CITATION: Hillman v. Bedford Consulting Group Inc., 2015 ONSC 210

COURT FILE NO.: CV-14-503444

DATE: 20150113

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: HART C. HILLMAN, Plaintiff

AND:

THE BEDFORD CONSULTING GROUP INC., Defendant

AND RE: THE BEDFORD CONSULTING GROUP INC., Plaintiff by Counterclaim

AND:

HART C. HILLMAN and BIGWIN GROUP INC., Defendants by Counterclaim

BEFORE: Stinson J.

COUNSEL: Sara J. Erskine, for the Plaintiff and Defendants by counterclaim

Daniel A. Lublin, for the Defendant and Plaintiff by Counterclaim

HEARD at Toronto: December 9, 2014 and by subsequent written submissions

ENDORSEMENT

[1] This is a motion by the plaintiff for summary judgment. The plaintiff seeks judgment for the balance he says is owed to him by the defendant for commissions and a bonus earned by him while he worked in the defendant’s executive search and placement business. The defendant disputes the claim on the basis that the plaintiff is not contractually entitled to the sums claimed and on the further ground that it has a defence to a portion of the claim founded upon the concept of equitable set-off. The case involves some questions of fact as well as legal issues involving contractual interpretation and the availability of the defence of equitable set-off on these facts.

Factual Background

[2] Between January 2009 and November 2013, the plaintiff was employed by the defendant as an executive search consultant. His role was to provide executive recruitment services by, among other things, acquiring contracts from corporate clients to perform searches for qualified candidates to fill vacant positions.

[3] In his employment letter dated January 5, 2009 (the “2009 Employment Contract”), the plaintiff was offered employment with the defendant as a “Partner”. Although the term “Partner” was used, in fact the plaintiff was not an owner or officer of the defendant corporation, nor was he entitled to share in the profits of the corporation. Rather, the term “Partner” was used by the defendant to connote the plaintiff’s (and other employees’) status as a senior level recruiter, who dealt with clients’ senior management regarding the placement of high level executives.

[4] Pursuant to the 2009 Employment Contract the plaintiff received a base salary of $240,000 per year plus an incentive bonus after reaching a certain level of net billings; he was also eligible to receive performance-based annual bonuses during his first three years of employment. Although the 2009 Employment Contract was silent on this point, the defendant now alleges (in a recent amendment to its statement of defence and counterclaim) that payment of these performance-based bonuses was in consideration for the purchase of the plaintiff’s book of business. This is a disputed fact that is not material for purposes of the motion for summary judgment.

[5] In early 2012, by means of an unsigned document dated February 3, 2012 (the “2012 Amendment”), the compensation portions of the 2009 Employment Contract were superseded. For 2012 and subsequent years, the plaintiff’s remuneration was to be based on 52% of his net billings up to $999,999.99. The plaintiff was also eligible to earn a 3% bonus on all his net billings in the event those billings met or exceeded the $1 million threshold. The parties disagree however, on the terms eligibility for the bonus. The defendant submits that in order to receive any bonus, the plaintiff had to bill and collect from clients at least 5% in “admin fees” over and above the placement fees otherwise payable by them. The defendant says the plaintiff did not meet this target in 2013 and as a result, he never became eligible for payment of a bonus for that year. For his part, the plaintiff disputes that billing and collecting 5% admin fees was a precondition for eligibility for payment of the bonus. This question, therefore, requires me to determine the terms of the parties’ agreement.

[6] Quite apart from the preliminary issue regarding the terms of the contract relating to bonus eligibility, the defendant asserts that the plaintiff’s 2013 net billings never exceeded the $1 million threshold. As a result, the argument continues, regardless of the contractual interpretation point, the plaintiff has no entitlement to be paid a 3% bonus. In response, the plaintiff complains that the defendant made an unauthorized deduction from the calculation of his net sales for 2013. He further asserts that the defendant has failed to credit him for certain revenue that was billed but not collected, contending that the defendant has failed to take appropriate steps to collect and credit him with that revenue. If either the unauthorized deduction is reversed, or the uncollected revenue included, the plaintiff says, his net billings would surpass the $1 million threshold and he would be entitled to collect the 3% bonus on all of his earnings for 2013. (Only calendar 2013 is in issue because it is common ground that the plaintiff’s net billings and collections for 2012 were less than $1 million and thus he did not meet the threshold for payment of a bonus for that year for that reason.)

