ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-32-10
DATE: 2012-09-11
B E T W E E N:
KEVIN FITZGERALD
S. D. Gadbois, for the Plaintiff (Defendants by Counterclaim)
Plaintiff
- and –
SOUTHMEDIC INCORPORATED Defendant AND BETWEEN: SOUTHMEDIC INCORPORATED Plaintiff by Counterclaim -and- KEVIN FITZGERALD and 6757189 CANADA LTD.
J. Lisus and C. Muir, for the Defendant (Plaintiff by Counterclaim)
Defendants by Counterclaim
HEARD: June 11, 12, 13, 18, 19, 21, 25, 26, 27, 28, 2012
The Honourable Mr. Justice J. C. Kent
REASONS FOR DECISION
ISSUE
[ 1 ] Is the Plaintiff entitled to be paid a commission by the defendant as a result of an extraordinarily large order placed with the defendant by a customer in the plaintiff’s territory?
BACK GROUND
[ 2 ] The plaintiff, Kevin Fitzgerald, through his company 6757189 Canada Ltd. was the exclusive sales representative of the defendant, Southmedic Incorporated in the province of Manitoba and elsewhere.
[ 3 ] The plaintiff’s relevant commission agreement with the defendant which is Exhibit 1, Tab 64, provided that Southmedic would pay Fitzgerald a commission based upon
“a percent of revenue earned for both base of business equal to your fiscal 2009 top end sales and growth.”
The rate of commission to be paid was 16% on base of business revenue and 22% on growth revenue. The agreement further provided that Fitzgerald would have exclusive distribution and selling rights for all Southmedic products in his territory.
The agreement also provided that Fitzgerald would
“earn accelerated commissions for growth with no cap.”
[ 4 ] Fitzgerald’s commission was paid monthly by Southmedic and it was always calculated on the basis of all sales revenue in Fitzgerald’s territory. At the relevant time, Fitzgerald had exceeded his fiscal 2009 sales and was being compensated at the rate of 22 per cent on all sales.
[ 5 ] In 2009, a pandemic of H1N1occurred in Manitoba and elsewhere. The pandemic created an unprecedented demand for eye shields, a product that Southmedic manufactured and sold. Significantly larger orders for that product were being placed with Southmedic, including an order by the Health Sciences Centre, Winnipeg for a total of $9,391,200.00. See Exhibit 1, Tab 229. That order was placed on the 6 th day of October 2009.
[ 6 ] Seven days before the aforementioned order was placed, when that order was a possibility but had not yet materialized, Southmedic, in an email from its C.E.O. Lee McDonald, gave notice to all of its sales representatives as follows:
“Orders for H1N1 below a total value to one customer of 250K will be paid at our regular commission’s rate. Any tier 1 order that exceeds 250K will be negotiated on an order by order basis. These orders will be excluded from the Growth calculations of the commission centre. Payments will be made to you when we are paid. These changes are effective October 1, 2009.”
See Exhibit 1, Tab 207
[ 7 ] Three days after the order was received by Southmedic, Fitzgerald was asked to meet with Jenefer Pardy, the sales and marketing director of Southmedic. When they met, Pardy informed Fitzgerald of the Health Sciences Centre order that had been received by Southmedic and asked him to sign an agreement to accept a bonus that would settle the amount of his commission for the order. His bonus was to be $74,250.00. See Exhibit 1, Tab 243.
[ 8 ] Fitzgerald signed the agreement, albeit reluctantly and, although he was not threatened with the termination of his relationship with Southmedic, he believed that that relationship was at peril.
[ 9 ] Within hours after the meeting, Fitzgerald had obtained legal advice and endeavoured to repudiate the agreement that he had signed.
[ 10 ] From that point, the relationship between Fitzgerald and Southmedic deteriorated rapidly. Ultimately, Fitzgerald was terminated by Southmedic by way of a letter to his then counsel on 6 November 2009.
