CITATION: Lin v. OTPPB, 2015 ONSC 3494

COURT FILE NO.: CV-11-430085

DATE: 20150601

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: DAVID TAY DER LIN, Plaintiff

AND:

ONTARIO TEACHERS’ PENSION PLAN BOARD, Defendant

BEFORE: D.L. Corbett J.

COUNSEL: Chris Dockrill, for the Plaintiff

Stephen F. Gleave and Allyson M. Fischer, for the Defendant

JUDGMENT

[1] The plaintiff, Lin, was a trusted and experienced investment professional when he was summarily dismissed from his employment with the defendant, Teachers’, allegedly for cause.

[2] There are three issues:

(i) Did Teachers’ have legal cause to dismiss Lin without reasonable notice?

(ii) If the answer to (i) is no, what is the period of reasonable notice for Lin?

(iii) If the answer to (i) is no, what damages are payable in lieu of the reasonable notice period determined under (ii)?

[3] The third issue – calculation of damages – includes sub-issues concerning the vesting dates for incentive compensation under two plans: the AIP (a short-term incentive plan) and the LTIP (a long-term incentive plan). Teachers’ argues that these plans require that Lin continue to be employed by Teachers’ on the payment date in April annually. Teachers’ argues that there were amendments to these plans in 2010 which form part of Lin’s employment contract and which expressly provide that payments are not made unless the employee is employed on the payment date. Lin argues that he is entitled to pro-rated incentive payments to the end of his period of reasonable notice, or, alternatively, to the payments that accrued during his period of reasonable notice (i.e. in April 2011 and 2012). He argues that he never agreed to the 2010 plan amendments and so they did not form part of his employment contract, or alternatively that they are penalties from which he should be granted relief.

[4] For the reasons that follow I conclude that Lin’s employment was terminated without legal cause and that the appropriate notice period is 15 months. I find that the total compensation Lin is owed, net of the amounts he earned in mitigation of his losses, is $1,002,905. This total includes incentive payments accruing in April 2011 and 2012 and for AIP for January 1 to June 22, 2012. It does not include LTIP for January 1 to June 22, 2012. There shall be judgment for Lin for $1,002095, plus interest, plus costs.

(i) No Cause for Termination

[5] The facts relevant to the allegations of cause are largely agreed, and have been so from the outset.[1]

[6] Teachers’ is responsible for management and investment of assets and administering the pension funds of Ontario’s public school teachers. It is one of the largest pension funds in Canada with assets under administration of $129.5 billion as of December 31, 2012.

[7] Teachers’ is a substantial investor with a global reputation. It treasures its reputation for probity and fair-dealing: Teachers’ keeps its promises. Teachers’ guards confidences. Teachers’ tells the truth. This reputation is important to Teachers’, for it engenders trust and respect that gives rise to investment opportunities that might not otherwise come Teachers’ way.

[8] The tension for Teachers’ and others in the investment business is that it is necessary to share information to obtain information. Co-operating and working with others, developing a “network” of contacts, leads to investment opportunities. This need to exchange information is tempered, always, of course, with the requirement to respect confidences and conduct business with probity.

[9] It is in the context of this tension that the events leading to Lin’s termination took place.

(a) The Impugned Disclosure

[10] On February 2, 2011, Lin received an email from Monica Holec, a personal friend and an investment professional with whom Teachers’ had had prior dealings. Holec was looking for specific precedents for private placement memoranda (“PPMs”) for distressed debt funds.[2] Lin was not at his computer at the time (he believes that he may have been at an airport), and so he emailed a junior colleague for a copy of the requested PPMs or, alternatively, a similar PPM. The junior colleague sent Lin an electronic copy of a PPM for the “WLR Recovery Fund V L.P.” The “V” indicates that this is the fifth such distressed debt fund offered by WLR. Lin sent an electronic copy of this PPM to Ms Holec.[3]

[11] Lin’s junior colleague was concerned about these events and took his concerns to Teachers’ senior management.

(b) The Termination

[12] On March 21, 2011, Lin received an email from his immediate superior, Jane Rowe, asking that he meet her in Teachers’ legal department.[4] The reason was not stated: the email said only that “something has come up”.[5] Lin asked for clarification, which Rowe did not provide.

[13] When Lin arrived at the meeting, Rowe introduced him to Angela Rae, an outside lawyer for Teachers’. The meeting lasted about half an hour. Rae had a script of questions for Lin, but the meeting did not proceed on the basis of that script. Lin was forthcoming. He acknowledged providing the PPM to Ms Holec at her request. He confirmed that he had not done so under anyone else’s direction.[6]

[14] Teachers’ did not seek any explanation for this conduct.

[15] Lin was contrite in the meeting. Teachers’ characterized this contrition as an admission that Lin had breached Teachers’ standards of conduct. Lin testified that he was in fear of losing his job and was exercising “damage control”. I accept Lin’s explanation. Further, Lin did not have the benefit of legal advice or notice. He readily admitted the facts in issue; any statements he made about the legal consequences of these facts should not be held against him.

[16] Lin was then summarily dismissed by Rowe. Rowe stated that Lin had breached Teachers’ written Code of Conduct and principles of ethical business dealings in disclosing the PPM to Holec, and that this was the reason his employment was being terminated.[7]

[17] Counsel for Lin was sharply critical of this meeting. What I took from the evidence was that Teachers’ had already made a preliminary decision to terminate Lin’s employment if events had happened as reported. It had already made up its mind that the impugned conduct was a serious breach of Lin’s obligations of confidentiality and Teachers’ Code of Conduct and had no interest in hearing an explanation from Lin as to why he might not share this view. An outplacement counsellor was already on-site to assist Lin, and that counsellor would not have been called in unless Teachers’ expected that there was a reasonable chance that it would terminate Lin’s employment immediately.

[18] The question to be decided is whether Lin’s disclosure of the PPM to Holec was a breach of Lin’s obligations of confidentiality and Teachers’ Code of Conduct, and if it was, whether it justified termination of Lin’s employment without reasonable notice.

[19] Rowe subsequently advised her team about Lin’s departure. She told the team that Lin had disclosed a “CIM” outside Teachers’.[8] Rowe testified that, in her mind, a “CIM” and a “PPM” were much the same thing, and that she used the terms interchangeably. As shall be clear from my reasons, a CIM and a PPM are not the same. A CIM is a Confidential Information Memorandum. It is, by its nature, and indeed by its name, a confidential document. The confidentiality of a PPM is very much open to debate. Rowe testified that Teachers’ “were fiduciaries entrusted with that information”. This conclusion might be correct in respect to a CIM or information provided pursuant to a CIM. It is simply not correct in respect to an unsolicited PPM. The failure to distinguish between a CIM and a PPM, and the failure to consider whether the PPM was, in fact, confidential, lie at the heart of this case.

(c) Teachers’ Code of Conduct

[20] The Teachers’ Code of Business Conduct Manual is more than fifty pages long. Teachers’ requires its employees to certify annually that they have read the Code, understand their responsibility to comply with the Code, and agree to adhere to the Code in future. Lin signed these certificates annually. Lin was bound by this Code.

