ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-433655
DATE: 20120615
B E T W E E N:
LAUREN RICHARDS Plaintiff/Responding Party
- and -
MEDIA EXPERTS M.H.S. INC. and MARK SHERMAN Defendants/Moving Parties
Muneeza Sheikh , for the Plaintiff/ Responding Party
Andrew C. Lewis , for the Defendants/ Moving Parties
HEARD: April 5, 2012
STEVENSON J.
REASONS FOR DECISION
[ 1 ] This is a motion by the Defendants for an order pursuant to Rule 21.01(1) (b) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194 striking out the Amended Statement of Claim against the Defendant Mark Sherman (“Sherman”) in its entirety, without leave to amend. Specifically the Defendants seek to strike out the following paragraphs:
i. Paragraph 2 (all claims against Sherman);
ii. Paragraphs 5, 6, 7 and 8 (pre-contractual conduct);
iii. Paragraph 23A (paragraph supporting tort claim against Sherman); and
iv. Paragraph 29 (punitive damages against Sherman).
[ 2 ] The Defendants are also seeking their costs of this motion.
Factual Background
[ 3 ] The Defendant Media Experts M.H.S. Inc. ("Media Experts") employed the Plaintiff Lauren Richards ("Richards") as its CEO from late 2010 until July 2011 pursuant to an employment contract ("Employment Agreement") dated October 18, 2010. Sherman is the founder and Executive Chairman of Media Experts.
[ 4 ] Richards’ employment with Media Experts terminated in July 2011 and Richards is seeking to enforce the Employment Agreement, which provides her with payments upon being terminated without cause. The Defendants are not seeking to strike those claims of Richards; however, Media Experts is defending the claims by Richards under the Employment Agreement on the basis that it had cause for termination.
[ 5 ] The Defendants are seeking to strike the claims made against Sherman by Richards, including claims that he is liable for the torts of intentional/negligent infliction of nervous shock and punitive damages. The Defendants state that there is no reasonable cause of action pleaded against Sherman.
[ 6 ] The Plaintiff is seeking an order dismissing the motion of the Defendants. The Plaintiff also seeks an opportunity to provide the Defendants with particulars or to amend the pleadings, should the Court find that the tort of intentional/negligent infliction of nervous shock is insufficiently pleaded. The Plaintiff also seeks cost of the motion.
The Defendants' Position
[ 7 ] The Defendants' position is that Richards seeks to enforce entitlement to compensation on termination pursuant to the Employment Agreement, but that the Employment Agreement also contains a limitation of liability clause ("Exclusion Clause") that precludes claims for damages arising from Richards' employment and termination as set out in the Employment Agreement.
[ 8 ] The Defendants assert that the Employment Agreement also contains an "entire agreement" clause ("Entire Agreement Clause") and they claim that the Defendants are entitled to the protection of the Exclusion Clause and the Entire Agreement Clause.
[ 9 ] It is the Defendants' position that Richards cannot seek to enforce the Employment Agreement while ignoring both the Exclusion Clause and the Entire Agreement Clause in order to assert claims in tort and for punitive damages.
[ 10 ] The Defendants assert that Sherman is entitled to rely on both the Exclusion Clause and the Entire Agreement Clause. As such, they submit that the torts of intentional or negligent infliction of nervous shock, pleaded against Sherman, along with punitive damages, are barred, and ought to be struck out without leave to amend.
[ 11 ] The Defendants also submit that paragraphs 5, 6, 7 and 8 of the Claim set out allegations pertaining to Richards' qualifications and negotiations between her and Media Experts leading to the Employment Agreement. As Richards is seeking to enforce the Employment Agreement, and not to set it aside, the Defendants submit that allegations pertaining to pre-contractual conduct are irrelevant to any contractual cause of action pleaded.
[ 12 ] They also submit that if those paragraphs are intended to support the causes of action of intentional/negligent infliction of nervous shock and punitive damages against Sherman, and if those causes of action are struck out, then these paragraphs are irrelevant and must be struck out.