[7] The plaintiff’s motion for summary judgment, therefore, calls on me to determine the terms of the plaintiff’s 2013 compensation package and as well to determine whether the plaintiff has made out an entitlement to payment of a bonus in relation to his net billings for 2013.

[8] In light of the defence of equitable setoff, it is appropriate to describe the additional facts upon which it is based. The plaintiff resigned his employment with the defendant on October 30, 2013, to take effect four weeks later. The defendant required him to leave a few days after he announced his resignation, in early November. The plaintiff subsequently set up his own executive search business in competition with the defendant. Before he officially left the defendant`s employ, the plaintiff contacted a particular customer (LSNA) with whom he had dealt, and informed it of his plans. After the plaintiff departed, LSNA cancelled its recruitment contracts with the defendant and transferred its business to the plaintiff’s new enterprise. The counterclaim arises from the circumstances of the plaintiff’s departure and the damages the defendant claims it has suffered as a consequence. The defendant has withheld from commission otherwise payable to the plaintiff the sum of $43,200, representing the specific revenue it claims it would have earned had LSNA not transferred its business to the plaintiff. In relation to that sum, the defendant raises the defence of equitable set-off.

Procedural Developments

[9] In July 2014, the parties each booked appointments for the argument of motions for summary judgment on their respective claims to be heard over the course of three consecutive days. The defendant ultimately opted not to move for summary judgment on its counterclaim. I am therefore not called upon to make determinative findings in relation to the merits of the counterclaim. The defendant argues, however, that the merits of its counterclaim relate to the merits of its defence of equitable set-off. Having regard to those merits, the defendant submits, no award should be made to the plaintiff for unpaid commissions until this issue is finally resolved.

[10] The action and the counterclaim have not yet reached the discovery stage. Instead, the plaintiff commenced this motion for summary judgment on his commission claim, seeking payment of the gross sum of $224,424.38. In September 2014, after the plaintiff’s motion materials were served, the defendant paid him the gross sum of $129,414.55 (less statutory deductions), thus reducing his outstanding claim to $95,009.83 plus interest. Of that sum, the defendant admits that it has not paid $43,200, relying on the principle of equitable set-off. In other words, the defendant concedes that on its calculation it has underpaid the amounts otherwise owing to the plaintiff on account of commissions, by $43,200; its ultimate entitlement to do so will depend on its ability to succeed on the defence of equitable set-off. If that defence is not made out, the defendant may still advance a counterclaim for damages, including that sum. The remaining difference between the parties’ positions ($51,809.83) is based on their competing positions with respect to the bonus eligibility and net billings calculation issues.

[11] Following the argument of the plaintiffs motion for summary judgment on December 9, 2014, the parties made additional written submissions that bear on the issue of whether the plaintiffs net 2013 billings met the $1 million threshold. This decision take into account the further facts and additional submissions that were placed before the court in this fashion.

Analysis

I. - The Bonus Claim

[12] I will deal first with the plaintiff’s claim for the bonus he says is owed to him in relation to his 2013 billings. This claim raises two issues:

(1) What were the terms of the plaintiff’s compensation package?

(2) Did the plaintiff’s net billings for 2013 meet the $1 million threshold?

(1) What were the terms of the plaintiff’s compensation package?

[13] It is common ground that in early 2012 the compensation provisions of the 2009 Employment Contract were superseded by the 2012 Amendment mentioned above (and reproduced in full below). Although there is no direct evidence on this topic, given the terminology contained in it, I conclude that the document dated February 3, 2012 was prepared by the defendant and provided to the plaintiff as a proposal regarding his compensation for 2012 and subsequent years. I reach this conclusion based on the terminology (i.e. “We” versus “Hart”) as well as the references to “We have a minimum expectation” and “We recognize that Hart” and finally “We reserve the right to revisit the bonus and admin fee milestones.” The repeated use of the plural pronoun “We” in contrast to the plaintiff`s first name suggests that the defendant was the author of the 2012 Amendment and I so find.