[21] The Code provides, under its list of fundamental principles:

It is fundamental that the Company encourage and promote a culture of ethical business conduct and that all Board and Committee members and employees adhere to the highest standards of business ethics and conduct when pursuing the Company’s business objectives in order to maintain the Company’s reputation as well as the cooperation and trust of others over time….[9]

[22] The Code has a specific provision that deals with confidential information. It is four pages long. The full text is set out in Appendix “A” to this judgment.

[23] As may be seen from Appendix “A”, there is a short passage that states the principle that applies to “investment information”, and then three pages of provisions that deal with “inside information”. Teachers’ reads this provision as being two-tiered. A broad principle of non-disclosure applies to all “investment information” and a long and detailed set of provisions apply to “inside information”.

[24] That is not how I read this policy.

[25] The passage that deals with “investment information” reads as follows:

Employees and Board or Committee Members who receive information about corporations or other business entities in the course of their Company duties shall safeguard such information and shall not disclose it to outsiders during and after their employment by or association with the Company unless Company duties require such disclosure or disclosure is authorized.[10]

[26] On a plain reading of this passage, standing alone, “investment information” is any information that is “received… about corporations or other business entities”. That is very broad language. It is only circumscribed by the phrase that the information is received “in the course of… Company duties”. However, for senior investment professionals this phrase would hardly reduce the scope of the provision: a professional like Lin is working in the course of Company duties whenever he pursues investment information, and not just when he is plugged into a company computer or at his desk.

[27] Teachers’ retired CEO, Jim Leech, testified about this provision. In his opinion, “investment information is any information that comes to [Teachers’] as a result of being in the investment business – and this [the policy] sets out how information is to be safeguarded”. On this reading, Teachers’ personnel are obliged not to disseminate to anyone information they receive even if it is not confidential and is publicly available. Indeed, under this definition of “investment information”, even information obtained from sources like filings with a securities commission or information shown on public web sites or in newspapers would be protected from disclosure.

[28] A more limited understanding results if the passage is read in the context of the entire first paragraph of the policy. It reads:

The Code of Business Conduct of the Ontario Teachers’ Pension Plan Board addresses Confidentiality as it applies to investment information including inside information (as defined below) in the following way:[11]

Investment Information

Employees and Board or Committee Members who receive information about corporations or other business entities in the course of their Company duties shall safeguard such information and shall not disclose it to outsiders during and after their employment by or association with the Company unless Company duties require such disclosure or disclosure is authorized.

The passage relied upon by Teachers’ is joined by a colon to the main theme of the four page statement about investment information. Textually, then, there is not a two-tier policy, one for “inside information” and another for “investment information”. There is one policy, which applies to “investment information”, a term that includes “inside information”. “Investment information” is broader than “inside information”. But it is not so broad as to mean all information that is relevant to investments. What, then, are the boundaries of “investment information” to which the policy applies? It is not clear. But its general boundaries are described by the capitalized word that gives the paragraph its theme: “Confidentiality”.

[29] On my reading of these provisions of the Code of Conduct, they are aimed at protecting confidential information. This includes “inside information” and, as stated on the second page of the policy, “material investment information that has not been disclosed to the public.” It would also, in my view, include information that Teachers’ expressly agrees to treat in confidence. Broadly speaking, in the common law typology of confidentiality, it refers to the third, most protected kind of confidential information: that which is protected even after employment is terminated.[12]

[30] These provisions would not include all information relevant to investments, from any source, regardless of whether the information has been disclosed to the public.

[31] My reading of these provisions is consistent with Lin’s own reading of them, as he described it in his testimony. The reading proposed by Mr Leech is too broad, and does not give fair warning to employees of what information may be shared and what must be guarded as confidential. This conclusion does not, however, end the matter.

[32] On my reading of these provisions of the Code of Conduct, the critical question is whether Lin disclosed confidential information to Holec. Since this is the critical question, the apparent confusion between a CIM and a PPM is important.

Confidential Information Memoranda (CIMs)

[33] CIMs are confidential documents about a private company’s financial performance and prospects and usually contain detailed statements showing revenue, costs, margins, profitability and forecasts. They are usually sent to a small number of potential investors to promote one of those investors to buy the company. Once a prospective purchaser indicates an interest in pursuing a purchase, then that purchaser will undertake further due diligence.

[34] This due diligence often includes:

a. financial information of the target company (including financial statements and audits);

b. commercial market studies;

c. corporate forecasts and projections (both current and historical);

d. consultant reports on the company’s operations (including discrete topics such as production, sales, receivables and collections, human resources);

e. environmental reports;

f. legal reviews of contracts and outstanding or threatened litigation;

g. pension due diligence;

h. management background checks;

i. competition studies.

Much of this information is not available in the public domain and is obtained from the company itself or parties representing the company’s interests (accountants, merchant bankers, lawyers, consultants).

[35] If Teachers’ decides not to proceed with a direct investment, it returns the CIM, or destroys it, as directed by the proponent. CIMs are not retained in Teachers’ electronic databases for research purposes.[13]

[36] Not every piece of information in a CIM is necessarily confidential, just as not every piece of information learned during the due diligence process for a direct investment is confidential. Teachers’ general approach is to be an informational “black hole” where information comes in and never comes out: those with direct investment opportunities can trust Teachers’ and can feel safe going to Teachers’ first with an investment opportunity.

Private Placement Memoranda (PPMs)

[37] Investment in a fund like the fund at issue in this case is not a “direct” investment. It is an “indirect” investment. It is an investment in a fund directed by other investment professionals who use the money in the fund to make investments, usually direct investments.

[38] The PPM is not “inside information”. Is it nonetheless “confidential”?

[39] The WLR PPM is numbered. The proponent[14] maintained a list of persons to which the PPM was sent, identified by number. It was sent to Lin unsolicited. This was not uncommon; Lin testified that he received 200-300 of these sorts of documents every year, almost always unsolicited. The covering letter that accompanied the PPM states as follows:

This memorandum is confidential and should not be copied or shared with any third party, other than your legal advisors or financial advisors. In the event that you choose not to invest in the Fund, please return the memorandum to us or notify us that you have destroyed it.[15]

[40] The PPM itself contains language asserting a claim of confidentiality. It states in block capital letters[16] within two pages of legal notices at the start of the document:

The information contained in this memorandum is confidential and proprietary. The information herein is being submitted to you solely for your confidential use. By accepting delivery of this memorandum or any other material in connection with this offering, prospective investors agree: (i) to keep strictly confidential the contents of this memorandum and such other material and to not release this memorandum or disclose such contents to any third party or otherwise use the contents for any purpose other than for evaluation of an investment in the interests; provided, however, that prospective investors may discuss this memorandum and its contents with their legal and financial advisors; (ii) not to copy all or any portion of this memorandum or any such other material; and (iii) to return this memorandum and all such other material to the general partner if (a) prospective investors do not subscribe to purchase an interest, (b) the subscription is not accepted or (c) this offering is terminated or withdrawn.[17]

[41] This evidence is relevant to a claim of confidentiality. But it is not dispositive. The proponent claims the contents are “confidential and proprietary”. This may be necessary generally, but it is not sufficient to establish these claims.

