintiff (Respondent/ Appellant by way of cross-appeal)
and
Magna Entertainment Corp. and Magna International Inc. and Frank Stronach
Defendants (Appellants/ Respondents by way of cross-appeal)
Roy C. Filion and Sharon L. Chilcott, for the appellants/respondents by cross-appeal Magna International Inc. and Frank Stronach
Amanda Hunter, for the appellant/respondent by way of cross-appeal Magna Entertainment Corp.
Malcolm J. MacKillop and Hendrik T. Nieuwland, for the respondent/appellant by way of cross-appeal
Heard: May 21, 2009
On appeal and cross-appeal from the judgment of Justice Gloria R. Klowak of the Superior Court of Justice dated January 16, 2008, with reasons reported at (2008), 2008 723 (ON SC), 63 C.C.E.L. (3d) 132.
By the court:
OVERVIEW
[1] Magna Entertainment Corp. (“MEC”) and Magna International Inc. (“MII”), referred to collectively as Magna, appeal the judgment ordering them to pay $1,643,461.31, plus pre-judgment interest, to Graham Orr for breach of his employment contract. The trial judge held:
(1) Orr was terminated as CFO of MEC on July 28, 2003;
(2) Orr was entitled to severance for two years;
(3) Orr was not required to mitigate his damages;
(4) Orr was entitled to costs of $350,000; and
(5) Pre-judgment should be calculated from August 23, 2003, being 30 days after the date of termination, at a rate pursuant to the Courts of Justice Act, R.S.O. 1990, c. C-43
Magna appeals all aspects of the trial judge’s decision.
[2] Having regard to her award, the trial judge dismissed a claim by Orr against Frank Stronach personally for negligent misrepresentations allegedly made by him to Orr. By way of cross-appeal, Orr submits that the trial judge erred in doing so. For the reasons given below, we would allow the appeal and dismiss the cross-appeal.
FACTS
[3] Orr began employment with the Magna group of companies in 1987. Beginning in 1993, he worked for MII in various positions until he resigned to become the Chief Financial Officer (“CFO”) of MEC on January 1, 2001. His five-year employment contract with MEC commenced on January 1, 2001 and was to expire on December 31, 2005. It contained three provisions relevant to this appeal.
[4] First, it provided that MEC could elect to terminate Orr’s employment either by providing him with written notice or by paying him a retiring allowance. If Orr was terminated within the first three years of his five-year contract, he would be entitled to two years notice, or a retiring allowance equivalent to his salary, and annual bonus for the preceding two years. If he was terminated in the final two years of his contract, the notice period would only be one year and the retiring allowance would be based on the one year preceding termination.
[5] Second, s. 10 of the employment contract provided that MEC, in its sole discretion, was entitled to assign the employment agreement to “an affiliated or other organization at any time”. If the agreement was assigned, its conditions were to continue in “full force and affect [sic]”.
[6] Third, the agreement expressly contemplated that it would “continue to apply to your employment in a similar or other capacity with the Corporation [MEC] or any member of the Magna Group”.
[7] On March 25, 2003, Jim McAlpine, the Chief Executive Officer (“CEO”) of MEC, told Orr that he was being replaced as CFO, and that his employment would be terminated. At this point, Orr had not yet been employed with MEC for three years, and thus was eligible for the two-year retirement allowance in his contract. However, Orr did not seek to exercise his contractual right to claim the two year retirement allowance at this time because he learned from McAlpine that there might be an equivalent position for him within the Magna group of companies. Furthermore, McAlpine offered Orr employment back at MII in the interim. Orr met with Stronach, who directly or indirectly controls MII and MEC, Belinda Stronach, Vince Galifi, the CFO of MII, and Roman Doroniuk, Chief Operating Officer for MEC, to discuss possible job opportunities in the Magna family.
[8] On June 26, 2003, Orr agreed to the assignment of his contract to MII.
[9] Between March 25, when Orr was told he would be replaced as CFO, and June 26, 2003, when Orr’s contract was assigned to MII, two positions within the Magna group of companies were offered to Orr. He turned both of them down on the basis that they were not comparable to his position as CFO with MEC.
[10] On June 23, 2003, just three days prior to agreeing to an assignment of his contract, Orr met with Doroniuk. He told Doroniuk that he was frustrated that no permanent position had been found for him, and that he was concerned that if he stayed until January 2004, MEC would terminate him and try to pay him only one year of severance. Doroniuk counselled Orr to stay and told Orr that he had spoken with Stronach, Galifi, and Brian Colburn, who was senior counsel at MII, and that all had said that there was no intention to string Orr along until January 1, 2004 and then pay him only one year’s severance.
