SUPERIOR COURT OF JUSTICE - ONTARIO
BARRIE COURT FILE NO.: CV-14-0425
DATE: 20140523
RE: Diane Legg, Applicant
AND:
Simcoe Muskoka Catholic School Board, Respondent
BEFORE: THE HON. MR. JUSTICE P.H. HOWDEN
COUNSEL:
S.J. Moreau, Counsel for the Applicant
M. Sclisizzi, Counsel for the Respondent
HEARD: May 13, 2014
ENDORSEMENT
[1] The Applicant Diane Legg was hired by the respondent Simcoe Muskoka Catholic District School Board (“the Board”) as a communications officer in July 2000. By 2008, she had been promoted to a management position and then to Director, Communications and Public Affairs. The applicant and the respondent entered into a contract of employment for the latter position. She now is facing disciplinary procedures brought by the Board arising from a formal investigation and resulting allegations going to her managerial abilities, her honesty and her good faith in carrying out her duties as Communications and Public Affairs Director. This application seeks a determination of the applicant’s right to advancement and indemnification by the respondent for her legal and other costs and expenses incurred in defending herself.
[2] The contract was drafted solely by or on behalf of the respondent. The applicant was required to sign it in assuming her duties. In these circumstances where one of two parties to a contract has had the sole hand in drafting it, the principle of contra proferentum applies to address potential power imbalances implicit in the process; the essential principle is that any ambiguity in the contract should be construed in favour of the party who did not draft it. It only applies in the case of a real ambiguity, not as a more general assist to me or to the parties.
[3] The article of the contract that is directly relevant is Article 13.01. The relevant portion of that article reads:
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… 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 the 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 the affairs thereof,
except such costs, charges and 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.
The Board shall also from time to time indemnify the Communications and Public Affairs Director in such other circumstances as any legislation or law permits or requires. Nothing in this Contract shall limit the right of the Communications and Public Affairs Director to claim indemnity apart from the provisions of this Contract to the extent permitted by any legislation or law.
[4] This application is brought under Rule 14 for interpretation of the applicant’s employment contract. The Board’s counsel submits that it cannot be determined under Rule 14 of the Rules of Civil Procedure, RRO 1990, Reg. 194.
Can This Application Proceed under Rule 14.05?
Onus of Proof of Bad Faith Conduct and the Presumption of Good Faith
Rule 14.05(3) (d) of the Rules of Civil Procedure states:
(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,
(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution.
[5] The parties take opposed positions on, and have submitted divergent evidence, as to allegations of fraud and other misconduct on the part of Ms. Legg. Mr. Sclisizzi submits that Rule 14 is limited to the interpretation of terms of contracts or statutes where the essential facts are not in dispute. As there are material facts in dispute in this case, a trial is required. A hearing on the merits of the Board’s allegations will be determined by arbitrators pursuant to the terms of the contract and they have the authority to award costs.
[6] On behalf of the applicant, Mr. Moreau disagrees with this submission. He submits that the issue before me is not the conduct of Ms. Legg and whether or not it amounts to fraud or dishonesty. That will be ultimately determined and confirmed by the Board and, if appealed, by three arbitrators should the Board resolve to suspend, dismiss or demote her. The arbitration decision is subject to limited rights of appeal to the court pursuant to the Arbitration Act of Ontario. The issue on this application is whether Ms. Legg is entitled to indemnification for her legal costs commencing with the investigation by the Board.
[7] The application before me is a limited one. It does not seek any ruling on issues of fraud or wrong-doing alleged against the applicant. In that regard, no submission is made before me that the evidence in the investigatory report on Ms. Legg’s conduct proves that she has acted dishonestly or in bad faith. The Board on this application has stated that the allegations and conclusions of the investigator in Exhibit C to the Board’s motion record are not put forward as truthful and accurate but only to show that such allegations exist.
[8] The duty to indemnify and save harmless the applicant from charges and costs related to her attempts to defend herself in Article 13.01 is subject to disqualification where such costs and charges are occasioned by the applicant’s own bad faith conduct. That disqualification cannot operate to deprive the applicant of the right to indemnification granted in the article in law, where there is no proof of bad faith conduct. The guiding proposition is that persons are presumed to act in good faith until proven otherwise. Ms. Legg is not required to prove her good faith, Blair v. Consolidated Enfield Corp. 1995 76 (SCC), [1995] 4 S.C.R. 5, at para. 35.