[42] Under securities regulations (different in Canada and the U.S., but to similar effect), different requirements apply to “public” and to “private” investment offerings. The requirements for public offerings are considerably more onerous (and expensive) to comply with. Private investments that are not subject to the regulatory regimes that apply to public offerings can only be offered to qualified sophisticated investors. By maintaining a list of persons to which the PPM is sent, a promoter can satisfy securities regulators that it has not made a “public” offering. This is clear from the covering letter that came with the PPM: the fund is “not qualified for distribution to the public in Canada”.[18]

[43] The distinction between a “public” and “private” offering does not turn on whether PPMs are returned from persons who do not invest in a fund. The promoter ’s stated requirement for return of the PPM is evidence that the promoter considered the document confidential and took steps to protect that confidentiality. However, the promoter did not follow through. And Teachers’ did not respect the request. Teachers’ practice is to keep copies of PPMs in an electronic database, where they may be used for Teachers’ research purposes. Teachers’ did not invest in the WLR fund and yet did not return the PPM to WLR. WLR knew that Teachers’ had not invested in the fund. WLR took no steps to retrieve the PPM from Teachers’. There was no evidence that WLR took steps to recover any of the PPMs it distributed. I infer from this absence of evidence that it did not do so.

[44] This treatment of the PPM is to be contrasted with the typical treatment accorded to a CIM. Usually there is a written confidentiality agreement that applies to a CIM, and it usually provides that the CIM will be returned if the potential investor decides not to proceed with an investment. And usually the promoter of the CIM will be proactive in retrieving copies of the CIM that have been distributed or receiving reliable assurances that the CIM has been destroyed.

[45] As stated, PPMs are offered to “private” investors rather than to the “public”. As a result, they are “exempt offerings” – that is, offerings that are exempt from the regulation that applies to public offerings. This does not mean that promoters and their funds are exempt from all regulation, and fund managers do file some information with securities regulators. Some fund managers have filed their PPMs with securities regulators, even where those PPMs contain confidentiality language similar to that set out in the WLR PPM. Sometimes fund managers put their PPMs on their web sites. Sometimes they send them to data service providers or financial writers.

[46] As Lin acknowledged in his testimony, no promoter wants his marketing materials, fund strategy and market assessments copied by his competitors. The perfect world for a promoter would see all potential eligible investors receiving detailed and persuasive information about the fund, and no competitors seeing it. But the world is not perfect, and this is not possible. Indeed, as the proponent’s Chief Financial Officer testified, a competitor could also be an eligible investor; Invesco has seen competitors’ PPMs itself on this basis.

[47] Lin never called a proponent asking what to do with the PPM when Teachers’ decided not to invest. Instead, he filed the PPM in Teachers’ electronic database. Usually Lin would take a “quick look” at the PPM and decide that it was not an opportunity that would be of interest to Teachers’. In the case of the WLR Recovery Fund V, Lin received the PPM electronically and sent it to Teachers’ electronic database 14 minutes later. Lin testified that once he sent the document to the database he would not have looked at it again – forwarding it to the database was done after he had decided that it was not an opportunity of interest to Teachers’. The electronic database is accessible to many professionals at Teachers’ through an icon on their desktop computer display. Lin was not challenged on this evidence and there was no evidence to the contrary from other Teachers’ investment professionals.

(d) Was the PPM protected by Teachers’ Code of Conduct?

[48] Lin took the position that the PPM simply is not a confidential document, and thus he did no wrong in disclosing it to Holec. In the alternative, the status of the PPM is debatable and unclear, and if Lin’s disclosure was an error, it was not a breach of ethical rules so serious as to justify termination without reasonable notice.

[49] Neither side called expert evidence on the nature and treatment of PPMs in the securities industry.

[50] The question of whether the PPM is confidential is a legal question, and the court does not need expert evidence on a legal question. But the general uses and distribution of these documents, the steps that are taken to maintain confidentiality in them, the nature of the information contained in them, and the extent to which the information is in general knowledge in the securities industry or, to the contrary, may be highly secret, are all matters that are not within the knowledge of the trier of fact and bear on the legal question of whether the document is “confidential”. These are all topics that would properly be the focus of expert evidence.

[51] PPMs are marketing documents provided by a private equity manager to promote investors to place capital with that manager for investment. PPMs seek investment from hundreds or thousands of potential sophisticated investors such as pension funds, endowment funds, other institutional investors and high net worth individuals and families. PPMs contain information about the fund manager’s investment team, their prior track record, the fund’s strategy and goals, as well as background information about relevant market conditions, current and anticipated.

[52] In contrasting CIMs and PPMs: both are marketing documents designed to promote investment interest. Most of the information in a PPM could be pieced together from other sources and market research.[19] Most of the sensitive information in a CIM is not available in the public domain and could not be obtained through legitimate market research.

[53] These differences are reflected in the different treatment afforded to information by investors after they have made their investments. Some public or quasi-public investors, like pension funds for public employees, disclose details about their investments as part of their efforts to be transparent in their dealings. One such fund is the California Public Employees retirement System (“CalPERS”) pension fund. It invested in the WLR fund in issue in this proceeding, and details about the fund, its management, goals, historic and current performance are available to the entire world on the CalPERS web site.[20] This information cannot be considered to be in any sense confidential if it is treated in this manner by a large investor in the fund.

[54] Data about the performance of fund managers is widely available through research sites, and is discussed among investment professionals among themselves. Electronic information sites such as dealmarket.com collect as much information as they can about private equity funds and their managers, and then provide this information publicly.[21] Web “blogs” may contain similar information.[22] Fund managers promote their own track records and reputations and disclose this information publicly in order to obtain business: it is part of a fund manager’s marketing to do this[23] and can include this kind of information posted on the fund manager’s own web site.[24]

[55] Lin testified that in his experience Teachers’ never treated PPMs as private confidential documents. Teachers’ never signed confidentiality agreements in respect to PPMs, and treated them much like a prospectus, which is a publicly filed document. Lin acknowledged that a fund manager would prefer that its PPMs not be disseminated to persons other than legitimate potential investors in the fund. However that does not make the documents confidential, and in his experience the financial services industry does not view them or treat them as confidential.

[56] Lin testified to the many reasons he says that he did not consider the document confidential, and therefore why he felt justified in providing a copy of it to Holec. Leech, the retired CEO of Teachers’, testified that the proponent of the PPM, WLR, itself considered its PPM to be confidential, wanted it treated that way, and very much appreciated Teachers’ efforts to protect the document. Mr Leech testified that the CEO of WLR thanked him for Teachers’ efforts and remarked that Teachers’ response was in keeping with the high reputation Teachers’ has for ethical dealing. Leech testified that this was a “blatant breach of our Code.” When challenged on this evidence in cross examination and asked if he considered the PPM confidential, Leech responded:

It was an investment document given to us marked confidential, marked for control, and filed in our database. It was considered by the issuer to be confidential…. [It] lays out a proprietary strategy the fund would have.

