ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 12-54323
DATE: 2014-09-12

BETWEEN:

NAHED EL-HAWARY
Plaintiff, Defendant by Counterclaim

– and –

1202827 ONTARIO INC
Defendant, Plaintiff by Counterclaim

Alayna Miller, for the Plaintiff, defendant by Counterclaim

Martin Diegel, for the Defendant, plaintiff by counterclaim

HEARD: September 10 - 12, 2014 at Ottawa

T.D.RAY, J

1The defendant, plaintiff by counterclaim is represented by the principal of the company, Stanley Tam a non-lawyer, by order of Master Roger dated September, 8, 2014.

2The plaintiff is a pharmacist and was both employed by the defendant as a pharmacist manager, was a shareholder, and also a party to a shareholder agreement. The defendant carried on business at the relevant times as Ottawa Medical Pharmacy.

3The plaintiff’s claim is for damages arising out of her termination as an employee and as a shareholder, following the sale of the business. The defendant counterclaims for damages from the plaintiff. The issues are whether an agreement dated May 30, 2011, is enforceable. Alternatively, what damages if any is the plaintiff entitled to as a result of the defendant’s termination of the plaintiff’s employment, including damages if any for fair dealing. Finally, what damages if any is the defendant entitled to from the plaintiff for her failure to sign a non-competition and agreement in the form that was provided to her by the defendant.

4The plaintiff is an Egyptian trained pharmacist who was licensed in Ontario in 1981. She commenced her employment with the defendant in 1997, and in 1998, became a shareholder and a party to a shareholder agreement dated June 18, 1998. At the time, she owned 31 shares, another pharmacist owned 20 shares, and Mr. Tam owned 49. She had no employment agreement. She said that throughout her employment the defendant never expressed any dissatisfaction with her work or her staff relations; and she was never given any notices or letters. Her management duties included managing two staff pharmacists, and taking full responsibility for the pharmacy while Mr. Tam was away twice per year for a month long vacation. She said she got along well with Mr. Tam to whom she reported. An amendment to the shareholder agreement dated July 1, 2001, was necessary because the other pharmacist retired, and it was necessary to comply with the law to boost the plaintiff’s shareholdings to 51 – a majority. The agreement also changed the termination notice from 60 days to 120 days. Even though the amendment was never signed, in a letter to the plaintiff dated May 4, 2011, Mr. Tam undertook to honour the terms of the amendment.

5In late 2010 or early 2011, Mr. Tam told her that he was going to sell the business. She expressed interest, and sometime in January, 2011, the plaintiff and her husband met with Mr. Tam and he provided some financial statements. There were no further discussions although the plaintiff told Mr. Tam some time later that they would want an appraisal. No further discussions took place. In March, she believes she told Mr. Tam she was not going to make an offer.

6April 18, 2011, the plaintiff received from the defendant a notice terminating the shareholder agreement, and a notice terminating her employment, both effective May 30, 2011. This was her first intimation that the business had been or was in the process of being sold. She retained counsel who began negotiations on behalf of their clients to attempt to resolve the various issues. One of the issues arose from an agreement of purchase and sale that the defendant had entered into with new purchasers. It was dated February 2011, and contained a covenant by the defendant that the plaintiff would be bound by a non-competition clause (5 km and 5 years) and a non-solicitation clause. The plaintiff knew nothing of these terms.

7Negotiations between the plaintiff and the defendant gave rise to a number of versions of the agreement beginning in May, 2011. The final draft sent by the plaintiff’s solicitor to the defendant’s solicitor June 13 contained a revision of the restrictions (5 km and two years), was signed by the plaintiff, but was never signed off by the defendant. She said it was the defendant’s insistence on a non-solicitation clause that made her realize that the defendant would not follow through on the May 30 agreement. She attended Mr. Guilbault’s office on June 13, 2011, and signed the agreement that had been recommended to her by her solicitor, namely, a non-competition clause for only two years and 5 km. She said she worked until June 11, 2011, signed the documents necessary to comply with the college requirements for transfer of a pharmacy plus the corporate documents and left. At the time of her leaving she was earning $100,000 plus a $24,000 management fee. She received $29,975.00 as the first payment under the May 30, 2011 agreement.

8She began work at another pharmacy on the Monday, where she worked part time for two months. She said she began experiencing emotional difficulties and depression because of leaving what she honestly believed was her business. She said she felt very sad at leaving a business she felt so connected to for 13 years. Her condition deteriorated, she required hospitalization, and was treated for severe depression.