[ 13 ] In the alternative, the Defendants submit that if the claims are not struck out, then the torts of intentional/negligent infliction of nervous shock are insufficiently pleaded and ought to be struck out with leave to amend. The Defendants submit that Richards has failed to plead the specific harm and damage she alleges she has suffered.
The Plaintiff's Position
[ 14 ] Richards submits that the Employment Agreement does not preclude her from bringing a claim for an actionable tort against Sherman personally. Richards asserts that the contract between Richards and Media Experts cannot protect Sherman from independent torts that he commits and there is no basis in law for providing Sherman with the personal protection of any portion of the Employment Agreement between Richards and Media Experts.
[ 15 ] Richards further submits that Sherman is not a named party to the Employment Agreement and that Media Experts could not have condoned Sherman's behaviour. There was no evidence that he was directed by the corporation to negligently or intentionally inflict nervous shock on Richards.
[ 16 ] Richards states that she relies upon post-contract conduct of Sherman to substantiate her claim against Sherman only. She further submits that the material facts as plead substantiate the legal conclusion that Sherman is personally responsible for either intentionally or negligently inflicting nervous shock on her. Richards states that she has clearly pled the specific harm and damage that she suffered at the hands of Sherman.
Issues
[ 17 ] 1. What is the test on a motion to strike a pleading pursuant to Rule 21.01 (1) (b)?
Should the claim as against Sherman be struck in its entirety, without leave to amend, specifically paragraph 2 (all claims against Sherman); paragraphs 5, 6, 7 and 8 (pre-contractual conduct); paragraph 23A (paragraph supporting the tort claim against Sherman); and paragraph 29 (punitive damages claim against Sherman)?
Alternatively, are the torts of intentional and negligent infliction of nervous shock insufficiently pleaded and should they be struck out with leave to the Plaintiff to amend?
Relevant Statutory Provisions
(i) Rules of Civil Procedure
[ 18 ] Rule 21.01(1) of the Rules of Civil Procedure states:
21.01 (1) A party may move before a judge,
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,
and the judge may make an order or grant judgment accordingly.
The Law on Motion to Strike
[ 19 ] A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action. Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial: R. v. Imperial Tobacco Canada Ltd. , [2011] 3 S.C.R. 45, 2011 SCC 42 at para. 17 .
Exclusion Clauses/Limited Liability Clauses and Doctrine of Privity
[ 20 ] Documents referred to and relied upon in a Statement of Claim are incorporated into the pleading and are not evidence precluded by Rule 21 of the Rules of Civil Procedure . (See: Web Offset Publications Ltd. v. Vickery (1999), 43 O.R. (3d) 802 (C.A.) para. 3 .) As such, the terms of the Employment Agreement can be referred to on this motion. The Exclusion Clause and Entire Agreement Clause state as follows:
3.6 Except as set forth in Sections 2.9, 3.2 or 3.5, the Executive shall have no rights or recourse with respect to the termination of the Executive's employment with the Company and the termination of this Agreement, whether by the Company or the Executive, and the Executive shall not have the right to receive any severance payment, damages or indemnity by reason of such termination.
9.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.
[ 21 ] In determining whether or not a limitation (or exclusion) of liability clause protects a defendant in a particular situation, the first step is to interpret the clause to see if it applies to the tort or breach of contract complained of: Queen v. Cognos Inc. , [1993] 1 S.C.R. 87, para. 91
[ 22 ] Where the parties have contemplated at the time of entering into the contract that a breach of contract would in certain circumstances cause the plaintiff mental distress, the plaintiff is entitled to recover. (See: Honda Canada Inc. v. Keays , [2008] 2 S.C.R. 362, 2008 SCC 39 at para. 56 .) The starting point is "what was contemplated by the parties at the time of the formation of the contract”, or, as stated in para. 44 of Fidler v. Sun Life Assurance Co. of Canada , [2006] 2 S.C.R. 3, 2006 SCC 30 : “what did the contract promise”? ( Keays para. 56 .)