What is notable in this answer is that Leech does not say whether he considers the document confidential. He lists factors which would tend to favour such a conclusion. The final comment – that the PPM lays out a “proprietary strategy” – is a claim repeated by the proponent’s Chief Financial Officer in his testimony, but one which is not supported by any legal authority or expert testimony. Many pages of the PPM are “boilerplate” and templates for these portions can be purchased online. No systematic analysis was made of “proprietary” elements of the PPM, beyond the fact that it took a lot of work to write and put it in final form.

[57] If the PPM is proprietary and confidential, its treatment in these proceedings is rather puzzling. At the end of the meeting at which Lin’s employment was terminated, Lin was left with a copy of the PPM. He offered to return it but this offer was declined. He left Teachers’ with the document. Subsequently, after proceedings had been commenced, Teachers’ sought return of the document and an agreement was reached on how the document would be treated. Then, at trial, the PPM was filed as part of the exhibits. Teachers’ did not seek to have the document sealed. The proponent, whose Chief Financial Officer testified and referred to the document in open court, did not seek a sealing order. It may be that sensitivity over disclosure of the PPM had dissipated through the effluxion of time, but I heard no evidence to this effect. The PPM remains an exhibit in the court file, accessible by any member of t he public who wishes to review or copy it.

[58] During cross examination, Lin agreed that he had not even read the PPM before he sent it to Holec. In response to the suggestion that this was irresponsible he responded that this was a marketing document, like the hundreds or thousands of PPMs he had seen in the past, and that he relied upon his experience and judgment in deciding that he did not need to read the document before sending it to Holec. He said that his functional definition of confidential information was (a) information subject to a confidentiality agreement or (b) information that is both material and not publicly available. The PPM did not fit either definition, and in his experience no PPM fit either criteria.

[59] I accept both Lin’s and Leech’s evidence on these points in that I accept that they were both sincere in their testimony. Leech is the more experienced person, and of course was entitled to set standards expected of investment professionals working under him. However, Leech’s sincere and strongly held views do not establish that the PPM was a confidential document or that its disclosure was a breach of Teachers’ Code of Conduct.

[60] I also heard the testimony of Michael Gibbons, the Chief Financial Officer of Invesco, the parent company of WL Ross & Co., the proponent of the PPM. Gibbons considers the PPM a confidential document and certainly would not want it disclosed to a potential competitor to assist that competitor to launch its own distressed debt fund. All of this is understandable, but also does not answer the question whether the PPM is, in fact, “confidential and proprietary”. Gibbons provided a copy of a letter sent by WL Ross & Co. LLC setting out its detailed position that a PPM is “proprietary” and “confidential”.[25]

[61] Both Leech and Gibbons testified that Holec’s employer, Levine Lichtman, is a competitor of WL Ross. This was challenged in cross examination: the products offered by Levine Lichtman were much smaller funds than the huge funds promoted by WL Ross, and the potential group of investors in each were said to be very different firms. This was never established before me clearly either way. One response to this line of argument was that investment capital is finite, and so of course Levine Lichtman and WL Ross are competitors for that limited capital. I found that argument rhetorical rather than analytical and was left in the position of not being satisfied that the two firms are really competitors. This is another issue on which the court would benefit from expert evidence.

[62] PPMs are standard, common documents. Counsel did not refer me to a decision where a court has decided that a PPM is, or is not, a confidential document. Obviously this is a sensitive and important issue for the proponent, which is not a party to this proceeding. And this court is not well placed to decide the issue in the absence of expert evidence.

[63] By final argument, Teachers’ concluded that it would prefer that I not determine whether the PPM is confidential. Therefore it withdrew its claim that the PPM is confidential without admitting that it is not confidential.

[64] As a result, this court makes no finding about whether the PPM is confidential. I find that Teachers’ had the burden of establishing that the PPM is confidential, and that it has failed to discharge this burden. This conclusion – based on the onus to establish a central fact in this litigation – does not amount to a finding about the nature of the document, one way or another, for any purposes other than this proceeding.[26]

[65] Teachers’ argues that, regardless of whether the PPM is “confidential”, its disclosure is nonetheless prohibited by the Code of Conduct. I reject that argument. The Code of Conduct prohibits disclosure of inside information, confidential information, or information which Teachers’ had an obligation to hold in confidence. Teachers’ has withdrawn its allegation that the PPM is confidential and there is no basis to impose a legal duty on Teachers’ to hold the document in confidence in the absence of a finding that the document is confidential. Teachers’ did not request the document, did not agree to hold it in confidence, and the proponent took no steps to secure protection of the document once it had disseminated it. I find that the “negative option” contained in the PPM and covering letter does not create an obligation on Teachers’ or Lin to treat the document as confidential. And I find that there is no evidence of an established industry practice or standard that the PPM is to be treated as confidential.

[66] I conclude that Teachers’ has not established that Lin breached the Code of Conduct in providing the PPM to Holec. I find that Teachers’ has not established that disclosure of the PPM to Holec was a departure from established standards of business ethics. It follows from these conclusions that there was no legal cause for termination of Lin’s employment without notice.

[67] Had I concluded that Lin had breached the Code of Conduct, I would nonetheless have concluded that there was no legal cause to terminate Lin’s employment without notice. If, for example, I had accepted Teachers’ expansive reading of the Code of Conduct, I would have concluded that Lin’s breach was a lapse in judgment. I would have concluded that Lin should have consulted before making the disclosure, since it was in a “grey area”. The disclosure did not result in breach of an obligation of confidentiality. Lin did not make the disclosure for an improper reason or for reasons of personal gain. He did not act in a clandestine fashion, reflecting the sincerity of his stated view that he was doing no wrong. He had years of faithful and effective service with Teachers’. As is clear from the cases, “lesser sanctions may be applied for less serious types of misconduct. An effective balance must be struck between the severity of an employee’s misconduct and the sanction imposed.”[27] This is not a case where the “capital punishment of employment law” was a justified sanction.[28]

[68] Rowe, and Teachers’ conflated disclosure of a CIM, involving breach of fiduciary duty and disclosure of inside information in contravention of securities laws with respect for a questionable claim of confidentiality by another market participant.[29] The misconduct in the two cases is orders of magnitude different, and the latter, in the circumstances of this case, falls far short of legal cause for termination without notice.[30] Disclosure of a CIM, or breach of a fiduciary duty, might well be “fundamentally or directly inconsistent with” Lin’s obligations to Teachers’, justifying dismissal without notice.[31] Disclosure of a non-confidential document, even if an error in judgment, does not rise to this level. If Lin transgressed – and it is not clear that he did – this is “a case of an employee, unaware of the standards expected of him, transgresses some undefined rule of conduct”.[32]

[69] Teachers’ relied on numerous authorities involving employee dishonesty or wilful disobedience amounting to insubordination, often involving wrongful personal gain as a result of the employee misconduct.[33] That is not this case. Teachers’ also suggested that Lin acted in conflict of interest because of the nature of his relationship with Holec.[34] This allegation is without substance.