[14] For 2012 and the following year, the plaintiff’s base compensation was calculated and paid pursuant to the 2012 Amendment (subject to the amounts that remain in dispute). Since it is central to the dispute between the parties, I reproduce the document dated February 3, 2012 in full, below. (For ease of reference I have numbered the individual paragraphs, although they are not numbered in the original.)

Friday February 3, 2012

Hart Hillman Proposed Compensation

52% on $999,999,99. NET BILLINGS (cash in)

Bonus Milestones

(1) 3% Bonus (equivalent to 55% commission) paid for achieving $1MM invoiced and collected. On $1MM invoiced and collected Hart earns a $30K bonus provided we have invoiced and received a minimum of 5% in admin fees ie $50K (corporate objective is 10% ie. $100K). All invoices must all [sic] be collected before the bonus is paid and the bonus will be payable on the last business day of the following month. As well Hart must stay within 3% BD budget (on gross billings) which will be capped at $36K.

(2) An additional 2% Bonus (ie 57% commission) paid for achieving $1,250K NET invoiced and collected with corresponding admin fees (minimum 5% = $62,500). Bonus will be paid after all invoices are paid and bonus will be paid on the last business day of the following month. Hart must stay within 3% BD budget on gross billings and capped at $36,000.

(3) A Partner must achieve a minimum of 5% admin fees. *We still need to discuss if the bonus is affected for underachieving on this minimum threshold.

(4) We have a minimum expectation of a 5% admin fees on gross billings. We recognize that Hart will have certain accounts ie. RIM, Pearson that he may not be able to convert (albeit he will try) however we are still looking for this contribution of 5% on gross billings which can be achieved on new accounts. Assuming Hart sells total value to new clients then he should be able to do this.

(5) As discussed Partners must also maintain $1MM net billings with Minimum 5% admin fees to keep a dedicated Executive Assistant.

(6) We reserve the right to revisit the Bonus and Admin Fee Milestones every three years.

[15] As noted previously, for the calendar year 2012, the plaintiff was paid in accordance with the terms of the 2012 Amendment. Since he did not meet the $1 million threshold for that year, he was paid 52% of his net billings, based on the cash actually collected by the defendant on account of those billings.

[16] Paragraph 1 of the 2012 Amendment provides for a 3% bonus to be paid for achieving invoiced and collected net billings of $1 million. Paragraph 1 also purports to provide that payment of the bonus is subject to the proviso that a minimum of 5% in admin fees has been invoiced and received. According to the parties, the explanation for this terminology (i.e. “a minimum of 5% in admin fees”) is intended to indicate that, as a general rule, a partner had to bill and collect from clients at least 5% in admin fees over and above the actual placement fees charged to clients on account of placement services rendered. What is in dispute is whether the proviso actually applied to the plaintiff.

[17] Based on the following calculation, the plaintiff`s billed and collected admin fees in 2013 were less than 5% of his gross billings:

Gross billings for 2013: $1,130,661.87

A. 5% of gross billings = $56,533.09

B. Admin fees collected = 44,997.88

Shortfall (A minus B) = $11,535.21

On this basis, the defendant asserts that the precondition for payment of a bonus was not met. The plaintiff does not dispute the above calculation, but says the proviso regarding the collection of 5% admin fees was not part of the parties’ agreement.

[18] If the 2012 Amendment had included only paragraphs 1, 2, 5 and 6, it is plain that the plaintiff could not prevail on the bonus issue. Based on the contents of those paragraphs read in isolation, satisfaction of the minimum of 5% admin fee collection requirement was an express pre-condition for payment of any bonus. Significantly, however, the document prepared by the defendant included paragraphs 3 and 4. The plaintiff argues that the contents of those paragraphs signalled an intention not to apply the admin fee minimum when determining the plaintiff’s eligibility for payment of a bonus. On the other hand, the defendant contends that the language in paragraphs 1 and 2 is unequivocal and ought to be enforced.

