COURT OF APPEAL FOR ONTARIO
ONCA 745
DATE: 20141027
DOCKET: C58968
Cronk, MacFarland and LaForme JJ.A.
BETWEEN
Diane Legg
Applicant (Respondent)
and
Simcoe Muskoka Catholic District School Board
Respondent (Appellant)
Martin Sclisizzi and Heather K. Pessione, for the appellant
Stephen J. Moreau and Lauren Sheffield, for the respondent
Heard: October 6, 2014
On appeal from the judgment of Justice P. H. Howden of the Superior Court of Justice, dated May 23, 2014.
MacFarland J.A.:
[1] The appellant appeals the order of Howden J. dated May 23, 2014 wherein he declared that the appellant:
Shall indemnify, reimburse and save the [respondent] harmless for all costs, expenses, and charges she has incurred or will incur in defending herself pursuant to Article 13.01 of her contract of employment with the appellant, commencing on January 30, 2014.
[2] The appellant School Board employed the respondent as its Director – Communications and Public Affairs pursuant to a written agreement. The respondent had been an employee of the appellant since 2000 and was promoted to the position of Director in 2008.
[3] On February 4, 2014, as the result of complaints made by the respondent’s fellow employees, which the parties were unable to resolve internally, the respondent was suspended from her position on suspicion that she may have submitted fraudulent expense claims. As Darlen Schmidt put it in his affidavit:
On February 4, 2014, the Board suspended Ms. Legg with pay so that it could have a third party conduct a more fulsome investigation.
[4] That same day a private investigator was hired. On April 24, 2014, having received the investigator’s report, Ms. Legg was fired for expense fraud.
[5] In early April, 2014 she brought an application before Howden J. of the Superior Court of Justice, seeking payment of her ongoing legal expenses pursuant to Article 13.01 of her contract of employment, which provides in part:
13.01 Indemnity for Errors and Omissions
Subject to the limits imposed by law, if any, the Board shall at the sole cost and expense of the Board, from time to time and at all times, both during the term of this Contract and thereafter indemnify and save harmless the Communications and Public Affairs Director (and her heirs, executors and administrators, and estate and effects, successors and assigns) from and against:
a) all costs, charges and expenses whatsoever which the Communications and Public Affairs Director sustains or incurs in or relation to any action, suit or proceeding which is brought, commenced or prosecuted against the Communications and Public Affairs Director for or in respect of any act, deed, matter or thing whatsoever, made, done or permitted by the Communications and Public Affairs Director, in or in relation to the execution of the duties of the office of Communications and Public Affairs Director of the Board, or in respect of any such liability, and,
b) all other costs charges and expenses which the Communications and Public Affairs Director sustains or incurs in or in relation to the affairs thereof,
except such costs, charges or expenses as are occasioned by the Communications and Public Affairs Director’s own failure to act honestly and in good faith in the performance of the duties of office, or by other willful neglect or default.
[6] The application judge concluded that the word “proceeding” was broad enough to include the proceedings instituted by the Board commencing January 30, 2014 when Ms. Legg’s Superior, the Director of Education, told her that her department was in a state of crisis and further investigation was required, not of her department but of her, at which point it was clear that the School Board was initiating a proceeding focussed on the respondent.
[7] The appellant argues three main grounds of appeal:
the School Board raised a prima facie case that Ms. Legg failed to act honestly and thus the exclusion clause in Article 13.01 applies;
the application judge erred fundamentally in not determining whether or not Ms. Legg had acted in good faith;
the application judge erred in determining that a workplace investigation is a “proceeding” within the meaning of Article 13.01;
First Ground
[8] In my view, and counsel agrees, in order to invoke the exclusion clause in Article 13.01, the School Board was obliged to raise a prima facie case that Ms. Legg had acted dishonestly.
[9] The law presumes that persons act honestly until the contrary is proved. (Blair v. Consolidated Enfield Corp., 1995 CanLII 76 (SCC), [1995] 4 S.C.R. 5, at para. 35) There was no admissible evidence of dishonest conduct before the application judge.
[10] The School Board did not rely on the truthfulness of the investigative report. Further, Mr. Schmidt’s evidence of what he’d been told by certain principals about Ms. Legg was hearsay and, in any event, was incapable of proving that she’d been dishonest.
[11] In my view, this ground of appeal must fail.
Second Ground
[12] It was not for the application judge to determine the merits of the School Board’s allegations against the respondent. As he put it in para. 11 of his reasons:
Without proof to the high degree of a strong prima facie case that the applicant has acted dishonestly or in bad faith, which is not even attempted before me, the application before me is limited to whether by contract, and/or by statute, Ms. Legg is entitled to immediate and ongoing indemnification of her legal costs incurred during the investigation by the Board. [Emphasis added.]
[13] I agree with the application judge. The ultimate merits of the School Board’s allegations will be determined by arbitration in accordance with Article 14.06 of the contract of employment. Were it otherwise, the contractual promise to indemnify and save harmless would be rendered meaningless. All the School Board would need to do to avoid its indemnification obligation would be to allege bad faith or dishonesty without proof. In that event, there would be no indemnity unless and until, at the end of the day, the allegations were proved to be without merit.
[14] I therefore agree with the application judge that absent any effort to prove the allegation before him, his task was to interpret the contract.
[15] I also agree with his conclusion, at para. 12 of his reasons:
Until the applicant is found to have acted dishonestly and/or in bad faith and the Board confirms such finding after granting the applicant a hearing, within the procedures set up by the contract and, if appealed, such finding is registered by the arbitrators pursuant to the terms of the contract, there is no disentitlement to indemnification. [Emphasis in original.]
Third Ground
[16] Thirdly, the appellant argues that the application judge erred in determining that a workplace investigation is a “proceeding” within the meaning of the contract. It argues that a proceeding has to be in the context of an action or suit.
[17] I do not agree.
[18] In his reasons, at para. 23, the application judge quoted from the decision of the Supreme Court of Canada in Markevich v. Canada, 2003 SCC 9, [2003] S.C.J. No. 8:
Though the word “proceeding” is often used in the context of an action in court, its definition is more expansive. The Manitoba Court of Appeal stated in Royce v. MacDonald (Mun.) (1909), 1909 CanLII 256 (MB CA), 12 WLR 347, at p. 350, that the word “proceeding” has a very wide meaning and includes steps or measures which are not in any way connected with actions or suits. In Black’s Law Dictionary, 96th ed., 1990, at p. 1204, the definition of “proceeding” includes, inter alia, an act necessary to be done in order to obtain a given end; a prescribed mode of action for carrying into effect a legal right.
[19] As the application judge noted, the School Board in its drafting did not choose to limit instances of the use of the indemnification provision to legal actions or regulatory proceedings. It would have been a simple matter for it to have done so by the use of appropriate language.
[20] The application judge concluded that from the end of January, 2014, the School Board focused its attention on Ms. Legg’s conduct and began its formal investigation. It first suspended her from her employment and then, on receipt of its investigator’s report, terminated her employment for alleged fraudulent conduct. He concluded that this conduct constituted a “proceeding” within the meaning of Article 13.01 and I agree.
Disposition
[21] For the reasons given, I would dismiss the appeal.
[22] I would award costs of the appeal to the respondent fixed in the sum of $8000, inclusive of disbursements and HST, the figure to which counsel agreed.
Released: October 27, 2014 “EAC”
“J. MacFarland J.A.”
“I agree E.A. Cronk J.A.”
“I agree H.S. LaForme J.A.”