[70] I find that Teachers’ has not proved that it had legal cause for terminating Lin’s employment without reasonable notice.

(e) Abandoned Allegation of Cause

[71] During the course of his meeting with Rowe and Rae, Lin was asked if he had disclosed information to anyone else outside of Teachers’. He said that he had divulged a password for use of an electronic database to a former employee. This admission was pleaded as an additional basis for Teachers’ to have legal cause to terminate Lin’s employment without notice.

[72] This allegation was not pursued at trial. Lin testified that he had been pressed for a password to access databases for which Teachers’ had a corporate subscription with a third-party information provider. Lin testified that he had provided the former employee with an expired password in order to appease her without actually giving her unauthorized access to the databases. There was no evidence to the contrary and no evidence that the former employee accessed these databases. I conclude that these events transpired as Lin testified they did, and that he breached no policy by providing an expired and useless password to the former employee.

(ii) Period of Reasonable Notice

(a) Lin’s Training and Work Experience

[73] Lin obtained a B.Comm. degree from the University of Toronto (1997) and then worked for GE Capital Canada Inc. as a Financial/Business Analyst from 1993 to 1997. During this period Lin took courses in management accounting, business practices and finance.

[74] In the fall of 1997, Lin enrolled in a full-time MBA program at the Richard Ivey School of Business at Western University (formerly known as the University of Western Ontario). He worked summers at J.P. Morgan & Co., where he gained some exposure in IPO’s (initial public offerings), M&A’s (mergers and acquisitions), and equity and debt financings. After graduation in 1999, Lin worked from 1999 to 2002 at National Bank Financial Inc. in its investment banking group.

(b) Lin’s Career With Teachers’

[75] In April 2003, Lin started work with Teachers’ as a Senior Investment Associate in its investment bank division. He remained with Teachers’ for almost eight years until he was dismissed without notice on March 22, 2011.

[76] Lin was promoted four times during his time with Teachers’, and was a Director in Teachers’ Private Capital division at the time his employment was terminated. In this capacity he was Head of Global Fund Investments[35] and Head of Asia Direct Investments[36] and he sat on the board of directors of several companies in which Teachers’ invested money.

[77] Lin’s performance was reviewed annually. These reviews were detailed and well documented. Lin was rated consistently as above average and his overall rating was consistently “exceeds expectations”.[37] In 2010, Lin was accorded an LTIP allocation of $454,000, the highest award among his peer group at Teachers’.[38]

[78] Lin was a senior and respected investment professional at the time of his termination, entering the prime of his career.[39] He had an unblemished record of achievement with Teachers’. He had no prior record of misconduct of any kind.

[79] From 2007 to 2011, Lin’s Teachers’ income (exclusive of pension and benefits) was as follows:

Year

Base Salary

AIP[40]

LTIP[41]

Total

2007

132,545

176,000

308,545

2008

166,404

235,500

401,904

2009

173,923

255,000

118,600

547,523

2010

185,138

140,200

98,200

423,538

2011[42]

194,400

300,000

255,400

749,800[43]

[80] At the time his employment was terminated, Lin (and four other “Heads”) reported to Senior Vice President Jane Rowe. Mr Lin and one other “Head” were at the level of “Director”. The three other “Heads” were one organizational level higher and were Vice Presidents. The Private Capital division has since been reorganized and all Heads are now Vice Presidents.

[81] Lin led a team of four investment professionals, with responsibility for about $9 billion available to invest in funds and $440 million invested directly. At the end of 2010, $5.5 billion was invested in funds (with another almost $4 billion committed but not drawn down), and fund investments by Lin’s group showed a 20% return on investment for fiscal 2010 (an above-average result for that year, in which Teachers’ overall return on investment was 14.3%).

[82] Teachers’ had considered Lin an able and effective employee throughout his eight years with Teachers’, in Leech’s words, “part of the senior leadership team”.

(c) Reasonable Notice

[83] Investment management on the scale of Teachers’ business is a global and exclusive business. Lin was 41 years old[44] and in mid-career at the time his employment was terminated. He had a record of consistent progress and excellence in his career. His eight years at Teachers’ was by far the most significant work experience of his career, and his termination for cause and under an ethical cloud was damaging to his prospects and impeded his efforts to find another job.[45] I would put the range of reasonable notice at 12-15 months, and would fix reasonable notice in this case at the outer end of this range, 15 months, to reflect the additional challenge of finding replacement employment because of the circumstances of Lin’s termination.[46]

(iii) Damages in lieu of Reasonable Notice

[84] Lin’s compensation had five components:

(1) base salary;

(2) AIP;

(3) LTIP;

(4) benefits; and

(5) pension.

[85] Damages in lieu of reasonable notice are intended to put an employee in the same position that he would have been in had he worked to the end of the period of reasonable notice. This is trite law. However it is also clear law that the parties may bargain for terms that are different from what the common law provides. The parties take different approaches to the bonus income under the AIP and LTIP during the notice period. This raises two general sets of issues:

(a) The effect of purported amendments in 2010 to the AIP and LTIP that would preclude payment of these bonuses to Lin after his departure from Teachers’, whether that departure was with or without cause; and

(b) Even if the amendments are not effective, the proper application of the terms of the AIP and LTIP (i) for annual payments that would have accrued to Lin had he remained with Teachers’ during the period of reasonable notice; and (ii) for prorated payments on account of AIP and LTIP for the period of January 1 to June 22, 2012.

[86] I have concluded that the purported amendments to the AIP and LTIP, at least as they relate to the issues before me, are not effective. My reasons for this conclusion are set out separately at the end of my calculation of damages. I also conclude that if the amendments had been effective, they are a penalty, and that relief from this penalty ought to be granted in the circumstances of this case. I have concluded that the payments accruing for completed calendar years of service prior to and during the notice period (payable in April 2011 and 2012) are payable for both the AIP and the LTIP. These conclusions and the calculations that flow from them are set out in the second and third sections of my calculation of damages. And I have concluded that for the period of January 1 to June 22, 2012, a prorated payment of AIP should be made, and a prorated payment of LTIP should not be made. My reasons for these conclusions are set out in the fourth section of my damages calculation.

(1) Base Salary ($243,000)

[87] Lin’s base salary was set at $194,400 at the Teachers’ Board meeting of March 11, 2011 and was at this level at the time of his termination.[47]

[88] Lin was paid his base salary to his date of termination.

[89] Base salary for an additional 15 months is $243,000.

[90] Lin argued for an increase in base salary of 5% effective in April 2012. I decline to apply this increase: it is too speculative and trivial in the overall context of this case.