[19] In Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.), the Court of Appeal summarized the principles applicable to the interpretation of commercial contracts as follows (at para. 24):

Broadly stated … a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.” [Citations omitted]

[20] In BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] S.C.J. No. 1, at p. 24 the Supreme Court of Canada addressed the reconciliation of conflicting contractual terms, as follows:

Where there are apparent inconsistencies between different terms of a contract, the court should attempt to find an interpretation which can reasonably give meaning to each of the terms in question. Only if an interpretation giving reasonable consistency to the terms in question cannot be found will the court rule one clause or the other ineffective. … In this process, the terms will, if reasonably possible, be reconciled by construing one term as a qualification of the other term: …. A frequent result of this kind of analysis will be that general terms of a contract will be seen to be qualified by specific terms -- or, to put it another way, where there is apparent conflict between a general term and a specific term, the terms may be reconciled by taking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term. [Citations omitted.]

[21] The contra proferentem rule of contract interpretation was recently affirmed by the Ontario Court of Appeal in 2249778 Ontario Inc. v. Smith (c.o.b. Fratburger), 2014 ONCA 788 at para. 22:

[T]he the rule of contra proferentem applies in cases where the contractual terms are ambiguous: Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 900 and Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415, at pp. 425-426.

[22] In Consolidated-Bathurst, the Supreme Court cited with approval the following passage in Cheshire and Fifoot’s Law of Contract (9th ed.), at pp. 152-3:

If there is any doubt as to the meaning and scope of the excluding or limiting term, the ambiguity will be resolved against the party who has inserted it and who is now relying on it. As he seeks to protect himself against liability to which he would otherwise be subject, it is for him to prove that his words clearly and aptly describe the contingency that has in fact arisen.

[23] But for the contents of paragraphs 3 and 4, the language of the 2012 Amendment in relation to bonus eligibility would be unambiguous and clear: invoicing and collecting a minimum of 5% in admin fees would be a precondition to the payment of any bonus.

[24] I cannot, however, overlook the references to admin fees in paragraphs 3 and 4. I also note that the document is entitled “Hart Hillman Proposed Compensation” [emphasis added.] In my view, the second sentence of paragraph 3, preceded as it is by an asterisk (i.e. “*We still need to discuss if the bonus is affected for underachieving on this minimum threshold”), when read in conjunction with the heading inserted on the document prepared by the defendant (i.e. “Proposed Compensation”) suggests that the matter of enforcing the 5% admin fee minimum vis-à- vis the plaintiff had yet to be resolved or concluded. In other words, while the parties were ad idem as to the plaintiff’s base remuneration (i.e. 52% on net billing of $999,999.99), as well as the two tiers of minimum net billing thresholds required for bonus eligibility and the respective bonus percentages, they recognized that they had not agreed that the standard admin fee minimum – ordinarily imposed on all Partners – would be imposed on the plaintiff. In this way, the words in paragraph 3 qualify the words in paragraphs 1 and 2. The words of paragraph 4 contain an explanation for this exception, namely, an express acknowledgment that the plaintiff might not be able to persuade his existing accounts to pay the admin fees.

[25] In my view, giving effect to all the words used by the parties, their true intention as reflected in paragraphs 3 and 4 was that they would have a further discussion to determine whether the plaintiff’s bonus eligibility would be affected by not achieving a minimum of 5% in admin fees; this is the only reasonable way to reconcile the contents of paragraphs 1 and 2 with the contents of paragraph 3. The very fact that the defendant acknowledged in an asterisked sentence that the issue of the plaintiff not meeting the minimum threshold of 5% admin fees still needed to be discussed, is an indication that the parties had not reached agreement on including that proviso as part of the terms governing the plaintiff’s bonus. In the alternative, at the very least, the words in the asterisked sentence in paragraph 3 serve to qualify the more general language in paragraphs 1 and 2.

[26] Finally, it is arguable that the insertion of the asterisked sentence gave rise to some ambiguity in the 2012 Amendment. I note that the defendant’s interpretation of paragraphs 1 and 2 of the 2012 Amendment would operate to exclude the plaintiff from being potentially eligible for earning a bonus payment. In this sense, the contents of those paragraphs operate as limiting terms. Bearing in mind that the document was drafted by the defendant, consistent with the rule of contra proferentem, I would resolve any ambiguity against the defendant who now seeks to rely on the contents of paragraph 1 to exclude the plaintiff from bonus eligibility.