[ 11 ] Southmedic has not paid Fitzgerald either the 22% commission provided for by the original agreement or the sum of $74,250.00 provided for in the bonus agreement.
Was there an implied term in the agreement between Southmedic and Fitzgerald that allowed for a change in the commission to be paid?
[ 12 ] Counsel for Southmedic contended that the agreement to pay commission was for normal business transactions only and not for an unusual or unprecedented sale. This court is unable to find that any such term should be implied in the agreement. Such a term is not required to give the agreement business efficacy. The agreement is clear as to how commission would be calculated and at what rate it would be paid.
Was Fitzgerald in breach of his agreement?
[ 13 ] Counsel for the defendant argued that the nature of the agreement and the relationship of the parties was such that a representative such as Fitzgerald should not have engaged in other business activities; should not have been absent from his territory and should have put forward his full time efforts for Southmedic.
There was evidence presented at trial that permits the court to find that Fitzgerald did not always work for Southmedic on a full time basis; that he attempted to engage in other business activities while his agreement with Southmedic was in force and that he was not always physically present in his territory.
The principal complaint of Southmedic is that Fitzgerald, by conducting himself in that manner, was in fundamental breach of the agreement. This court is unable to find that behaviour to be a fundamental breach of the agreement between Fitzgerald and Southmedic. While the facts are certainly different, help may be found in the decision of the Supreme Court of Canada, R.B.C. Dominion Securities Inc. V. Merrill Lynch Canada Inc., 2008 Carswell B.C. 2009 (S.C.C.) . The Supreme Court found that it was not a breach of any duty of good faith to search for alternative job opportunities, to negotiate with a competitor or to talk to co-workers about one’s intentions. See paragraph 57. More importantly, the agreement between Fitzgerald and Southmedic did not specify any obligations such as Southmedic maintains should be implied.
[ 14 ] There is no basis to imply terms into the agreement that would impose such obligations upon Fitzgerald. The court heard that more than one Southmedic sales representative engaged in business other than that of Southmedic’s. If such obligations were to be imposed on a sales representative by Southmedic, they should have been set out in the agreement.
What is the effect of the notice limiting commissions on orders related to the H1N1 pandemic?
[ 15 ] The notice was sent out by Southmedic on 29 September 2009. Fitzgerald testified that he did not receive or at least did not recall receiving the notice. In cross-examination, it became clear that Fitzgerald had received the notice by email, although one cannot be sure whether it was read by Fitzgerald or for that matter any of the other recipients. The notice was clearly an attempt by Southmedic to limit commissions on larger unprecedented orders. It was a unilateral step by Southmedic and appears to have been accepted by other sales representatives, or at least by those who were called as witnesses at trial on behalf of Southmedic. The original commission agreement makes no provision for such unilateral alteration of the commission payments. Therefore, without clear acceptance by a sales representative, the 29 September notice cannot be effective.
What is the effect of the 13 October 2009 bonus agreement?
[ 16 ] On its face, the agreement which is dated 9 October 2009 and was signed by Kevin Fitzgerald on 13 October 2009 is an agreement by Fitzgerald to accept $74,250.00 as his reward for the order that would otherwise have required Southmedic to pay him a commission of almost 2 million dollars.
Was Kevin Fitzgerald an entirely credible witness?
[ 17 ] Regrettably, the answer to this question must be no. It is clear that Fitzgerald misrepresented his geographic location when he spoke with Jenefer Pardy. It is clear that he misrepresented the extent of the hours that he worked on behalf of Southmedic during his examination for discovery and at trial. In addition, there were discrepancies between his evidence at trial and his evidence at examination for discovery. Nevertheless, there is no substantial difference between the evidence of Kevin Fitzgerald and the evidence of Jenefer Pardy as to what took place leading up to Fitzgerald’s signing the bonus agreement on October 13, 2009. Both agree that he was told of the order before he was shown the bonus agreement. Both agree that, although there was some discussion as to his performance, there was no direct threat to terminate his agreement with Southmedic. Both agree that he understood or appeared to understand what was happening. Both agree that before they parted, they hugged.