(2) AIP ($300,000 + $300,000 = $600,000)

[91] The Annual Incentive Plan (“AIP”) is a short term incentive plan intended to encourage employees to earn returns for Teachers’. It is structured to reward current performance, not as a retention incentive. It is based upon current business unit, corporate and individual performance, calculated on a rolling two year average, payable in April annually when the previous year’s numbers are known and approved by the board of directors. Lin argues that AIP had always been treated as vesting on December 31st, with the payout occurring in April. Payment is not deferred to April for the purpose of retaining employees to April. There is no discernible interest that Teachers’ has in encouraging retention for the first four months of a new year. Rather, the delay between year-end and payment is to obtain final financial figures and board approval for earned income awarded for the prior year.

[92] As explained by the Court of Appeal:

There are different kinds of bonuses. Some are discretionary. Some are simply a form of variable, as opposed to fixed compensation. In this case, the bonuses were significant and non-discretionary. The arbitrator found they were an integral part of Mr Rossetto’s compensation under the employment contract. He was just as entitled to the bonus compensation as he was to his regular salary.[48]

The AIP is a significant, non-discretionary variable form of compensation, integral to Lin’s compensation. He is entitled to this compensation for the time he worked at Teachers’ and for his period of reasonable notice.

[93] Teachers’ relies upon contractual stipulations to the effect that bonus compensation is not payable unless an employee continues to work with Teachers’ at the time the bonus compensation is paid. This is well-worn ground. Where an employee is terminated without cause, he is entitled to bonus income he would have earned during the period of reasonable notice. In this regard I adopt the language of Kiteley J.:

The PCP provided that “recipients must be actively employed by the Bank at the time the award is paid to be eligible for payment”. Mr Harrison’s position is that Schumatcher ceased to be actively employed on February 8, 1995, and consequently he is not eligible for consideration in the PCP for either period. I have already concluded that Schumatcher was constructively dismissed, as he was terminated without cause and without notice. His involuntary inability to comply with the condition of the PCP ought not to be justification for the Bank in declining the award of the bonus as part of Schumatcher’s damages. If that were the case, an employer would achieve a significant advantage by wrongfully terminating an employee because the severance package would not have to include any bonus. Where the bonus was promoted as an integral part of the employee’s cash compensation, it would be inappropriate and unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer. I do not agree with the position taken by the Bank on this third issue. Schumatcher remains entitled to consideration of a bonus, both for the period he worked and the notice period.[49]

[94] In Chandran, Pollak J. declined to award bonus compensation and distinguished Schumatcher where, she found, the plaintiff had not established that the bonus “was promoted as an integral part of his compensation”.[50] In Chandran the plaintiff’s target bonus compensation seems to have been between 15 and 17% of his base salary of $95,000. This is a far cry from Lin’s situation, where the combined value of AIP and LTIP payments was more than half his annual income and was fundamental to his overall compensation package. Lin’s situation was akin to Schumatcher, not Chandran.

[95] The notice period of fifteen months runs to June 22, 2012. Thus, had reasonable notice been given, Lin would have received his AIP payment for 2010 in April 2011, and he would have received his AIP payment for 2011 in April 2012. “The effective date of termination… include(s) the notice period” for the purpose of determining eligibility for bonus payments.[51]

[96] Lin’s AIP for 2010 was fixed at $300,000 and approved by the Board on March 4, 2011.[52] I find that Lin is entitled to this amount for AIP for 2010, payable as of April 2011,

[97] I find that Lin’s AIP for 2011 should be fixed at $300,000 as well. No alternative figure was proposed or proved. This amount is payable as of April 2012, and would have been received by Lin if he had been given 15 months’ notice.

[98] This leaves the question of AIP for the period January 1 to June 22, 2012, the portion of the notice period that falls within a part year. I address incentive compensation under both the AIP and the LTIP for the notice period from January 1, 2013 to June 22, 2013 in a separate section (4), below.

(3) LTIP ($255,400 + $255,400 = $510,800)

[99] The long-term incentive program operates as compensation to induce employees to remain in their employment with Teachers’. Each year an amount may be awarded to the employee’s LTIP account. The account earns income on its balance at Teachers’ annual return on investment for assets under management. 25% of the accrued balance of the account is paid out to the employee annually, in April.

[100] Lin argues that, like the AIP, LTIP was always treated as vesting on December 31st, with the payout taking place in April.

[101] If Lin had been given fifteen months’ notice, his LTIP account would have been awarded funds annually, with payouts to him for prior years’ awards in April of each year. The payout in 2011 was approved by the Board at $255,400 at the March 4, 2011 Board meeting.[53] I find that Lin is entitled to payment of this amount for LTIP as of April 2011.

[102] Lin would also have been entitled to an LTIP payment in April 2012 if he had been given 15 months’ notice. I fix the amount of this payment at $255,400. No alternative figure was proposed or proved.

[103] Lin did not claim the balance of his LTIP account that would have been accrued and unpaid at the end of his reasonable notice period. This position is correct. 25% of the LTIP account is paid out annually, leaving 75% retained as an incentive to the employee to remain with Teachers’. The purpose of the LTIP would be defeated if the 75% balance of the fund was paid out upon termination. However, it is not inconsistent with the purpose of the fund for LTIP accruals to continue, and be paid out on payment dates, during the period of reasonable notice.

(4) LTIP and AIP for January 1 to June 22, 2012 ($142,625)

[104] The amounts awarded above accrued in April 2011 and 2012, but were in respect to the 2010 and 2011 calendar years. Lin argues that he should receive prorated incentive compensation for the notice period from January 1 to June 22, 2013.

[105] Both Lin and Teachers’ described the AIP as providing incentive for current performance. It is a reward for contributions to the Teachers’ results. There is no reason in principle that an employee should not receive a pro-rated payment for AIP when he works for a part year – he contributes to Teachers’ results for that part year. And the evidence I had in respect to Teachers’ practice with departing employees supports paying a rateable portion of the AIP for a part year’s work.

[106] The LTIP is different. It is structured so that, at any given time, 75% of the balance of the LTIP account has been retained for payment in future, as an incentive to the employee to stay long enough to be entitled to collect that payment. The evidence of Teachers’ past practice is equivocal on payment of prorated LTIP to departing employees.

[107] The two plans have different purposes, and this is why they are separate plans. There would be no need to have a separate LTIP if its goals were aligned with the AIP. And the principle difference in purpose between the plans is long-term retention of senior employees. This difference warrants different approaches to prorated payments under the AIP and the LTIP. I conclude that a prorated payment should be made to June 22, 2012 under the AIP, but that no prorated payment should be made under the LTIP for the period of January 1 to June 22, 2012.

[108] I calculate the AIP payment on the basis of 174 days worked out of 366, multiplied $300,000, which equals $142,622.94, which I have rounded to $142,625.

(5) Benefits ($0.00)

[109] Although the value of lost benefits (other than pension) was claimed, this item was not pursued or proved at trial.

(6) Pension ($20,110)

[110] Lin’s lost pension value of $20,109 for the 15 month notice period is not contested. I round it up to 20,110.