9The plaintiff earned $14,535 in 2011 for the two months with Bell Pharmacy, and $10,058 up to September, 2012.

10Medical records filed as part of the plaintiff’s case describe her severe depression, symptoms, and treatment but make no reference to the plaintiff leaving her employment, or more particularly, her manner of termination.

11Danny Guilbault, the plaintiff’s solicitor, described the negotiations he undertook on behalf with the plaintiff in trying to resolve her employment issues from her termination. He has some 13 years of experience giving advice in employment and business matters, including the sale of businesses. While he became aware that the business was being sold, he never saw the agreement of purchase and sale, and was therefore unaware of any of its terms. He said he had had experience with pharmacies, was aware of the ownership requirements, and the documents that a pharmacist had to sign on the sale, since Mr. Tam was not a pharmacist. May 24, 2011, a first draft was sent by Mr. Guilbault to Mr. Tam’s solicitor, Mr. Diegel of a settlement agreement. The next day, a non-competition clause was raised for the first time; and a further draft, to which the plaintiff had agreed included a non-competition clause limited only to ownership for 5 years within 5 km. On May 27, 2011, Mr Diegel advised Mr. Guilbault that they had an agreement that only required the plaintiff to complete the College paperwork for the transfer – which she did. A draft agreement was sent by Mr. Guilbault to Mr. Diegel dated May 30, 2011. A copy was signed by the plaintiff and returned to Mr. Guilbault. Mr. Guilbault had the plaintiff sign the agreement, but did not send it back, because when Mr. Diegel forwarded the actual non-competition agreement in favour of the new purchasers, it contained additional terms. It broadened the agreement beyond mere ownership of a pharmacy, and included a non-solicitation clause. Neither had been agreed to. Mr. Guilbault revised the actual agreement in accord with his client’s agreement, and returned it to Mr. Diegel. He said the plaintiff would have signed it, but the communications tapered off. Mr. Guilbault thought that because the plaintiff had signed off on the closing documents to facilitate the sale that the defendant lost interest.

12The plaintiff’s husband, Magdy El-Hawary described the discussions that he had with the plaintiff, and then with Mr. Tam concerning the sale of the business. It involved one meeting with Mr. Tam after they heard the business was for sale. After he spoke to an accountant, he learned that he should have an appraisal. He said his wife had asked Mr. Tam for an appraisal and Mr. Tam had simply shrugged his shoulders. Neither Mr. El-Hawary nor the plaintiff took any steps to arrange to get an appraisal, no further discussions took place with Mr. Tam, and they never presented an offer to Mr. Tam.

13Mr El-Hawary spoke of the depression that the plaintiff experienced after leaving her job with the defendant and the difficult medical course that she followed to try to regain her health.

14The plaintiff had been paid the first instalment contemplated in the May 30, 2011 agreement of $29,975.00 but nothing further.

15The defendant disputes the plaintiff’s claim and says he did not pay the plaintiff the sums due under the May 30, 2011 agreement because she failed to sign the non-competition and non-solicitation agreements. The defendant opened its case by calling the bookkeeper and a technician, both of whom worked with the defendant throughout the period during which the plaintiff worked. I did not find either of their evidence helpful in dealing with the issues as pleaded. For example, there was no allegation that the plaintiff’s work was anything but acceptable, any evidence I heard from these two witnesses was very trivial. The plaintiff’s claim that the defendant company was sold out from under her without her knowledge is not supported by the evidence. I advised Mr. Tam that it was unnecessary to hear any evidence about the pre-sale events except as they related directly to the plaintiff, and her termination.

16Mr Raman, one of the purchasers of the Ottawa Pharmacy said that he had bought and sold a number of pharmacies and he always insists on a non-competition provision. He agreed, however, that this was the first time he had purchased a pharmacy from a non-pharmacist and therefore, it was not a case where he needed to stop the vendor from opening a competing business across the street. He said it was the delay in closing because the plaintiff refused to sign the covenant that allowed him to negotiate an additional $35,000 from the defendant. In fact, when it did close, he waived the condition. He knew that the plaintiff had obtained a job with a nearby pharmacy.

17Martin Diegel, an Ottawa solicitor, represented the defendant in negotiations with the plaintiff giving rise to the May 30, 2011 agreement. He did not see the signed agreement of purchase and sale for the sale of the business until afterwards, so he had no input into the covenant affecting the plaintiff. He negotiated with Mr. Guilbault until they reached an impasse on the language of the non-competition agreement, and then turned it back to Mr. Tam to try to negotiate the sale with the purchasers, without the covenant. It was Mr. Tam, not Mr. Diegel that negotiated with the purchaser.