Analysis
[ 18 ] Based on the foregoing findings, Fitzgerald should have been compensated in accordance with his original commission agreement with Southmedic for the order placed by Health Sciences Centre Winnipeg. But the agreement dated 9 October 2009 and signed 13 October was signed and understood by Fitzgerald after he was told of the unprecedented order. No direct threat of termination was made by Jenefer Pardy on behalf of Southmedic at the time of the signing of the agreement.
[ 19 ] Upon learning of the order and being confronted with the bonus agreement, Fitzgerald may have felt some commercial pressure or even a degree of economic duress, given the inequality of bargaining power between Fitzgerald and Jenefer Pardy as Southmedic’s representative. Fitzgerald had no opportunity to consider the content of the agreement for any significant period or to obtain legal advice before signing the agreement. He did protest, but ultimately he did sign.
[ 20 ] Fitzgerald’s repudiation of the October 13 agreement came very quickly and as soon as he was able to obtain legal advice. Within hours of meeting with Jenefer Pardy Fitzgerald had engaged a lawyer, Peter E. Thompson, who wrote and faxed a letter to Southmedic to the attention of C.E.O. Lee McDonald and to Jenefer Pardy setting out the following points:
Fitzgerald had “no opportunity to seek independent legal advice”;
the bonus agreement was “completely contrary” to the commission agreement;
Fitzgerald was “not cognizant of the impact of the new document”;
there was no “consensus and idem”.
See Exhibit 1, tab 253.
[ 21 ] This case turns on a determination of the legal effect of 2 documents, the commission agreement and the bonus agreement. Having determined that the defendant was required to pay the plaintiff a commission for the Winnipeg order in accordance with the commission agreement and having determined that the plaintiff agreed to a significant reduction of that commission by signing the bonus agreement, this court must now consider whether Kevin Fitzgerald’s repudiation of the bonus agreement is to be given effect.
Law
[ 22 ] For Fitzgerald’s repudiation to be effective, this court would be required to find that the treatment of Fitzgerald by Southmedic was unfair to the point of being unconscionable and that Fitzgerald’s real will was coerced by the conduct of Southmedic. This court must, therefore, consider the applicable law.
[ 23 ] A court may exercise its equitable jurisdiction to set aside an unconscionable agreement where undue advantage has been taken of an inequality of bargaining power. See: Ronald Elwin Lister Ltd. v. Dunlop Canada Ltd. 1979 75 (ON CA), 27 O.R. 2d 168 (C.A.) at para. 44.
[ 24 ] An agreement may also be set aside if it is found to have been obtained by duress that coerces the will of a party. Commercial pressure is insufficient to constitute duress.
[ 25 ] In Lister at para. 45 the court set out the appropriate considerations. Those considerations may be listed as follows:
Did the person alleged to have been coerced protest?
Did the person have an alternative course open to him?
Was the person independently advised?
Did the person, after entering the contract, take steps to avoid it?
Overall, was there a coercion of the persons will which vitiates his agreement?
Was the contract entered into voluntarily?
[ 26 ] The decision in Kroll v. 949486 Ontario Inc. 1997 12343 (ON SC), [1997] O.J. No. 4932, is an example of an agreement found not binding as a result of having been signed under duress and without legal advice. The party alleging duress was found by the trial judge to have been credible when he maintained that there was no room for discussion and that he signed on a “take-it-or-leave-it” basis or otherwise he would receive nothing.
[ 27 ] A recent decision, Rubin v. Home Depot Canada Inc., 2012 ONSC 3053, considered the elements necessary to demonstrate unconscionability and relied upon the elements set out by the Ontario Court of Appeal in Titus v. Willima F. Cooke Enterprises Inc. 2007 ONCA 573. The court is required to consider whether the agreement was “grossly unfair” or whether an imbalance of bargaining power went beyond that which is inherent in any employment relationship. When such an imbalance allows one party to take advantage of another party’s vulnerability to obtain an agreement, that agreement may be found to unconscionable.