[11] Orr met with Stronach later that same day and told him he thought it was time to exercise the termination provisions of his contract. Stronach asked Orr to stay and work on a Magna project known as Project Tempo. Orr told Stronach that he was not happy being a project man and wanted a commitment that he would receive a job comparable to his previous CFO position with MEC. Stronach said he could not make a commitment at that time, but told Orr he should not worry because something would materialize.
[12] According to Orr, he told Stronach that he needed a new contract and Stronach said to draft it up “as we had talked.” However, Orr testified that Doroniuk had earlier told him that he had six months to negotiate before his current two-year termination provision in his contract expired, and suggested it would be better to wait awhile before pressing for specific contractual terms. As a result, Orr did not draft up a new contract.
[13] Orr testified that on June 24, 2003, Gary Cohn, a lawyer employed by MEC, advised him that “there was some risk that if I transferred to Magna International that there may be some decision that - that I had accepted that as my new role and may not be able to in fact claim my two year termination under my contract” and that he should “write a soft letter to Magna, carefully worded letter to Magna, to protect myself”.
[14] As we have indicated, Orr’s employment contract with MEC was assigned to MII on June 26, 2003. Both Orr and Doroniuk signed the letter of assignment. The letter stated that MII had agreed to assume Orr’s employment contract with MEC, dated October 5, 2000, effective June 26, 2003. The assignment letter also stipulated that MII’s assumption of Orr’s contract would not affect his MEC stock option entitlement. Although a draft of the assignment letter contained a reference to the provision in Orr’s contract with MEC which permitted MEC to assign the contract, this reference was deleted at Orr’s request. It appears Orr did not agree that MEC had the right to unilaterally assign his contract because he wanted to preserve his right to claim he had been constructively dismissed in the event he was assigned to a position that was not comparable.
[15] Orr continued at MEC until July 28, 2003, when the new CFO began employment. On that day Orr met with Stronach. Orr handed Stronach a letter he drafted on July 17, 2003, the relevant portion of which read as follows:
I am delighted that in our recent conversations that we agreed to an arrangement that I would work on the potential sale of Magna Steyr’s “Powertrain” business unit to Tesma. I agree to transfer my rights to Magna on the understanding that I will work on this project for several months with an anticipated completion date prior to October 31, 2003. If during that period, a future position in Magna does not develop, I shall be treated as having been terminated under the existing provisions of my employment contract and entitled to the payments in the contract.
Orr’s handwritten notation at the bottom of the letter reads: “Met with Frank on 28 July 03, his first day back from Austria, handed him the letter, reviewed letter with him – he said he agreed with letter.”
[16] The project Orr was working on was put on hold and he worked on another project called New Venture Gear instead. This project continued beyond January 1, 2004.
[17] On January 9, 2004, MII gave Orr working notice that his employment with MII would be terminated on January 31, 2005. The notice also stated:
Magna management will discuss with you whether or not to enter into a new employment arrangement with you and, if the decision is made to enter into a new employment contract, discuss with you what the terms and conditions of such new employment would be.
Orr took the notice to Stronach who said he had never seen it, that it was of no significance, and that he hoped a permanent job would still come along.
[18] On July 4, 2004, Orr was told that there would be no permanent position, and that he no longer needed to come to work. Orr was also told that he would continue to receive his salary and bonus until the termination date of January 31, 2005.
[19] Orr subsequently found new employment outside Magna, which he began on December 6, 2004.
[20] MII continued to pay Orr’s salary and bonus until January 31, 2005.
ISSUES
I. Did the trial judge err as to the date on which Orr’s contract was terminated?
[21] This appeal turns on the status of the contract between Orr and Magna.
[22] The trial judge’s decision may be summarized as follows. Orr’s employment was terminated by MEC on July 28, 2003, when the new CFO took over. At that time he was entitled to the two-year severance provision of his contract. Orr’s position, that his contract was not assigned pursuant to the provision in s. 10 of that agreement which unilaterally permitting MEC to assign his contract to an affiliated organization, was supported by the deletion of the reference to s. 10 from the assignment letter. In addition, any assignment of the contract pursuant to s. 10 would have to be to an equivalent position and Orr’s interim position at MII was not equivalent to that of CFO of MEC. When Orr’s contract was assigned to MII, MEC’s obligation to pay Orr this retirement allowance was not extinguished, and Orr did not give up any rights triggered by his termination. MII assumed the obligation to pay Orr a two-year retirement allowance, but had the opportunity to rectify MEC’s breach of the employment contract, and thus avoid paying the retirement allowance, by finding Orr a comparable position within MII.