Analysis

18The agreement of May 30, 2011 is an enforceable agreement. Clearly the parties were in agreement with the terms as stated. However, the defendant failed to honour the agreement, and remains in non-compliance with its financial terms. The plaintiff’s actions in declining to sign the agreements that were presented to her after May 30 do not constitute repudiation of the non-compliance term putting her in breach because the agreement of May 30, 2011 did not anticipate the broad terms of the non-competition Agreement that she was asked to sign. In other words it was open to her to decline to sign the agreement without being in violation of the May 30, 2011 agreement. It was the defendant who failed to comply with the May 30, 2011 agreement, by not paying her second instalment. In fact he seeks in this litigation to be repaid that payment.

19I note that the plaintiff signed all of the documentation asked of her to complete the sale of the business. These included the documents required by the college of pharmacy and also her signing off as a shareholder and director. It is notable that Mr. Diegel’s evidence was that he chose to negotiate a compensation package and then inserted the non-competition agreement into the mix. This restriction on the plaintiff’s employment prospects would have required re-visiting her compensation. It was not. That may be a repudiation of the earlier agreement. It is therefore open to the plaintiff to treat the May 30, 2011 agreement at an end in light of the defendant’s repudiation and to permit her to seek damages at common law.

20At common law, the plaintiff is entitled to severance equivalent to 13 months minus whatever she has been paid. She was a skilled, highly trained manager pharmacist for 13 years. Since she was being paid $124,000 at her time of termination, a reasonable severance would be $134,333.33. She earned $14,535.35 during the 13 month period, and received $29,975.00 from the defendant for a total of $44,510.35. The plaintiff’s damages are $89,822.98.

21The plaintiff’s health issues were regrettable, but there was no evidence linking the manner of her dismissal to those health issues. The plaintiff’s evidence that Mr. Tam refused to speak to her, and refused her correspondence after her termination is insufficient. I find the plaintiff is not entitled to moral or aggravated damages. There was no evidence to support damages beyond reasonable severance.

22The defendant counterclaims for damages against the plaintiff for her failure to sign the non-competition agreement and non-solicitation agreement that was presented to her fails. She was never made aware of the terms of the Agreement of Purchase and Sale requiring that the purchasers be given her covenant. The claim fails at that point because she could not have known that the precise terms were a condition of the sale. Even she had been, she was never consulted about her willingness to engage those covenants. She was never asked to be a party to the agreement of purchase and sale. Those covenants were for the defendant’s benefit not the benefit of the plaintiff. In fact, the terms of the covenants were far more onerous than would have been reasonable if an Owner-pharmacist were selling their business. In this case, where the plaintiff was terminated, there was no incentive to her sign a non-competition agreement beyond that contained in the letter agreement of May 30, 2011. Ordinarily severance payments for dismissed employees are considerably higher the more onerous the non-competition or non-solicitation clause. I find that Mr. Guilbault’s suggested compromise was reasonable. I find there was no obligation on the plaintiff to execute the covenant in the form presented to her from Mr. Diegel’s office, and therefore, no damages can flow from her failure to sign.

23The fact that the defendant had to pay $35,000 to the purchasers for failing to get the plaintiff to sign the agreement cannot be the measure of his damages. That is simply what it cost him because of his failure to successfully negotiate an agreement with the plaintiff. That was his issue, not the plaintiffs. I find that the defendant has failed to establish that he sustained any provable damages. The counterclaim is dismissed.

24In summary, the plaintiff is awarded damages of $89,822.98. The defendant’s counterclaim is dismissed. Judgement shall go in favour of the plaintiff for $89,822.98 plus prejudgement interest

25The parties may make written submissions of two pages or less concerning costs, the plaintiff within 15 days, the defendant within a further 10 days, and reply from the plaintiff within a further 5 days.

Honourable Justice Timothy Ray

Released: September 12, 2014

COURT FILE NO.: 12-54323
DATE: 2014-09-12

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

NAHED EL-HAWARY
Plaintiff, Defendant by Counterclaim

– and –

1202827 ONTARIO INC
Defendant, Plaintiff by Counterclaim

REASONS FOR JUDGEMENT

Honourable Justice Timothy Ray

Released: September 12, 2014