[ 28 ] Relating that law to some of the evidence is helpful. In both examination in chief and cross examination, Kevin Fitzgerald testified that Jenefer Pardy said that he was not entitled to a commission. Jenefer Pardy was not asked, when she testified, for specifics as to whether there was any discussion about entitlement to a commission. She was not asked for the specifics as to precisely when Kevin Fitzgerald signed the bonus agreement although she did say that she was “pretty sure” he signed the document before they went on to discuss certain performance issues. She was not asked about any reluctance or protest by Kevin Fitzgerald before he signed the agreement. She observed that he looked “pretty happy” when she told him about the bonus.
[ 29 ] The Southmedic offer was, however, the only option presented and it was characterized as a benefit to Fitzgerald. The amount to be paid to Fitzgerald compared to his normal commission or the potential profit to Southmedic was miniscule to the point where it must be described as unfair.
[ 30 ] When she testified, Lee McDonald told the court that all of the bonuses were calculated before the order was finalized and that all staff took considerably less than they were otherwise contractually entitled to. She recalled that she spoke with Kevin Fitzgerald at approximately 6:00 p.m. on October 13, the day that he met with Jenefer Pardy. She said that she explained to him that the unprecedented order was one that would swamp the infra-structure of Southmedic because it was not part of normal business.
[ 31 ] While it may have been reasonable for Kevin Fitzgerald to believe that his contract with Southmedic was at peril there is no evidence that either Jenefer Pardy or Lee McDonald threatened termination of the contract in order to get Kevin Fitzgerald to sign the bonus agreement. Fitzgerald may have felt some commercial pressure due to the inequality of the bargaining power but that pressure seems to have come from within rather than from Jenefer Pardy or Lee McDonald. While it is common ground that Fitzgerald only learned of the unprecedented order shortly before he was confronted with the bonus agreement and was given no opportunity to obtain legal advice, the agreement was rather straight forward, represented a significant change in commission and paid him an amount approximately equivalent to his annual income. He understood what he was signing, signed it, appeared to be happy and hugged with Jenefer Pardy before he left the meeting. That does not seem to be the conduct one would expect of an individual whose will has been coerced by unconscionable treatment by the only other person present at the meeting.
Conclusion
[ 32 ] Applying the above law and analysis to the findings and observations of the court, I am driven to the conclusion that while the conduct of Southmedic may have been both harsh and unfair, it did not reach the level of (mis)conduct that would support a finding of coercion or unconscionability. Both parties are, therefore, bound by the bonus agreement.
[ 33 ] For these reasons, the claim of Kevin Fitzgerald for his commission fails. Similarly, the counterclaim of Southmedic Incorporated based on allegations of breach of agreement by Kevin Fitzgerald also fails
[ 34 ] Kevin Fitzgerald is entitled to be paid the sum of $74,250.00 by Southmedic pursuant to the October agreement.
[ 35 ] If counsel are unable to agree on a costs disposition, they may contact the Trial Coordinator at Brantford and obtain an appointment to address the issue before me.
Judgment accordingly.
Kent, J
Released: 11 September, 2012
COURT FILE NO.: C-32-10
DATE: 2012/09/11
ONTARIO SUPERIOR COURT OF JUSTICE BETWEE N: KEVIN FITZGERALD Plaintiff - and - SOUTHMEDIC INCORPORATED Defendant AND BETWEEN: SOUTHMEDIC INCORPORATED Plaintiff by Counterclaim -and- KEVIN FITZGERALD and 6757189 CANADA LTD. Defendants by Counterclaim REASONS FOR JUDGMENT KENT, J.
Released: 11 September, 2012