[27] For these reasons, I conclude that the defendant cannot rely on the shortfall in admin fees as a basis for asserting that the plaintiff is not eligible to claim a bonus for 2013. Simply put, on a proper interpretation of the 2012 Amendment, the plaintiff was not required to meet the 5% admin fee minimum to become eligible for a bonus.

(2) Did the plaintiff’s net billings for 2013 meet the $1 million threshold?

[28] I now turn to the calculation of the plaintiff’s net billings for 2013. The defendant acknowledges that, based on its accounting, the plaintiff’s 2013 net billings that have been collected to date total $993,661.87. On this basis the defendant argues that the plaintiff fell short of the $1 million threshold by $6,338.13. The plaintiff disputes the defendant’s calculation on two grounds as follows:

(a) The improper deduction of a secondary hiring bonus to a more junior recruiter in the amount of $7,581.06.

(b) The failure of the defendant to credit the plaintiff with any amount on account of a receivable from a client named Rebellion Media.

I will deal with each of these disputes in turn.

(a) Deduction on account payment to junior recruiter

[29] Although the plaintiff left the employ of the defendant in November 2013, his previous efforts on behalf of the defendant continued to bear fruit. Under the terms of the defendant’s client contract, where a candidate is introduced to a client in the course of an executive search but is not hired for the position in question, if the client subsequently hires the candidate for another position within a designated timeframe, the client pays a specified fee for this so-called “secondary hire”. Following the plaintiff’s departure, a client made a secondary hire arising from one of the plaintiff’s search contracts. As a result, in April 2014, the defendant invoiced the client $75,810.63. That sum was collected in June 2014. On these facts, the plaintiff asserts that the full $75,810.63 should have been included in his 2013 net billings.

[30] The defendant, however, did not credit the full amount to the plaintiff. Instead, it deducted 10% of that sum, $7,581.06, which it paid as a bonus to a junior recruiter who had assisted the plaintiff in servicing the client in question. The plaintiff asserts that it was within his sole discretion whether or not to give a bonus to the assistant on the file and he complains that the defendant never sought his authorization to pay the bonus, and that he will not authorize it.

[31] The plaintiff’s evidence on this point is contrary to a printed policy of the defendant that expressly provided for a 10% bonus to be paid to a junior recruiter for a secondary hire. That policy makes no mention of the requirement for approval or any discretion on the part of the partner who was principally responsible for the client. The plaintiff was plainly aware of the policy, although he asserts that it was not applied by the Oakville office. The practices at the Oakville office differed in several respects from those at the Toronto office. In my view, those practices do not detract from the standard that was followed in Toronto.

[32] In this case, the defendant paid the junior recruiter a sum that it believed it was required to pay pursuant to the printed corporate policy. It is illogical to argue that the defendant paid that amount – which, on the face of the printed corporate policy, it was obliged to pay - with a view to reducing the plaintiff’s net 2013 billings so that they would meet the $1 million threshold. From the defendant’s perspective, deducting or not deducting that payment from the plaintiff’s net billings would not have altered the defendant’s exposure to pay the plaintiff a bonus since, on the defendant’s view of the parties’ agreement, the plaintiff was ineligible for a bonus because he failed to meet the 5% admin fee condition. I therefore reject the plaintiff’s argument that this deduction was made for any improper reason or motive. It follows that I do not accept the plaintiff’s evidence on this point. Rather, I find that the payment and the deduction of $7,581.06 from his 2013 net billings were proper.

(b) The Rebellion Media receivable

[33] Among the clients serviced by the plaintiff while he was employed by the defendant was a company known as Rebellion Media. During the course of 2013, the defendant rendered a series of invoices to Rebellion for client contracts obtained by the plaintiff. Unhappily, Rebellion encountered financial difficulties. As of August 2014, Rebellion remained indebted to the defendant for more than $112,000. Since those invoices were not collected, they were not included in the calculation of the plaintiff’s net billings for 2013.