[23] The effect of the trial judge’s decision is that she held that Orr’s contract was both terminated and assigned at the same time. We would hold that this was an error of law. In March 2003, when Orr was told he was being terminated from MEC, Orr had the choice to take his retirement allowance or to work for MII. He chose employment with MII. Even though the assignment of Orr’s contract with MEC to MII was not carried out pursuant to s. 10, allowing MEC to assign his contract unilaterally, the fact remains that Orr’s contract was assigned, not terminated. When Orr agreed to the assumption of his contract by MII on June 26, 2003, his contract continued even though his employment with MEC was over and his position with MII was “interim”. The interim nature of the position with MII did not affect the validity of the assignment of Orr’s contract or the continuation of his employment. Orr does not submit that he was constructively dismissed when he was transferred to MII. The reality of business life is that from time to time a corporate conglomerate will wish to transfer an employee to the employ of the parent company, or another affiliated company within the group, as the interests of the whole may require. Orr agreed to the transfer.
[24] We therefore hold that the trial judge erred in concluding that Orr was terminated on July 28, 2003. Although Orr’s employment with MEC ended, Orr’s contract was assigned, not terminated, and the right to a two-year retirement allowance was not triggered.
II. Did the trial judge err in finding that there was a forbearance agreement between Orr and MII?
[25] At paras. 161-62 of her reasons, the trial judge found that an oral forbearance agreement existed between the parties. The terms were as follows:
(i) MII agreed to search for a comparable position for Orr and Orr agreed to give MII time to do so.
(ii) In the interim, Orr was to work on special projects at MII at the same compensation as under his contract with MEC (including a guaranteed bonus linked to MEC profits).
(iii) If no permanent position was found for Orr, the forbearance agreement would come to an end and Orr would be entitled to enforce the termination rights in his contract as they existed on July 28, 2003.
[26] When Orr was terminated by MEC, he chose not to trigger the two-year severance payment by agreeing to the assignment of his contract. As such, he had no termination rights in his contract that existed on July 28, 2003 to enforce.
[27] Orr pleads, however, at para. 20 of his amended statement of claim that:
[T]o account for the possibility that no permanent, suitable, equivalent position was identified, the defendants agreed to suspend or otherwise toll the Plaintiff’s rights pursuant to the Agreement until such time as it was determined that no permanent, suitable, equivalent position was available with the Magna Group. This agreement is hereinafter referred to as the “Forbearance Agreement”.
[28] The underlying assumption in the pleading is that Orr’s position at MII was not equivalent to the position he held at MEC. Orr was prepared to agree to an assignment of his contract to a position at MII that was not equivalent to his position at MEC and not sue MII for constructive dismissal. In exchange, Orr alleges an agreement suspending or extending his right to choose a two-year severance payment if no permanent suitable equivalent position was found. In essence, he wanted to be treated as if he had been terminated on July 28, 2003 if a comparable position was not found for him.
[29] The onus was on Orr to establish the existence of a forbearance agreement. There is some evidence to support Orr’s position that a forbearance agreement existed in the July 17, 2003 letter he handed to Stronach on July 28, 2003 and in his evidence that Stronach agreed with the letter. The trial judge recognized this at para. 122 of her reasons. She stated:
Although there is evidence which I believe that on July 28, 2003, Mr. Orr discussed with Mr. Stronach a July 17, 2003 letter written by Mr. Orr confirming his position, and that Mr. Stronach specifically agreed the plaintiff’s two year retiring allowance entitlement would continue to apply should MII fail to find him a suitable position, it may be unnecessary to even consider whether this is a specific term specifically agreed to by the parties.
[30] Instead, the trial judge reversed the onus of proof. Having found that Orr was terminated in June 2003, she held that Orr’s entitlement to seek enforcement of the two-year severance provision did not depend on any forbearance agreement. It was incumbent on Magna to show that Orr had, as stated in para. 124 of her reasons, “lost the two-year commitment regarding salary and bonus”. The trial judge’s error in reversing the burden of proof flows from her erroneous conclusion that Orr’s contract was terminated in June, 2003. As a result, despite her very thorough reasons, we must set aside the trial judge’s holding that Orr was entitled to a lump sum amount upon termination equivalent to two years salary.