[ 23 ] The thrust of Richards’ argument on this motion is that officers, directors and employees can be liable for their own tortious conduct as stated by the Ontario Court of Appeal in Meditrust Healthcare Inc. v. Shoppers Drug Mart, a division of Imasco Retail Inc., 124 O.A.C. 137, 90 A.C.W.S. (3d) 690 at para. 14 . The Defendants do not dispute this; however, the Defendants submit that any alleged tortious conduct is protected by the exclusion clause which counsel for the Plaintiff disputes. Counsel for the Plaintiff submits that this would be akin to allowing criminal conduct to be protected by the exclusion clause as well. Counsel also submits that it needs to be determined at trial whether the Exclusion Clause as termed by the Defendants is really an exclusion clause and if so, who is covered by that clause.
[ 24 ] In the case of First Gulf Development Corp. v. Alfa Laval Inc. , [2006] O.J. No. 1688 2006 (S.C.J.), CarswellOnt 2528 at paras. 20-23 , Wein J. dealt with a similar motion to strike where there was an issue of limitation of liability clauses and their application to employees. Justice Wein made reference to the Supreme Court of Canada decision of London Drugs Ltd. v. Kuehne & Nagel International Ltd. and the decision of Wilson J. in Corfax Benefit Systems Ltd. v. Fiducie Desjardins Inc. :
¶20 That individuals can rely on the contract to limit their liability cannot be disputed. Justice Iacobucci, writing for the majority in London Drugs Ltd. v. Kuehne & Nagel International Ltd. , [1992] 3 S.C.R. 299 held that where liability is limited by contract and one of the contracting parties is a corporation, there is no valid reason for denying the benefit of the clause to employees who perform the contractual obligations. Justice Iacobucci noted:
... there is simply no valid reason for denying the benefit of the clause to employees who perform the contractual obligations. The nature and scope of the limitation of liability clause in such a case coincides essentially with the nature and scope of the contractual obligations performed by the third party beneficiaries (employees). Upholding a strict application of the doctrine of privity in the circumstances of this case would also have the effect of allowing the appellant to circumvent or escape the limitation of liability clause to which it had expressly consented. (At page 441).
¶21 This approach has been followed in cases such as Corfax Benefit Systems Ltd. v. Fiducie Desjardins Inc. (1997), 37 O.R. (3d) 50 (Gen. Div.) where Justice Wilson stated, in reference to London Drugs :
I adopt this common sense approach, that accords with commercial expectations and reality. The only pre-contractual representations made during the protracted period of discussion were made by the employees of Corfax. Unless the disclaimer clause ... applied to representations made by employees of Corfax, it would render the clause meaningless. (at para. 25)...
[ 25 ] The issue of privity in respect of limited liability clauses was also determined by the Supreme Court of Canada in London Drugs . At paras. 245-246 the Court stated:
¶245 The doctrine of privity fails to appreciate the special considerations which arise from the relationships of employer-employee and employer-customer. There is clearly an identity of interest between the employer and his or her employees as far as the performance of the employer's contractual obligations is concerned. When a person contracts with an employer for certain services, there can be little doubt in most cases that employees will have the prime responsibilities related to the performance of the obligations which arise under the contract...Of course, I am in no way suggesting that employees are a party to their employer's contracts in the traditional sense so that they can bring an action on the contract or be sued for breach of contract. However, when an employer and a customer enter into a contract for services and include a clause limiting the liability of the employer for damages arising from what will normally be conduct contemplated by the contracting parties to be performed by the employer's employees, and in fact so performed, there is simply no valid reason for denying the benefit of the clause to employees who perform the contractual obligations...
¶246 Upholding a strict application of the doctrine of privity in the circumstances of this case would also have the effect of allowing the appellant to circumvent or escape the limitation of liability clause to which it had expressly consented. This Court warned against such a practice in Central Trust Co. v. Rafuse , [1986] 2 S.C.R. 147. There, Le Dain J. in speaking for the Court made the following statement of principle (at p. 206):
A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort...