[34] The original record includes a series of email communications relating to these outstanding invoices, which passed between the Steven Pezim on behalf of the defendant and Ted Hastings and Jeff Collins, as representatives of Rebellion, between August and October 2014. According to those emails, on August 20, 2014 Rebellion proposed that it would pay $35,000 plus HST as full settlement of the account. On September 3, Mr. Pezim and Mr. Hastings reached agreement by which Rebellion would pay $40,000 plus disbursements. Thereafter, Mr. Pezim requested an additional $5,000 to “minimize the financial hit” that the defendant was taking. The parties did not reach agreement on a higher number. The latest direct communication from Rebellion is dated October 21, 2014, and referenced a payment schedule for $40,000, comprised of $10,000 on October 31, 2014; $15,000 on November 30, 2014; and $15,000 on December 31, 2014. There is no email passing from the defendant to Rebellion confirming that it was prepared to accept those payments; according to Mr. Pezim, following the October 21 communication, “the trail went cold.”

[35] When this motion was argued before me on December 9, 2014, the plaintiff submitted that the defendant had intentionally refrained from collecting the Rebellion receivable. He pointed out that, even receipt of the $10,000 payment on October 31 would have meant that he would surpass the $1 million threshold in respect of 2013 net billings. He argued that the defendant had intentionally refrained from collecting this receivable, to avoid the eventuality that he would become entitled to a bonus payment. For its part, the defendant argued that it had endeavored to collect the Rebellion receivable, but had so far been unable to do so. To credit the plaintiff with amounts that were not received, the defendant argued, would be to rewrite the terms of the parties’ agreement which has always provided for the calculation of net billings to be based on funds actually received. If, as, and when funds are received from Rebellion, the defendant said, an appropriate calculation and payment will be made in favour of the plaintiff.

[36] Based on the subsequent written submissions of the parties, the foregoing arguments have largely been superseded. The evidence now before the court shows that, on November 3, 2014 (more than a month prior to the argument of the motion) the defendant received a payment of $10,000 by wire transfer from a corporation known as Orion Foundry. At the time, the defendant assumed the payment was a bank error, since the $10,000 was not directed towards payment of any specified receivable. Although almost two months have passed, there is no evidence that this amount was somehow erroneously credited to the defendant’s account.

[37] It has now emerged that Orion Foundry is, in fact, a corporation associated with Mr. Hastings of Rebellion. Internal email communications between Mr. Hastings and Mr. Collins of Rebellion confirm that, from Rebellion’s perspective, it paid $10,000 to Bedford at the beginning of November 2014. Mr. Hastings confirmed the $10,000 payment on behalf of Rebellion by way of an email to Mr. Pezim sent on December 10, 2014. As matters stand, therefore, the defendant has collected or received a further $10,000 on account of the Rebellion receivable.

[38] The defendant argues that the $10,000 payment is “suspicious”, given business relationship between the plaintiff and Mr. Hastings, the principal of Orion (who is no longer actively involved with Rebellion). The defendant further argues that no agreement was reached with Rebellion regarding a compromise of its indebtedness. In my respectful view, these submissions are irrelevant. The fact remains that the defendant is now aware that it has received a further $10,000 on account of the plaintiff’s 2013 billings. The mere fact that the payment did not originate directly from Rebellion does not negate the fact that funds have been received that must be applied against the total receivable, however it is calculated. As it undertook to do during the course of argument on December 9, 2014, the defendant must now credit the plaintiff’s 2013 net billings and collections accordingly. After applying that credit, the plaintiff’s net billings for 2013 exceed the $1 million threshold, thereby triggering his entitlement to the 3% bonus payment.

[39] During the course of argument, counsel for the defendant indicated that his client was prepared to consent to a mandatory order requiring it to take all reasonable steps to collect the sums that Rebellion had agreed to pay. That agreement was $40,000 plus disbursements of $12,000, or $52,000. Of that sum $10,000 has now been paid. I have already recited the payment schedule which was most recently proposed by Rebellion. I direct the defendant to agree to accept that payment schedule, to begin to collect those sums, and to attempt to collect the remaining $42,000 from Rebellion through all commercially-reasonable means. I direct the plaintiff to assist in that effort. I further direct the defendant to report to me within 30 days concerning its efforts and successes at collection. Assuming that the defendant collects further sums, the plaintiff’s 2013 commission income and bonus payments shall be adjusted accordingly.