[31] Orr submits that the trial judge’s award may be upheld on the basis of the alleged forbearance agreement. The trial judge found, at paras. 161-63 of her reasons, that a forbearance agreement existed, in which MII agreed to search for a comparable position for Orr and Orr implicitly agreed to give them time to do so. In the interim, Orr agreed to work on special projects, with no change in his compensation or bonus, and to the assignment of his contract to MII. As Orr was not told until June, 2004 that there would be no comparable position for him, the trial judge held that it was at that time that the forbearance agreement ended and Orr was entitled to enforce the termination rights under his employment contract as they existed on July 28, 2003.
[32] A plain reading of the July17 letter Orr discussed with Stronach on July 28, 2003 shows that in the event a permanent position in Magna did not develop by October 31, 2003, the date when the Magna Steyr project was scheduled for completion, Orr reserved the right to claim that he was constructively dismissed. Orr expected “to be treated as having been terminated under the existing provisions of [his] employment contract and entitled to the payments in the contract.”
[33] Whether Orr’s position at MII was equivalent to the position he held at MEC was one of the contested issues at trial and on this appeal. The trial judge held that the positions were not equivalent. For example, the evidence was clear that a CFO would not be given working notice, whereas Orr was given working notice by MII on January 9, 2004. We would not interfere with the trial judge’s finding that the positions were not equivalent.
[34] We turn finally to the question of whether the errors of the trial judge as to the date of Orr’s termination and in reversing the burden of proof make a new trial the appropriate order.
[35] On appeal, Magna does not challenge the credibility findings made by the trial judge, but rather her interpretation of the evidence. In her reasons, the trial judge made adverse findings of credibility against Stronach at paras. 98-103 and held, at para. 104, that where there were any inconsistencies, as between Stronach’s evidence and Orr’s, she found Orr’s evidence far more reliable and preferred it over that of the defence. It is against this background that we must assess whether a new trial should be ordered.
[36] The difficulty with Orr’s position is that the letter of July 17 refers to an October 31, 2003 date and does not, as Orr now alleges, give him the right to claim two years severance indefinitely. Orr himself testified that, prior to signing the assignment letter in June, 2003, Doroniuk told him he had six months to negotiate before his current two-year termination provision expired. Doroniuk also gave testimony to that effect and the trial judge accepted his evidence. Thus, even assuming that a forbearance agreement existed, it would end, at the latest, on December 31, 2003.
[37] Orr did not allege that he had been constructively dismissed prior to December 31, 2003, nor does he do so now. Nor does the evidence indicate he said that he had an oral agreement giving him a right to claim two years severance indefinitely when he was told that he would be dismissed in January 2004 and given one year working notice. He did not make such a claim until launching his lawsuit. Orr’s position that he was entitled to two years severance after December 31, 2003, and until Magna told him it could not find him a comparable permanent position, appears to be a bald statement.
[38] To summarize, while there is some evidence that a forbearance agreement was reached, there is little on this record to suggest that Orr had an indefinite right to claim two years severance as long as he was not put into a comparable position by Magna. When Orr’s contract was assigned time continued to run under it. Orr knew this. Orr was terminated after the first three years of the contract and was entitled to only one- year’s severance. Much was made of Stronach’s comment on examination for discovery that it would be a waste of taxpayer’s money to pay Orr two year’s severance. The trial judge rejected Stronach’s explanation at trial that the comment was made in hindsight. In our opinion, Stronach’s comment is not so much an indication of bad faith but an elaboration of Magna’s position that it did not have a legal obligation to pay Orr two year’s severance. Having regard to these considerations, we would not order a new trial.
THE CROSS-APPEAL
[39] At trial, as an alternative to the wrongful dismissal claim, Orr alleged three untrue misstatements attributable to Stronach at para. 46 of his amended statement of claim. The first was that Magna wished to retain Orr indefinitely. The second was that if a suitable alternative position was not found, Orr would continue to be entitled to “enforce the termination rights in the Agreement and receive a payment of an amount equivalent to two years’ salary and Annual Bonus.” The third allegation was that Stronach told Orr the January 9, 2004 notice of termination was of no effect. Orr argued that he had consented to the assignment and assumption of his contract by MII as a result of the first two negligent misrepresentations made to him by MEC and MII. Orr also sought to hold Stronach personally liable for making negligent misrepresentations on which Orr relied when accepting the assignment of his contract to MII.