[ 26 ] The Court went on to outline the circumstances where employees should be entitled to benefit from a limitation of liability clause at para. 257. The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employees (or employee) seeking to rely on it; and the employees (or employee) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.
Disposition
[ 27 ] Based on the reasons referred to below, I find that it is plain and obvious that the tort and damage claims against Sherman disclose no reasonable cause of action and have no reasonable prospect of success and should be struck without leave to amend. As the nature of the claim directed at Sherman is fundamentally inconsistent with the law in this area which I have reviewed, there shall be no leave to amend the claim.
[ 28 ] I find in this case to allow the tort and damage claims against Sherman in his personal capacity to proceed "would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort" as stated in Central Trust Co. v. Rafuse , [1986] 2 S.C.R. 147.
[ 29 ] The Exclusion Clause and the Entire Agreement Clause set out what the parties contemplated at the time of entering into the contract. They specifically set out the rights that Richards would have if her employment was terminated by referencing clauses 2.9, 3.2 and 3.5 of the Agreement and clearly stated that Richards "shall not have the right to receive any severance payment, damages or indemnity by reason of such termination”.
[ 30 ] I agree with the Defendants' submissions that Richards' claims against Sherman centre around her allegations that she was constructively terminated and ultimately explicitly terminated without Media Experts paying her the severance required under the Employment Agreement and that this is "re-packaged" as a tort claim against Sherman.
[ 31 ] Richards is relying on the Employment Agreement to enforce the terms of her severance while at the same time choosing to ignore the provisions of the Employment Agreement which preclude her from receiving "any damages or indemnity by reason of such termination."
[ 32 ] I agree with the submissions of counsel for the Defendants, that although Richards does not characterize her claim as damages for mental distress arising from the breach of the Employment Agreement in itself, she does assert essentially the same cause of action which is the intentional or negligent infliction of nervous shock by Sherman arising because of the alleged breach of the Employment Agreement by Media Experts and the manner of that alleged breach.
[ 33 ] I disagree with the submissions of the Plaintiff that the cause of action relating to the intentional or negligent infliction of nervous shock relates to Sherman’s conduct that is separate and apart from the action for breach of contract. The facts in the Amended Statement of Claim as pleaded do not support that Sherman was deliberately acting on a frolic of his own to cause damage to the Plaintiff and that this is separate tortious conduct not protected by the Exclusion Clause.
[ 34 ] Additionally, upholding a strict application of the doctrine of privity would also allow the Plaintiff to circumvent or escape the limitation of liability clause to which she had consented as stated in London Drugs . I find that the exclusion clause impliedly extends to the benefit of Sherman.
Order
[ 35 ] I therefore order the following:
i. The Amended Statement of Claim against the Defendant Mark Sherman (“Sherman”) shall be struck in its entirety, without leave to amend. Specifically, the following paragraphs shall be struck:
a. Paragraph 2 (all claims against Sherman);
b. Paragraphs 5, 6,7 and 8 (pre-contractual conduct);
c. Paragraph 23A (paragraph supporting tort claim against Sherman); and
d. Paragraph 29 (punitive damages against Sherman).
ii. I urge counsel to agree on costs but if they are unable to do so, the Defendants shall serve and file written costs submissions (no longer than two double-spaced pages) along with their Costs Outline within 20 days and the Plaintiff shall serve and file written costs submissions (no longer than two double-spaced pages) along with her Costs Outline 20 days thereafter.
Stevenson J.
Released: June 15, 2012
COURT FILE NO.: CV-11-433655
DATE: 20120615
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
LAUREN RICHARDS Plaintiff/Responding Party
- and -
MEDIA EXPERTS M.H.S. INC. and MARK SHERMAN Defendants/Moving Parties
REASONS FOR DECISION
Stevenson J.
Released: June 15, 2012