[9] In Cytrynbaum v Look, 2012 ONSC 4578 (SCJ); aff’d. 2013 ONCA 455 (OCA), the court held on the basis of Blair and other clear authority, that on any application to determine a question of indemnity or advancement, the former director or officer of the corporation, or Board as in this case, possesses the presumption of good faith in their favour. This means that, in view of the operation of this presumption, it is not sufficient for the Board to simply raise allegations of bad faith which have never been found proven to the high standard of proof required. There is nothing to prevent the Board or corporation from rebutting the presumption of good faith at an early or preliminary stage. But clauses such as the disqualification exception in Article 13.01 have no effect without the Board or corporation establishing on the evidence that it has a strong prima facie case that the director or officer seeking advancement really did act in bad faith or dishonestly or fraudulently.
[10] For instance, in Cytrynbaum, Look delivered a record of eight volumes and 4,000 pages of affidavits but it had to demonstrate the strong prima facie truth of that record in order to overcome the right to indemnification. It succeeded in the case of four individual applicants and it failed to do so in the case of Dolgonos. It could not even demonstrate that Dolgonos was an officer of the corporation at the relevant time, an element that was basic. As the presiding judge summed up the law in this regard, the onus is on the Board or corporation to rebut the presumption of good faith and establish that the directors or officers acted in bad faith or dishonestly, contrary to the best interests of the Board or corporation. In this case, the Board makes no effort to do so. The investigation report is not relied by the respondent for the truthfulness of the allegations in it. If it were otherwise, the Board or corporation could simply render the indemnity clause meaningless by refusing to honour the agreement because it knows of some allegation that the director or officer acted in bad faith and yet never has to prove it.
[11] 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. I see no reason why I cannot determine that issue as there is no disagreement as to the existence of the indemnification contract between the parties and the statutory law that may apply. I am not being asked to make any finding as to the character of the applicant or anything she has done or not done based on these allegations. This is an issue of contractual and ancillary statutory interpretation within the parameters of rule 14.05 and the case law relating to it.
[12] As well, the language of Article 13.01 in the context of the contract as a whole seems clear. In the absence of proof of the investigation allegations, the decision as to whether the applicant’s conduct is such as to require disciplinary action will now be before the Board at the confirmatory hearing not yet held where Ms. Legg is entitled to a hearing and, if the applicant elects arbitration, by the arbitrators under the Arbitration Act. I understand that the question of confirmation of its dismissal decision is to be before the Board on June 10 next where Ms. Legg is to be entitled to a hearing. 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. The major issue before me is whether the contract between the parties in Article 13.01 not only permits but requires advancement of funds to pay Ms. Legg’s legal costs from the investigation stage onwards, subject of course to a final accounting on the issue of costs by the arbitrators after their findings on the merits have been made.
Is the Applicant Entitled Under the Contract Between the Parties to be Indemnified and Saved Harmless for her Legal Costs and Related Expenses?
[13] It is common ground from reading the parties’ application records and the facta in this case that the series of events that brought about the investigation of Ms. Legg’s conduct came out of a complaint against Ms. Legg in early November 2013. Ms. Legg had called the employee to task over a missed deadline. Out of that came accusations by that employee of abusive behaviour by Ms. Legg and a generally negative work environment in the communications department due to her behaviour. Between November 11, 2013 and January 15, 2014, efforts were made by the parties directly involved as well as the Human Resources Superintendent to try and resolve their differences informally or by engaging a third-party facilitator. On January 15, 2014, informal resolution attempts ended. By early February 2014, concerns of the employee and others began to surface about alleged “abusive, manipulative, and dishonest behaviour” including allegations that Ms. Legg was not always where her work responsibilities required or where her expense reports indicated she should be.
[14] On February 4, 2014, the Board suspended the applicant with pay. The Board caused an investigative firm to be hired whose work was to focus directly on Ms. Legg. Since that firm’s retainer in early February 2014, the investigators have interviewed the interested Board employees, eight by audio and seven transcribed. They conducted surveillance of Ms. Legg. They have subjected her iPhone, computers, network logs, video tape and a camera memory card to forensic examination. Over 5,000 documents were obtained and reviewed in the effort to analyze 82 dates when Ms. Legg was out of the office.
[15] The Board’s factum records the findings by the investigators. I will not repeat them here because the Board has stated that it makes no effort to prove the investigator’s conclusions on this application. They are there in Exhibit C of the respondent’s application record without any proof of their accuracy or veracity. They are here, according to the Board’s counsel, simply to indicate their existence and to allow the Board’s counsel to submit that the investigation was large-scale and related to allegations of dishonesty and neglect of duty.
[16] On April 24, 2014, the Board made the decision to dismiss the applicant from her employment as Director of Communications and Public Affairs. According to the contract with the applicant, where the Board alleges neglect of duty, misconduct or inefficiency, it must give written notice to the applicant identifying the allegations and inviting the applicant to appear at a hearing before the Board in private session not less than one month after the date of notice, to enable (the applicant) to answer the allegations. (The Contract; Article 14.3). After the hearing, the Board may withdraw its allegations, resolve to suspend, dismiss, demote or counsel the applicant (Article 14.4). By Article 14.6, the applicant may request that any suspension, dismissal or demotion be submitted to arbitration.
