COURT OF APPEAL FOR ONTARIO

CITATION: Hinke v. Thermal Energy International Inc., 2012 ONCA 635

DATE: 20120925

DOCKET: C54586

Cronk, Juriansz and Epstein JJ.A.

BETWEEN

Thomas Vincent Hinke and Elena Shulkov

Plaintiffs (Appellants)

and

Thermal Energy International Inc. and Timothy Angus

Defendants (Respondents)

Paull N. Leamen, for the Appellants

Ian Godfrey, for the Respondents

Heard: May 10, 2012

On appeal from the judgment of Justice Timothy Ray of the Superior Court of Justice dated October 18, 2011, with reasons reported at 2011 ONSC 5345.

Epstein J.A.:

A. OVERVIEW

[1] This proceeding arises out of a breakdown in the employment relationship between the appellant, Thomas Vincent Hinke, and his former employer, the respondent, Thermal Energy International, Inc. (“TEI”). The parties settled their differences on June 5, 2005 by entering into an agreement containing four sub-agreements, each resolving a particular aspect of their dispute.

[2] The settlement fell through. In breach of one of the sub-agreements requiring the parties to enter into a new employment agreement, TEI terminated Hinke’s employment. Hinke responded by commencing this action against TEI and the respondent, Timothy Angus who was then a senior executive at TEI. Hinke claimed, in addition to other relief, damages for wrongful dismissal, repayment of debts and expenses, and payment pursuant to a convertible debenture issued to him. TEI counterclaimed for damages based on alleged oppression, breach of fiduciary duty, and negligence.

[3] Hinke moved for summary judgment on the portions of his claim involving wrongful dismissal, the repayment of debts and expenses, and the convertible debenture.

[4] The motion judge allowed Hinke’s motion in part by ordering TEI to pay damages for wrongful dismissal calculated on the basis of 18 months’ pay in lieu of notice. He dismissed Hinke’s claims for the repayment of debts and expenses and held him to be bound by his release concerning the debenture. The motion judge ordered the balance of the claims, including those advanced in TEI’s counterclaim, to proceed to trial and granted TEI’s request that the enforcement of Hinke’s judgment for wrongful dismissal be stayed pending the determination of the action.

[5] Hinke appeals the stay and the dismissal of his claims concerning debts, expenses and the debenture. He argues that he fulfilled his obligations under the June 5, 2005 agreement, referred to by the motion judge as the “framework agreement”, and TEI must therefore fulfill its obligations. With respect to the stay order, Hinke contends that the motion judge failed to properly apply the test set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311.

[6] As I will explain, I see no error in the motion judge’s conclusion that the sub-agreements were severable and that Hinke could no longer claim for relief under the other sub-agreements. I also would not interfere with the motion judge’s exercise of discretion in ordering a stay.

[7] I would therefore dismiss this appeal.

B. background

[8] Hinke founded TEI in 1991, after inventing and developing the thermal energy technology that was to be its backbone. During his almost 15 years at TEI, a publicly traded company, he served as the CEO, a director, and a principal shareholder. He was its President until December 2004. TEI continues to be listed on the TSX Venture Exchange in Toronto.

[9] In 2003, Hinke’s employment with TEI was governed by an employment agreement, entered into on June 23 of that year. Article 2 of this agreement provided as follows:

2.1 The term of this contract for services shall be for a term of two (2) years from and including the date hereof.

2.2 The contract may be renewed or extended at any time subject to the mutual agreement between the EMPLOYEE and the CORPORATION.

2.3 In the event of either contract termination or non-renewal or non-extension, the CORPORATION acknowledges that the EMPLOYEE would be eligible to receive reasonable and appropriate compensation and severance pay corresponding to EMPLOYEES past twelve (12) years of service to the CORPORATION.

[10] In 2004, Hinke recruited Mr. Angus to a senior position at TEI. Angus became President in February, 2005, after Hinke’s resignation to become Executive Vice President and Chief Technology Officer. Hinke remained Chairman of the Board.

[11] By June of 2005 the seeds of four separate disputes had sprouted between Hinke and TEI: i) the extension of Hinke’s employment agreement; ii) the settlement of a convertible debenture relating to a debt obligation Hinke claimed was owed to him; iii) whether any other debts were owed to or from Hinke; and iv) whether Hinke was entitled to reimbursement for corporate expenses.

[12] The framework agreement that the parties entered into for the purpose of resolving these disputes contained the following terms relevant to this appeal: a new employment agreement would be negotiated to replace the one signed in 2003, Hinke would accept a payment of $50,000 in settlement of his claim relating to the debenture, Hinke would have three weeks to provide an accounting of the debts he claimed were owed to him, and Hinke would have three weeks to provide corporate expense reports detailing outstanding business expenses.

[13] These sub-agreements met with mixed success.

[14] Shortly after signing the framework agreement, Hinke executed an agreement settling any claims he had under the debenture. He received $50,000 from TEI in return for his providing a signed release. With respect to the debts and expenses sub-agreements, the parties agreed that Hinke would document his claims and TEI would consider them. He failed to do so.

[15] With respect to the employment sub-agreement, Hinke received a draft of TEI’s proposed employment agreement, reviewed it with his lawyer and provided TEI with his response. TEI considered Hinke’s refusal to accept its proposed employment agreement as cause for dismissal and terminated his employment on June 21, 2005.

[16] Against this background Hinke sued TEI, claiming, in addition to other relief, damages for wrongful dismissal, the value of the debenture and the repayment of debts and expenses.

