Court of Appeal for Ontario

Date: 2017-01-25 Docket: C62346

Judges: Simmons, Brown and Roberts JJ.A.

Between

Hampton Securities Limited on its own behalf and on behalf of all Creditors of Joseph Tassone

Plaintiff/Responding Party (Appellant)

and

Joseph Tassone and Anne Tassone

Defendants/Moving Parties (Respondents)

Counsel

Colby Linthwaite, for the appellant

Jordan Kirkness, for the respondents

Heard: January 19, 2017

On Appeal

On appeal from the order of Justice David G. Stinson of the Superior Court of Justice, dated March 10, 2016, with reasons reported at 2016 ONSC 1743.

Endorsement

Overview

[1] Following the oral hearing we dismissed this appeal for reasons to follow. These are our reasons.

[2] The appellant, Hampton Securities Limited, employed the respondent, Joseph Tassone, to trade in securities using the company's own capital. During Tassone's employment, Hampton maintained a trading inventory account (the "Inventory Account") that recorded the gains and losses resulting from Tassone's trades with its capital. In the months when Tassone's trades achieved no profits, he would earn no remuneration; only once his trades again generated profits that were sufficient to overcome his accumulated losses, would he earn anything. When Tassone's employment ended in September 2011, his Inventory Account stood in a loss position – approximately $700,000.

[3] Hampton took the position Tassone was personally responsible for the loss and demanded he make good on it. Hampton applied the approximately $100,000 of Tassone's personal funds kept in a personal reserve account against the loss. The company also liquidated Tassone's shares in Hampton and applied the proceeds to the loss. Hampton then sued Tassone for the remaining net loss, about $600,000. Hampton also attacked Tassone's transfer of title in the matrimonial home to his wife, the respondent Anne Tassone, as a fraudulent conveyance.

[4] Tassone denied any personal liability for the loss. He counterclaimed for wrongful dismissal and damages for Hampton's wrongful application of his personal funds against the loss.

[5] Tassone moved for partial summary judgment on the issue of whether he was personally responsible for the losses in his Inventory Account. The parties agreed the motion would finally decide the issue of liability on Hampton's main claim.

[6] The motion judge granted Tassone partial summary judgment. He held Tassone was not personally responsible for the accumulated losses, save to the extent of the amount in his personal reserve account. The motion judge dismissed Hampton's claim for payment of the accumulated losses in excess of Tassone's retained personal reserve.

Analysis of the Grounds of Appeal

[7] Hampton advances several grounds of appeal.

[8] First, it submits the motion judge misdirected himself about the proper question to be decided. In its factum, Hampton contends the proper question was whether it was an express or implied term of Tassone's employment contract that "the end of employment would relieve Tassone of his established liability to indemnify Hampton for already-incurred losses."

[9] We see no merit in this argument. The motion judge clearly recognized that the issue of Tassone's liability for losses in his Inventory Account when his employment ended turned on the terms of his contract of employment, including what, if any, obligation Tassone had to compensate or indemnify Hampton for losses in the Inventory Account. As the motion judge stated, at para. 14, this was "largely a question of fact."

[10] Second, Hampton contends the reasons of the motion judge should be read as containing a finding Tassone was required to indemnify Hampton for losses suffered due to his trading. We do not see how the motion judge's reasons could be read in that fashion. His findings about the terms of the employment contract were to the contrary.

[11] After conducting a thorough review of the documents constituting Tassone's employment contract, the motion judge made the following findings: (i) it was a term of the employment contract that the funds in the personal reserve account were the property of Tassone, but were available to reduce or extinguish any accumulated trading losses in the Inventory Account; (ii) no document required Tassone to indemnify Hampton for all accumulated losses in the event he ceased to be an employee. Those findings led the motion judge to conclude, at para. 37:

Based on the foregoing, I am not prepared to find as a fact that it was an express term of the employment contract between Hampton and Tassone that, in the event Tassone's accumulated losses exceeded his personal reserve at the time the employment relationship ended, Tassone would be liable to make good 100% of the remaining losses. Based on the evidence I accept, the parties' agreement did not include such a term.

[12] The motion judge then considered whether the employment contract should be construed as containing an implied term imposing personal liability for trading losses on Tassone. He concluded it should not, as it was not necessary and obvious such a term should be implied: para. 41.

[13] The motion judge's finding about the terms constituting the employment contract between the parties and their interpretation is entitled to deference, absent palpable and overriding error. We see none.

[14] Third, Hampton submits the motion judge erred in interpreting the employment contract because he failed to follow the decision of this court in Refco Futures (Canada) Ltd. v. Keuroghlian, 2008 ONCA 592, 240 O.A.C. 300. That case is distinguishable on its facts. In it, the finding of liability of a foreign exchange trader for losses resulting from trades on behalf of certain clients was based on the express terms of the trader's employment agreement: 2006 O.J. No. 3725 (S.C.J.), at paras. 96-97 and 321; aff'd 2008 ONCA 592, 240 O.A.C. 300, at para. 50. Also, in Refco, the trader had fraudulently concealed losses and obtained large commissions while doing so: at paras. 14-18. That fraud prevented the employer from deducting losses from amounts payable to the trader during the course of employment as it was entitled to do under the contract. In that context the employer could clearly pursue the trader after the end of the employment relationship.

[15] Fourth, Hampton submits the motion judge erred in failing to rely on the evidence of its President, Mr. Peter Deeb, that it was an established practice in the industry that departing employees were responsible for accumulated trading losses. We do not accept this submission. Contrary to Hampton's submission, Tassone did not admit to such a practice in his pleading: see Fresh as Amended, Amended, Amended Fresh Statement of Defence and Counterclaim, para. 3. Of more significance, Hampton did not adduce independent expert evidence of any such industry practice. The motion judge held he was not prepared to make a finding of industry practice in the absence of such evidence. He committed no error in so deciding.

[16] Finally, Hampton submits the motion judge erred in failing to decide whether Tassone failed to give adequate notice of his cessation of employment and to consider whether trading gains he might have generated during a proper notice period would reduce the losses in the Inventory Account. Tassone submits this issue was not raised before the motion judge and, in any event, was not pleaded by Hampton as a basis for its claim.

[17] We accept Tassone's submission on this point. Neither Hampton's statement of claim or fresh as amended reply and defence to counterclaim pleads that Tassone's failure to give proper notice contributed, in any manner, to the accumulated losses in the Inventory Account.

[18] We dismissed the appeal for the foregoing reasons and awarded costs of the appeal to the responding parties, on a partial indemnity scale, fixed in the amount of $15,000, inclusive of disbursements and HST.

Janet Simmons J.A.

David Brown J.A.

L.B. Roberts J.A.