Conclusion regarding plaintiff’s claim

[40] For the foregoing reasons, I conclude that the plaintiff has established an entitlement to payment of a bonus of 3%, calculated on his total net billings for 2013. Subject to my analysis of the defence of equitable set-off as to the sum of $43,200, the defendant shall pay the remaining sums due to the plaintiff for commission and bonus, forthwith.

II. - The Defence of Equitable Set-off

[41] I turn now to the defence of equitable set-off. The position of the defendant is that it has paid all outstanding commissions due to the plaintiff, except for the $43,200 that it “held back”. In accordance with the analysis set out above, I have concluded that, quite apart from the $43,200 hold back, the defendant’s calculation of the sum due to the plaintiff is erroneous and must be corrected as indicated. This portion of my decision will be confined to the defendant’s assertion that, in relation to the $43,200 that it otherwise admits is owed to the plaintiff, it is entitled to raise equitable set-off as a defence.

[42] On this motion for summary judgment I am not required to adjudicate fully the merits of this defence per se. I must, however, decide whether, in the words of rule 20.04 “there is no genuine issue requiring a trial” as regards this defence. It is therefore appropriate for me first to consider whether such a defence is available on the facts pleaded such that, potentially, I should proceed to assess the evidence on this point and determine whether a trial might or might not be required to determine whether the defence is made out. My preliminary task, therefore, is to decide whether the defence of equitable set-off is sustainable in relation to the counterclaim advanced by the defendant based on the alleged misconduct of the plaintiff. For the reasons that follow, in my view, equitable set-off is not available in respect of the withheld $43,200.

[43] In Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 at 212, Wilson J., speaking for the Court, approved a statement of the applicable principles for equitable set-off found in Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd. (1985), 1985 CanLII 144 (BC CA), 20 D.L.R. (4th) 689 (B.C.C.A.) at 696-97. Those principles can be summarized as follows:

a) The party relying on set-off must show some equitable ground for being protected against the adversary’s demands.

b) The equitable ground must go to the very root of the plaintiff’s claim.

c) The cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim.

d) The plaintiff’s claim and the cross-claim need not arise out of the same contract.

e) Unliquidated claims are on the same footing as liquidated claims.

[44] When applying factors 1-3, the Ontario Court of Appeal has noted that judges should consider the need to uphold fair dealings between the parties, quoting a decision by Lord Denning to this effect: “We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? […] [I]t is only cross-claims which go directly to impeach the plaintiff’s demands, that is, [which are] so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.” (Algoma Steel v. Union Gas, 2003 CanLII 30833 (ON CA), [2003] O.J. No. 71 at para. 26 (C.A.) citing Federal Commerce & Navigation Co. v. Molena Alpha, [1978] 3 All E.R. 1066 (Q.B.)). (I note that the term “cross-claim” is used in the above and some other passages; in the parlance of Ontario’s Rules of Civil Procedure, the proper terminology is “counterclaim”.)

[45] The test for equitable set-off is discretionary, like many other equitable rules: TD Waterhouse Canada v. Little, 2010 ONCA 145 at para. 3. As stated by Kelly R. Palmer, in The Law of Set-off in Canada (Aurora: Canada Law Book, 1993) at 66:

An established equitable principle is that “The plaintiff must not only be prepared now to do what is right and fair, but he must also show that his past record in the transaction is clean; for ‘he who has committed inequity shall not have Equity.’”

The application of this Maxim in the context of equitable set-off has long been recognized.

[46] In essence, the plaintiff’s claim in this case is for unpaid wages. The amounts sought by him in this action are on account of services rendered by the plaintiff for the defendant during the course of his employment. The defendant benefited from those services and collected revenue and earned profits. Despite the parties’ agreement, the defendant failed to pay a substantial and undisputed amount owing to the plaintiff for the services rendered by him: more than $129,000.

[47] The counterclaim of the defendant, however, is essentially one for damages arising from the circumstances of the plaintiff’s departure and his subsequent conduct. While I acknowledge that the counterclaim need not arise out of the same contract, as I explain below, I do not view this counterclaim as being “clearly connected” with the plaintiff’s claim. As well, I am unable to find that it goes “to the very root of the plaintiff’s claim.” Put simply, I do not see that it would be unjust to allow the plaintiff to collect his outstanding wages while the defendant’s cross-claim is litigated and its assertions of improper conduct are determined.