C. REASONS OF THE MOTION JUDGE

[17] In dealing with Hinke’s motion for summary judgment on damages for wrongful dismissal, the motion judge concluded that there was no basis to find that Hinke’s failure to sign the draft employment agreement amounted to just cause. There was no issue requiring a trial and judgment, as described above, was granted.

[18] The more contentious issue was the impact on the other sub-agreements of TEI’s failure to fulfill its obligations under the employment sub-agreement. Hinke’s position was that the four sub-agreements were interdependent. Since the employment sub-agreement was breached, the entire framework agreement was at an end. TEI submitted that the sub-agreements were severable. TEI’s breach of the employment sub-agreement had no effect on the other sub-agreements that had been concluded in accordance with their terms.

[19] The motion judge held that the sub-agreements were independent and severable. He based this conclusion on a number of factors. He observed that there was nothing in the framework agreement to suggest that the parties intended the agreements to be interdependent. In fact, there were factors indicating that the provisions were independent of each other. The sub-agreements contained different compliance dates; the failure of one would not affect the others. Further, the motion judge noted the explicit language of the framework agreement that demonstrated the parties’ intention to have “four [4] separate and more formalized agreements…”.

[20] Hinke had accepted $50,000 in exchange for releasing his claim concerning the debenture. He had failed to submit his claims for debts and expenses as required under the terms of the other two sub-agreements. The motion judge therefore held that the remaining three sub-agreements had, in fact, been concluded and dismissed Hinke’s claims based on them.

[21] Finally, given that the issues left to be resolved arose out of the same business relationship, the motion judge held that it was appropriate to stay execution of Hinke’s judgment for damages arising from wrongful dismissal pending the determination of the balance of the claims.

D. ISSUES

[22] This appeal raises the following issues:

(a) whether the motion judge erred in determining that the four sub-agreements were severable and independent; and

(b) whether the motion judge erred in staying the execution of the wrongful dismissal claim pending determination of the balance of the action.

E. ANALYSIS

(1) The Four Sub-Agreements – Interdependent or Severable and Independent?

[23] Hinke maintains that the sub-agreements are interdependent. He argues that, because TEI breached one of the sub-agreements, the entire framework agreement should be set aside. As a result, his claims in relation to the debenture and other debts and expenses, would be reinstated. In the framework agreement, he says, the parties intended to move forward to resolve all issues in a manner in which each party would be responsible to perform specific obligations. He agreed to accept $50,000 in exchange for the convertible debenture and release TEI from the balance of the expenses owed to him only because TEI had agreed to provide him with a new employment agreement. In these circumstances, TEI cannot breach one aspect of the parties’ overall bargain – the promise to enter into a new employment agreement - and, at the same time, hold Hinke to his obligations under the others.

[24] I would not give effect to this argument as I can find no error in the motion judge’s conclusion that, through the framework agreement, the parties intended to settle their differences concerning four separate issues in four separate agreements. As the motion judge noted, the framework agreement separates each issue under a different heading, provides for separate times for completion, and explicitly states that each sub-agreement is distinct and separate.

[25] It follows that the four sub-agreements that comprise the framework agreement are severable and the rights and obligations arising out of the provisions remain in force notwithstanding TEI’s breach of one sub-agreement.

[26] Furthermore, I would reject Hinke’s argument, raised for the first time before this court, that by wrongfully dismissing him, TEI repudiated the framework agreement thereby bringing it to an end. My conclusion that the sub-agreements are separate means, as I have said, that the breach of one has no effect on the others. This argument fails as well when applied to the impact of the breach of the employment sub-agreement on the framework agreement as a whole. The test for fundamental breach is not met because TEI’s breach of the employment sub-agreement did not deprive Hinke of substantially the whole benefit of the framework agreement. Significantly, Hinke’s remaining rights include those under the 2003 employment contract: Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, leave to appeal to S.C.C. refused, [2008] S.C.C.A. No. 151.

[27] I would therefore reject Hinke’s arguments relating to the motion judge’s dismissal of his claims under the other three sub-agreements.

(2) Was TEI entitled to a Stay?

[28] Hinke submits that the motion judge erred by not addressing: (1) the merits of the counterclaim to determine if there was a serious issue to be tried; (2) whether TEI would suffer irreparable harm should the stay be refused; and (3) which party would suffer the greater harm from the refusal or granting of the stay: RJR- MacDonald.

[29] The law is clear that a stay should be granted unless the counterclaim is without merit: Freedom International Brokerage Company v. Anastakis (2006), 2006 31911 (ON SC), 21 B.L.R. (4th) 246 (Ont. S.C.). It is significant that Hinke did not, in the relief sought in his motion for summary judgment, seek dismissal of the counterclaim. By inference, Hinke must consider the counterclaim as having sufficient merit so as to raise a genuine issue requiring a trial.

[30] This inference, in addition to the motion judge’s conclusion that the claims remaining to be determined are connected, informed his exercise of discretion to grant a stay under rule 20.08.

[31] Absent a conclusion that the motion judge was clearly wrong or made an error in law, this court will not interfere with a discretionary decision: R. v. Chiasson, 2009 ONCA 789, 258 O.A.C. 50. I am of the view that neither is the case and there is therefore no reason to interfere with the exercise of the motion judge’s discretion to grant the stay requested by TEI.

[32] I would not give effect to this ground of appeal.

F. DISPOSITION

[33] For these reasons, I would dismiss the appeal. The respondents are entitled to their costs that I would fix in the amount of $8,000, including disbursements and applicable taxes.

Released:

“SEP 25 2012” “Gloria J. Epstein J.A.”

“RGJ” “I agree E.A. Cronk J.A.”

“I agree R.G. Juriansz J.A.”