(7) Aggravated Damages ($0.00)

[111] Lin claims aggravated damages arising from the manner in which his employment was terminated, that is, for cause, for an alleged breach of principles of ethical conduct, so-called Wallace damages for misconduct by the employer in connection with the termination.[54]

[112] I do not consider that it is appropriate to sanction Teachers’ with an award of aggravated damages. The losses it has sustained as a result of terminating a good employee and paying this judgment and its own legal costs are more than enough to provide any needed disincentive to repeat the mistakes that were made here. As described in detail below in connection with Lin’s mitigation efforts, Teachers’ did make it more difficult for Lin to find alternative employment, delayed his re-employment, and contributed to the conditions that led Lin to finally take employment outside Canada, in China. I found, above, that the notice period for Lin is in the range of 12-15 months. I exercised my discretion to award a notice period of 15 months because Lin’s ability to secure new employment was damaged by these events. Fixing the notice period in this way obviates any additional claim for aggravated damages.

(8) Total ($1,516,535)

[113] Lin’s overall gross claim on the basis of the 15 month notice period is $1,516,535, calculated as follows:

Item

Amount

Base Salary

243,000

AIP (2010, 2011)

600,000

LTIP (2010, 2011)

510,800

AIP (2012)

142,625

Benefits

0.00

Pension

20,110

Total

1,516,535

(9) Mitigation ($513,630)

[114] Prior to his departure from Teachers’, Lin had been approached by a recruiter for Abu Dhabi Investment Authority (“ADIA”) to see if he would be interested in moving. Lin was not particularly interested and suggested a compensation amount that was considerably more than what he was earning at Teachers’, and stipulated that any start-date with ADIA be deferred for about six months.

[115] When Lin’s employment was terminated by Teachers’ he went back to ADIA, explained what had happened, and asked if there was still be a position for him. ADIA expressed interest but indicated that they would have to speak with Teachers’ and think about it.

[116] Lin then emailed Rowe to seek Teachers’ help in obtaining a position with ADIA. On Lin’s evidence, Rowe suggested that Teachers’ would help so long as Lin did not litigate in respect to his termination from Teachers’. “Not litigating” meant, among other things, not pursuing claims to earned but unpaid AIP and LTIP bonuses. Rowe added that Teachers’ CEO, Jim Leech, is a very powerful and respected investment professional, and that Lin might wish to consider that in deciding whether to pursue a legal claim.

[117] Lin subsequently had a conversation with Leech, trying to enlist his help. Ultimately Teachers’ drafted a statement concerning Lin, which was prepared by Teachers’ in-house counsel, Melissa Kennedy, which confirmed the basis of Lin’s termination and his past performance with Teachers’. Lin then emailed the recruiter for ADIA, who responded saying that he had spoken with Teachers’ and the information he had received had been consistent with what Lin had told him. However Lin never heard anything further about the opportunity with ADIA, and was never told why that opportunity did not proceed.

[118] Lin sought other opportunities. He testified that he “must have reached out to about 50 organizations” for possible employment opportunities. He felt he was “close” with a few opportunities, where he was interviewed, but he got no offers until, about six months later, he got a job with Goldstone Civic in China (a private equity firm owned by the central government in China).

[119] Lin feels that he was “blackballed” in the Canadian investment industry by Teachers’. He cannot prove this – none of the employers he approached in Canada described what Teachers’ said about him. However, given his experience and track record, Lin finds it hard to understand how he would have had such difficulty finding a new position if it was otherwise. He is fortified in his view by the way in which the issue was handled internally at Teachers’. In a meeting of senior investment personnel, Rowe indicated that Lin had been let go because he had disclosed a CIM to someone who should not have received it. As described above, anyone in the industry would have instantly recognized that breach of confidence in respect to a CIM was a serious departure from expected standards of conduct. If the “word on the street” was that Lin had done this, it should be no surprise that there was little interest at other firms in hiring him.

[120] Similarly, if the “word on the street” was that Lin had been let go for wrongful disclosure of confidential information, this, coming from Teachers’, a sophisticated and highly regarded firm, would be a serious black mark against his name and make it difficult for him to secure alternative employment in the investment field.

[121] Lin finally obtained alternative employment about six months after he left Teachers’. Teachers’ accepts that Lin discharged his duty to mitigate his damages by his efforts to locate new employment. Lin accepts that his income received from his new employer during the 15 month notice period is to be deducted from the compensation that would otherwise be payable to him for the notice period.

[122] I find that Lin discharged his duty to mitigate his damages. He earned $513,628 in income during the fifteen month notice period in mitigation of his losses, which I round up to $513,630. I also find that the manner in which Teachers’ described the basis for Lin’s termination made it more difficult for Lin to find suitable alternative employment and ultimately led to Lin having to leave Canada to take up a position in China.

2010 Changes to the AIP and LTIP

[123] Teachers’ had been planning changes to the AIP and the LTIP as early as 2009. Sometime between late February and late April 2010 particulars of the proposed changes were provided to Lin and to other affected employees.[55] Teachers’ asked affected employees to sign off on the proposed changes to signify their agreement to them.

[124] The proposed changes applied to both the AIP and LTIP and provided (among other things):

(1) if terminated (with or without cause) prior to the payout in April, the individual would not be eligible to receive the payment; and

(2) clawback of the payment, after it had been paid, if one was deemed to have acted dishonestly or been grossly negligent and the receipt of the bonus had been based upon such improper conduct.

[125] There was “negative reaction to the proposed changes” and management held “feedback sessions” with affected employees, including Lin. Lin did not sign back the proposed changes to signify his agreement, and he understood that most affected employees did not sign them back. Lin testified that he understood that management “backed off” these proposed changes because of virtually unanimous resistance to them. One of Lin’s colleagues, Andrew Claerhout, testified for Teachers’, and in cross examination testified that he, himself, had not signed back on these amendments to the plans. Claerhout also testified that Teachers’ compliance department was diligent about following up when signatures were missing. The compliance department did not follow up to secure signatures to the plan amendments.

[126] Teachers’ has terminated the employment of other employees in the past. Its consistent practice appears to have been that earned but unpaid bonus compensation was paid to these terminated employees, and, in addition, pro rata bonus compensation was paid to these employees for their period of reasonable notice at least for the AIP. Teachers’ takes the position that its past practice is irrelevant because (a) it never involved a termination for cause; and (b) it represented a compromise to avoid litigation.

[127] Several examples were given of former employees who received “global” settlements on termination that included payment for AIP and LTIP, both earned and unpaid and for the notice period. Lin himself testified about an employee terminated for cause who received payment for AIP and LTIP, and his evidence on this point was not contradicted or challenged in cross examination. There was no evidence of a single case where Teachers’ had taken the position that AIP and LTIP were not payable because the employee was no longer employed on the payout date in April.

[128] I conclude that Teachers’ practice respecting AIP and LTIP was consistent and treated these amounts as earned entitlements and as fundamental components of annual income, payable during any notice period. The proposed changes were designed, in part, to change this practice. Teachers’ could not impose this change unilaterally.[56] Instead it sought agreement from affected employees. In seeking this agreement, Teachers’ communicated, implicitly, that the changes would not come into effect unless they were agreed. When so many employees elected not to sign the changes back and Teachers’ did not issue a clear statement to the effect that the changes would take effect nonetheless, the proposed changes never took effect.

