Court of Appeal for Ontario
Date: September 24, 2018 Docket: C64192 Judges: Rouleau, Pardu and Benotto JJ.A.
Parties
Between
Douglas N. Dunsmuir and Ronald J. Goegan Plaintiffs (Appellant)
and
Royal Group, Inc. Defendant (Respondent)
Counsel
Milton A. Davis, Ronald D. Davis and Samantha Green, for the appellant
Nigel Campbell and Doug McLeod, for the respondent
Hearing and Appeal
Heard: September 11, 2018
On appeal from the judgment of Justice Frederick L. Myers of the Superior Court of Justice, dated July 20, 2017, with reasons reported at 2017 ONSC 4391.
Reasons for Decision
Overview
[1] The appellant, Ronald J. Goegan, appeals the dismissal of his action for wrongful dismissal. The trial judge found just cause for his termination without notice.
[2] The respondent, the Royal Group, Inc., is a public company. The appellant was, by the time of his termination in 2004, Senior Vice-President and Chief Financial Officer and a member of the board of directors. The trial judge concluded that three incidents of misconduct justified his termination.
The Three Incidents of Misconduct
First Incident: The Land Flip
[3] The first incident involved a land flip whereby the controlling shareholder of the respondent, together with senior officers of the respondent (the controlling shareholder's group), bought property through a third party then immediately after closing, sold it to the respondent for $6.5 million more than they had paid, thereby profiting personally. Leading up to this transaction, the appellant, who at the time was the senior officer of the respondent responsible for real estate acquisitions, had been approached by the vendor's agent to enquire whether the respondent was interested in purchasing the property. After consulting with the controlling shareholder of the respondent, he indicated that the corporation was not interested in the property.
[4] Shortly thereafter, the appellant was asked by the controlling shareholder to assist him in effecting the acquisition of the property. Thereafter, the appellant was involved with and assisted in the acquisition by the controlling shareholder's group and the immediate resale to the respondent of the same property at a $6.5 million markup.
[5] Although the appellant knew that the respondent had been offered the opportunity to acquire the property and that within months of this the controlling shareholder's group had acquired and then sold the property to the respondent at the significantly higher price, the appellant did not disclose this information to anyone with oversight authority. As noted by the trial judge, he was "the senior-most person at Royal Group with significant involvement in the transaction who was not profiting personally in it."
Second Incident: The Warrant Redemption
[6] The second incident arose from the sale of a subsidiary of the respondent to another public company called Premdor. The purchase price included a share warrant that entitled the respondent to purchase an additional 200,000 shares of Premdor at a strike price of $13.25. After the share price rose, the warrants were redeemed for the benefit of the respondent's senior management – including the appellant – for a total profit of approximately $2 million.
[7] When management's bonuses, which included the profits made by senior management on the exercise of the warrants, were disclosed as part of the respondent's regular reporting, there was a public outcry from shareholders. The appellant then allowed a different story to be told to the independent directors that covered up the reason for which senior management's bonuses were greater than what the approved bonus plan provided.
Third Incident: The Tax Scheme
[8] This led to the third incident: a tax scheme whereby the Canada Revenue Agency was misled about the exercise of the warrants in order to reduce senior management's tax liability.
Trial Judge's Findings
[9] The trial judge's finding that the appellant had failed in his fiduciary duty to the respondent is anchored to these three incidents. The first two constituted failures to disclose related party transactions to the independent directors or the auditors. The third incident also constituted a breach of fiduciary duty, in that it involved the falsifying of corporate documents for personal gain and in order to mislead the Canada Revenue Agency.
Appellant's Arguments
[10] The appellant submits that the trial judge erred in law by:
Failing to follow the test in McKinley v. BC Tel, 2001 SCC 38, [2001] 2 S.C.R. 161. He submits that this test requires the trial judge to conduct a contextual analysis of the entire employment situation, which in this case involved a corporate culture dominated by an autocratic controlling shareholder;
Relying on Advanced Realty Funding Corp. v. Bannink, 27 O.R. (2d) 193 (C.A.), to conclude that what the board of directors would have done had he disclosed the events in question was irrelevant. He submits that Hodgkinson v. Simms, [1994] 3 S.C.R. 377 overruled Advanced Realty in the result that it was incumbent on the respondent to show that the board would have taken action;
Failing to properly consider that his actions had been condoned.
Court of Appeal's Analysis
[11] We do not accept these submissions.
[12] McKinley does not assist the appellant. The trial judge was clearly alive to the corporate culture and made factual findings that were open to him on the evidence. In any event, no corporate culture existing in a public company can reasonably support the course of conduct of this fiduciary as evidenced by these three incidents of misconduct. They struck at the heart of the employment relationship.
[13] Nor do we agree that Hodgkinson overruled Advanced Realty. Hodgkinson involved an assessment of damages, not a fiduciary's duty to disclose. With respect to condonation, the trial judge concluded, and we agree, that the appellant cannot rely on other senior managers who were themselves participants of the unlawful conduct to establish condonation.
Fiduciary Duty to Disclose
[14] The appellant owed a fiduciary duty to the company and its shareholders which included a duty to disclose. The trial judge correctly set this out at para. 134 of his reasons:
A fiduciary who knows about wrongdoing committed against the beneficiary has a duty to tell the beneficiary. In Canson Enterprises Ltd. v. Boughton & Co., the Supreme Court of Canada held that a lawyer breached his duty to his client who was the buyer of land. The land had been subject to a wrongful flip by an intermediate buyer in breach of its duties to the final buyer. The lawyer had acted on the intermediate flip. It is significant that in that case, the lawyer had not been a principal participating in the flip. Rather, he knew about it and as a fiduciary to the ultimate buyer, the lawyer had a duty to disclose to his client the breaches of duty committed against it. Similarly, the fact that Mr. Goegan did not make a personal profit on the Vaughan West land flip is no answer in law to the claim that his knowledge and silence were breaches of his fiduciary duty to disclose the Vaughan West land flip. His common law duties of loyalty, fidelity, and candour required him to disclose to the corporation the conflicts of interest and the misappropriation of corporate opportunities and assets of which he had knowledge from his participation in the transactions. [Citations omitted.]
Conclusion
[15] In summary, the trial judge did not err in law and his findings of fact were grounded in the evidence.
[16] The appellant has also raised an abuse of process allegation by submitting that the respondent relitigated facts found by the trial judge in the appellant's lengthy criminal trial, resulting in inconsistent findings in the two proceedings. We do not accept this submission. The allegations were raised in the appellant's pleading and struck out by the court in a 2013 order which was not appealed. The issue was therefore not before the trial judge. It cannot be raised now.
[17] The appeal is dismissed with costs in the agreed upon amount of $65,000 inclusive of disbursements and HST.
"Paul Rouleau J.A."
"G. Pardu J.A."
"M.L. Benotto J.A."