[48] The defendant’s damage claim relates to a series of events that are separate from those that gave rise to the plaintiff’s claim for payment of commission and bonus. The plaintiff is alleged to have breached his duties to the defendant by giving inadequate notice and by causing a client to cancel its placement contract with the defendant, resulting in a potential loss of income to the defendant in the amount of $43,200. That sum is wholly unrelated to the calculation of or the basis for the sums due to the plaintiff for commissions and bonus, and does not engage the same analysis or legal issues. It is a separate and distinct dispute, one that arises in connection with the termination of the parties’ business relationship. It has nothing to do with the plaintiff’s entitlement to be paid for revenue generated by him that was received by the defendant.

[49] More importantly, this is a case in which the defendant’s past conduct warrants the refusal of the equitable relief it now seeks. Initially, the defendant refused to acknowledge or pay the undisputed amounts owed to the plaintiff, with the result that the plaintiff had to commence litigation. The defendant then forced the plaintiff to go to the further trouble and expense of bringing a motion for summary judgment. Only then, faced with the prospect that it had no real defence to the majority of the claim, did the defendant finally pay the undisputed amounts. In my view, such conduct should be discouraged and fully justifies the refusal of the discretionary remedy of equitable set-off. This situation would appear to fall squarely within the examples given by Palmer, above, in which equitable relief may properly be refused where funds have been wrongfully retained or not dispersed as agreed.

[50] I would add that, in the circumstances, I consider that denial of equitable set-off is necessary and appropriate in order “to uphold fair dealings between the parties.”

[51] It still remains open, of course, to the defendant to advance its claim for the $43,200 as part of its counterclaim in the action. The result of my decision is not to deprive the defendant of the opportunity to obtain compensation – if it is warranted – for that amount. Rather, instead of endorsing the defendant’s prior resort to self-help, my decision will require the defendant to prove its entitlement to payment of that sum. By conducting itself in the fashion it has, however, the defendant has deprived itself of recourse to the court’s equitable assistance. In these circumstances, I do not consider it unjust to allow the plaintiff to collect the amounts plainly due to him, without taking into account the counterclaim. If and when the counterclaim is proven, the plaintiff will become liable to pay that amount to the defendant.

[52] I therefore direct the defendant to include in its payment to the plaintiff on account of the sums previously calculated, the additional sum of $43,200, wrongly withheld from the commissions previously earned by and unpaid to the plaintiff.

Conclusion and Disposition

[53] For these reasons I direct the defendant to recalculate the sums due to the plaintiff in accordance with these reasons. I further direct the defendant to pay to the plaintiff the sum of $43,200, wrongly withheld from the commissions previously earned by to the plaintiff.

Costs

[54] I encourage the parties to agree on the costs of this motion. If they are unable to do so, they may make brief written submissions as follows:

a) The plaintiff shall serve his bill of costs on the defendant, accompanied by written submissions within fifteen days of the release of these reasons.

b) The defendant shall serve its response on the plaintiff within fifteen days thereafter.

c) The plaintiff shall serve his reply, if any, within ten days thereafter.

d) In all cases, the written submissions shall be limited to three pages, double-spaced, plus bills of costs.

e) I direct that counsel for the plaintiff shall collect copies of all parties’ submissions and arrange to have that package delivered to me in care of Judges’ Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no materials should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.

III – Future Steps

[55] This decision finally disposes of the claims of the plaintiff as they are currently constituted, subject to the resolution of any calculation issues. It does not, however, resolve the counterclaim. In accordance with the decision of the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, I will remain seized of this matter in relation to the future course of the proceeding. For that purpose, I direct the parties to arrange a case conference before me within the next 45 days. That case conference will provide an occasion for me to give directions to the parties regarding the most efficient manner for resolving all outstanding issues. I direct the parties to confer in advance of the case conference and to submit, before the conference, a joint written proposal for the future conduct of the matter. They should do so by email addressed to my assistant.

Stinson J.

Date: January 13, 2015