[17] In considering the application by the applicant for indemnification for all costs, charges and expenses sustained by her in defending herself, the basic question comes down to the purpose of this clause in the contract and whether what is described by the Board’s counsel as a “workplace investigation” or an “internal investigation under (the Board’s) workplace harassment policy” is actually a proceeding affecting the applicant’s legal rights. (Resp.’s Factum, paras. 38 and 40). There is no question that there are charges or costs that have been and will be incurred by Ms. Legg and there is no issue that they relate to acts, deeds, matters or things done or permitted by the applicant in relation to carrying out her duties as the Communications and Public Affairs Director. The fundamental issue here is whether what has occurred and is occurring here is a “proceeding” of the sort to trigger the duty to indemnify and save harmless within the meaning of this clause.
[18] First, the purpose of provisions like Article 13.01 is not questioned. Indemnification of an individual in the public service for legal and related costs is to provide leeway to attract strong candidates and to encourage responsible behaviour. Blair, at para. 74; Med-Chem Health Care Ltd. v. Misir, 2010 ONCA 380, at para. 20. It is to provide some measure of security and to level the playing field where a corporate or stakeholder army turn their guns on one individual who is in a public position where he or she should not have their decisions influenced by fear of bankruptcy if they become a target.
[19] There is no doubt that we are not dealing here with either a legal “action” or “suit” against the applicant. The word “proceeding” did not have to be added to this duo. It was inserted and therefore has to be given some meaning. The Board cites authority that holds “proceeding” to be a word which requires context to test its use. The Board suggests that the words “action” or “suit” limit “proceeding” to analogous activities to a court action like a proceeding before an administrative tribunal such as the Labour Relations Board.
[20] Mr. Sclisizzi calls up the case of Maurer v Metroland Media Group, 2009 HRTO 200, a case in a very different context where a party to a proceeding before the Ontario Human Rights Tribunal had alleged sexual discrimination and harassment in a vocational association that violated the Human Rights Code. The applicant asked to amend her request for hearing to add new allegations. The union wanted an early dismissal of the application under Article 45.1 of the Code. Article 45.1 states that an application may be dismissed if the Tribunal finds that “another proceeding” has dealt appropriately with the substance of the application. The union pointed out that the applicant had filed a complaint under the employer’s internal harassment policy and the employer conducted an investigation. The union argued that the investigation was a “proceeding” that appropriately dealt with the substance of the complaint.
[21] The Human Rights Tribunal purported to hold that “an internal employer investigation” is not a “proceeding” within Article 45.1. That is not, in my view, what the Tribunal ruled. A closer reading reveals that what it really stands for is this - that an applicant cannot be deprived of her right to pursue her remedy under the Human Rights Code because of an internal private process lacking natural justice safeguards such as the in-house employer’s investigation. In addition, the decision held that the complaint had not been dealt with at all because the applicant claimed the response by the union and employer constituted an independent ground of discrimination.
[22] Maurer did not address the question of the extent to which the employer’s investigation qualified, or not, as a proceeding. Nor did it consider the expansive meaning given “proceeding” by the Supreme Court of Canada.
[23] In Markevich v. Canada, 2003 SCC 9, [2003] S.C.J. No. 8, the Court held that:
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 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.
[24] In the case before me, one does not have to resort to any far-flung meanings of a “proceeding”. First of all, one could not find a much broader word to describe activities that could trigger the advancement and indemnification principle. The Oxford Canadian Dictionary defines “proceeding” as simply, “an action or piece of conduct” where it is not used as part of the phrase “legal proceeding”, ed. by K. Barber; Oxford University Press, Don Mills, Ontario, 1998, at p. 1153. The Board in its drafting did not choose to limit instances of the use of the indemnification provision to legal actions or regulatory proceedings.
[25] For instance, the word “proceeding” in municipal law can refer to very informal public meetings where an official plan amendment is being initially opened for public comment but the meeting is not the one authorized by statute, and including the meetings of planners and the public or planners and the developer aiming at opening the statutory process, all the way to a formal hearing before the OMB or a motion to quash the amendment before a court. Context is required to determine its meaning in any given situation. I think the one thing required for a “proceeding” in the context of an indemnification clause is a series of actions or articulable conduct intended toward a procedural end possibly prejudicial to the director or officer, with a focus on the person who is the subject of the indemnification clause.