[40] On appeal, Orr submits that the trial judge failed to exercise her jurisdiction to decide the issue of negligent misrepresentation by Stronach and that her failure to do so is a reviewable error of law. Orr submits that, pursuant to s. 134 of the Courts of Justice Act, R.S.O. 1990, c. C.43, this court should make the decision the trial judge should have made or that a new trial is required.
[41] Magna and Stronach’s position is that the trial judge decided the issue and dismissed it and her dismissal of the claim should be upheld. They assert that Orr is not entitled to maintain an action for misrepresentation against Stronach personally and secondly that the action has no reasonable possibility of success. Thus, a new trial should not be ordered.
[42] An appeal is from the order made by a trial judge and the order here dismisses the claim. The trial judge’s reasons are, however, equivocal.
[43] At para. 167 of her reasons, the trial judge stated that she found it unnecessary to make a finding on Orr’s alternative argument. At para. 169 of her reasons the trial judge observed that the claim against Stronach “only arises with respect to any part he played directly or indirectly in any misrepresentation to the plaintiff” and that as judgment had been given against MII and MEC on what she described as the “primary” claim Orr did not push for judgment against Stronach. Having said this, at para. 223 of her reasons the trial judge explicitly dismissed the claim against Stronach.
[44] In addition, in her supplementary reasons dealing with the costs of the trial, the trial judge refused to accede to Magna’s submission that costs awarded to Orr should be reduced because she had dismissed the claim against Stronach personally. In doing so, the trial judge commented, “I dare say that the plaintiff had a reasonably good chance of success had it been necessary for the plaintiff to press its negligent misrepresentation claims to conclusion.”
[45] Thus, the trial judge appears to have dismissed the cross-claim because she was of the opinion that Stronach had bound Magna to pay Orr two years’ severance indefinitely. Inasmuch as we have held that Magna did not agree to pay Orr two years’ severance indefinitely, the cross-appeal could in theory reemerge. However, section 134(6) of the Courts of Justice Act, requires that, before ordering a new trial, a court must be satisfied that a substantial wrong or miscarriage of justice has occurred. For the reasons outlined below, we are not satisfied that is the case.
[46] We need not come to a definitive conclusion as to whether Orr can sue Stronach personally. Even assuming Orr could maintain an action in tort against Stronach, the first alleged misrepresentation is that Stronach wished to retain Orr indefinitely. This statement does not appear to be a statement of fact, one of the elements required for the tort of misrepresentation, but, in any event, the statement is entirely bound up with and dependent on the second. The second is that Orr would continue to be entitled to “enforce the termination rights in the Agreement and receive a payment of an amount equivalent to two years’ salary and Annual Bonus.” Based on our earlier conclusion, these alleged representations resulted in a forbearance agreement that ended no later than December 31, 2003. Orr knew that the two-year termination provision under his Employment Agreement expired on December 31, 2003 and that there was a risk he would only receive twelve months’ notice. While he certainly wanted an indefinite two-year provision, he was never told that he would be entitled to a two-year lump sum payment if a CFO position was not found after 2003.
[47] Orr’s amended statement of claim does not allege that Stronach’s third misrepresentation, specifically that the January 9, 2004 termination notice was of no effect, gives rise to any damages in and of itself. Furthermore, Orr did not argue this in his factum or oral submissions. We are of the opinion that, on its own, the third alleged misrepresentation does not satisfy all the elements of the tort of negligent misrepresentation.
[48] Accordingly, we would dismiss the cross-appeal on the basis that no substantial wrong or miscarriage of justice has been shown.
OTHER ISSUES
[49] Having allowed the appeal and dismissed the cross-appeal, it is not necessary for us to deal with the issue of damages and the ancillary issues relating to interest and costs of the trial.
COSTS OF THE APPEAL AND CROSS APPEAL
[50] We would fix costs at $5,000 for MEC and $20,000 for MII and Stronach. These amounts are all inclusive. If the parties are not able to agree as to the appropriate disposition of the costs of the trial, we would invite written submissions in that regard.
RELEASED: November 6, 2009 “K.M.Weiler J.A.”
“KMW” “Robert J. Sharpe J.A.”
“Paul Rouleau J.A.”