[26] In this case, I do not see the initial meetings and attempts toward informal resolution of the so-called harassment allegation as a proceeding, or at least not the proceeding with which this application is concerned. The initial parties had a disagreement and agreed to try to iron it out among themselves. Nothing flowed from that. However from 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, her alleged moods, her alleged unapproachability, her predilection to delegate, and her noted absences, there is no question in my mind that Board officials were initiating a proceeding focussed on her. From there, she was told ominously, in answer to her questioning of the Director of Education, that answers were coming soon, indicating he knew well what had been put in motion. On February 4, 2014, Ms. Legg was suspended immediately from her position with pay.
[27] The proceeding in this case begins with the warnings to her that she was to be investigated in late January, intensifies with her suspension by the Board with pay, and flows through the Board’s decision to engage in a formal investigation of Ms. Legg’s work activities, retainer of a professional investigation firm, recorded interviews of her by more than one interrogator, the subject of the interviews being her expense claims and travel in her job, cell phone triangulation questioning as to her location at certain times through her cell phone records, interviews of staff persons regarding her activities, forensic examination and surveillance, presentation of the investigation to the Board, dismissal of the applicant on April 23, the forthcoming hearing by the Board and Ms. Legg’s right on confirmation of her dismissal to the arbitration hearing - this constitutes a proceeding within the meaning of Article 13.01.
[28] I am solidified in my conclusions by the fact that the contract calls not only for indemnification by the Board but for the applicant to be saved harmless. There was no need for those words to be added; they were no doubt to give added assurance to the new Director that when clouds form above her in the future, there will be shelter and assistance available. Those words not only add emphasis to the principle of indemnification; in company with several other phrases, they clarify that indemnification is to be immediate and ongoing. As Brown J. stated in Stewart Title Guarantee Company v Zeppieri (2009), 2009 2329 (ON SC), 94 OR (3d) 196 at para. 17:
The contractual obligation to save harmless, in my view, is broader than that of indemnification. I accept the respondents’ submission that the obligation to “save harmless’ means that a LSUC member (the one who sought indemnification here) should never have to put his hand in his pocket in respect of a claim covered by the terms of the...Agreement.
[29] The following phrases in Article 13.01 underline this point: “from time to time”, “and at all times”, “both during the term of this Contract and thereafter”, “shall...indemnify and save harmless the ...Director”, “from and against all costs, charges, and expenses”.
[30] There is a sense from the Board’s submissions that it sees such provisions as this one as being improperly utilized where the proceeding is within the employer’s own umbrella and not some third party action against the applicant. It should be plain that many of the cases holding in favour of indemnification and advancement of legal costs deal with proceedings generated internally or brought within the subject corporation or entity. See Blair, supra; Bennett v. Bennett Environmental Inc., 2009 ONCA 198, [2009] O.J. No. 853 (OCA); Med-Chem Health Care Ltd. v. Misir, 2010 ONCA 380, [2010] O.J. No. 4535 (OCA); Cytrynbaum v. Look, 2012 ONSC 4578; Jolian Investments Ltd. v. Unique Broadband Systems Inc. [2011] O.J. No. 2687 (SCJ).
[31] Both counsel adverted to the similarity of Article 13.01 of the indemnification contract to s. 80 of the Corporations Act. I find the argument in this regard by the applicant’s counsel compelling. S. 80 uses the word “proceeding”. Interestingly, the same word is used in s. 136 of the Business Corporations Act, RSO 1990, c. B.16. S. 136 however goes beyond “proceeding” to state:
A corporation may indemnify a director or officer...against all cots, charges, and expenses...reasonably incurred... in respect of any civil, criminal, administrative, investigative, or other proceeding in which the individual is involved.
[32] The Board sees this difference from s. 80 and Article 13.01 as significant because Article 13.01, in not adopting the language in s. 136 of the Business Corporations Act, should be taken to have not intended to cover investigative matters as a proceeding. However, the applicable law holds that where the legislature uses the same word in two separate statutes, in this case both governing the corporate sector in Ontario, it is taken to mean that the same word be given the same meaning. Sullivan on the Construction of Statutes, 5th ed., by R. Sullivan, at pp. 214-5.
[33] Accordingly, it is declared that the Board has an obligation to indemnify, reimburse and save harmless the applicant for all costs, charges and expenses the applicant has and will have in defending herself pursuant to Article 13.01of the contract of employment marked exhibit 2 B to the affidavit of the applicant, Application Record, including any legal fees, disbursements, costs and HST the applicant has and will have to pay, commencing on January 30, 2014.
[34] As several of the cases note, it is open to the arbitrators in acting within their jurisdiction following the arbitration hearing to order that the applicant repay the Board some or all of the costs advanced to her under this order, or not.
[35] If costs are not agreed upon, counsel should send to me brief written submissions, the applicant’s submissions being due within twenty days of the release of this endorsement. The respondent’s submissions will be due within twenty days of receipt of the applicant’s submissions.
HOWDEN J.
Date: May 23, 2014