[129] Teachers’ argues that the amendments to the plans included more than just the time at which payments vested. They included substantial changes to the ways in which the payments were calculated. The plan payments approved by the board in 2011 were based on the formulae in the amended plans, on a company-wide basis. In short, the amendments were adopted by the company, without obtaining signatures to signify agreement to the changes.

[130] The evidence discloses that the methods used to calculate AIP and LTIP had been changed before, over time, and that those changes had been implemented by Teachers’ without seeking or obtaining written agreement from employees. I conclude from this that the Company and its employees believed that the Company had the discretion to amend the formulae from time to time without obtaining employee consent, and that these modifications would not constitute fundamental changes to the employment relationship. This does not mean, of course, that the Company could make any change it wanted to this aspect of compensation without disturbing the employment relationship. But the changes that were made were accepted without objection.

[131] In respect to the changes in entitlement on termination and clawback of payments, these were controversial among employees, and set the 2010 amendments apart from prior unilateral amendments to the AIP and LTIP. The qualitative differences were effectively recognized by Teachers’ when it sought written agreement to the changes from employees. I conclude that it was well understood that it was these aspects of the changes that required employee consent to be effective. When Teachers’ dropped its request for employee consent to these changes, it did not advise employees that these changes to entitlement on termination and clawback of bonus income would nonetheless take effect.

[132] For an employee such as Lin, the AIP and LTIP payments comprised the majority of his income. It was highly material. Unilateral imposition of terms affecting his entitlement to receive these payments was a highly material change to his employment contract and could not be imposed unilaterally.[57] They required his consent. Teachers’ request for his written agreement, and subsequent abandonment of that request was reasonably interpreted by Lin as a decision by Teachers’ not to pursue these changes. I find they did not form part of Lin’s employment contract.

[133] I conclude that the proposed changes in 2010 did not come into effect for Lin, and that the AIP and LTIP income was payable on a termination without cause as described above. It follows, as well, that even if there had been cause for termination without notice, Lin’s AIP and LTIP payments for 2010 were vested by the time of his termination and were payable in any event. Termination without notice is rescission of the contract by the employer, and it is trite law that the “victim” of a breach of contract “remains liable to perform obligations which had accrued before rescission.”[58]

[134] Had I concluded otherwise I would have been required to consider whether the impugned amendments to the incentive plans were penalties from which relief from forfeiture ought to be granted.[59] They are. Even where there is serious misconduct, amounting to breach of fiduciary duty, a dishonest dismissed employee is still entitled to compensation for the work he has done.[60] The AIP rewards performance, and thus is properly seen as an incentive to perform well. After having performed well, and thus being entitled to this compensation, Teachers’ can disentitle the employee to his bonus by terminating him without cause. This leads to an enrichment of Teachers’ at the expense of the employee, and has the effect of depriving the employee of a material portion of his annual compensation. It is a penalty from which relief from forfeiture ought to be granted.[61] A similar, though not identical, analysis applies to the LTIP.

[135] Under the LTIP, incentive pay is awarded annually and paid out over four years. The annual payment is a fundamental part of the employee’s compensation. During a period of reasonable notice, the employee is entitled to be credited with the LTIP to which he would have been credited had he continued to work for his employer. At the end of the period of reasonable notice, after receiving payments accruing during the period of reasonable notice, there is still a bank of awarded LTIP compensation that has not vested and is not paid to the employee.

[136] My assessment of this issue is supported by Jim Leech’s testimony about severance arrangements made with other departing employees. He agreed that payments had been made to departing employees including prorated payments for AIP and LTIP, but these were in circumstances where there had not been a breach of Teachers’ Code of Conduct. I have concluded that Lin did not breach Teachers’ Code of Conduct, and so the usual approach should apply to his severance arrangements.

Judgment and Costs

[137] There shall be judgment for Lin against Teachers’ for $1,002,905, being $1,516,535 owed for the 15 month notice period, less $513,630 in mitigation income. Prejudgment and post-judgment interest are payable in accordance with the Courts of Justice Act.

[138] The parties have already provided the court with their bills of costs. Lin’s claimed hours and rates are reasonable and within the range of Teachers’ reasonable expectation for an adverse costs award. If the parties are unable to settle the quantum of costs, given the result and any applicable offers to settle, then Lin shall provide brief written submissions by June 15, 2015, and Teachers’ shall provide brief responding submissions by June 30, 2015. Counsel may extend these dates by agreement provided that all costs submissions reach me no later than July 31, 2015.

[139] Mr Dockrill should provide me with a judgment for signature approved as to form and content once the costs have been decided.

­­___________________________

D.L. Corbett J.

RELEASED: June 1, 2015

APPENDIX “A”

ONTARIO TEACHERS’ PENSION PLAN BOARD

INVESTMENT INFORMATION POLICIES AND PROCEDURES

POLICY

The Code of Business Conduct of the Ontario Teachers’ Pension Plan Board addresses Confidentiality as it applies to Investment Information including Inside Information (as defined below) in the following way:

Investment Information

Employees and Board or Committee Members who receive information about corporations or other business entities in the course of their Company duties shall safeguard such information and shall not disclose it to outsiders during and after their employment by or association with the Company unless Company duties require such disclosure or disclosure is authorized.

SAFEGUARDING INSIDE INFORMATION

The following suggestions may assist employees and Board or Committee members in safeguarding Inside Information (see definition on page 2) and preventing inadvertent disclosures of Inside Information as well as other investment information.

• place all Inside Information to be physically sent in envelopes marked “confidential”;

• transport Inside Information with care – Various countries authorize their border authorities to demand access to information on laptops or blackberries upon entry. Users must take precautions when planning to travel to ensure confidential information is not stored on these devices where there is a risk of such a demand for access to confidential information or confiscation of the device at a border crossing;

• lock up documents containing Inside Information when they are not in use;

• leave written materials containing Inside Information with Board staff after Board meetings or destroy them by shredding;

• hold all telephone and other conversation regarding Inside Information behind closed doors.

• discuss Inside Information only when necessary and with those who need to know in private; and

• keep e-mail secure by following the rules for computer use and use cellular phones and other wireless devices with the understanding that confidential information is not secure in these media.

Employees shall, to the extent practicable, and in addition to the foregoing suggestions be governed by the following guidelines:

• assign to any new matter involving Inside Information a code or other non-identifying name;

• use code names to deal with Inside Information, as appropriate, and to transmit information in electronic systems that do not have an encryption feature approved by IT; and

• store Inside Information securely on the Company’s servers (network drives H:/S:/T:) and secure laptop computers and Blackberries from theft.

DEFINITIONS AND SECURITIES LAW REMINDERS

To assist with questions of interpretation in these policies and procedures, reference may be made to the following definitions:

Inside Information

For the purposes of these policies and procedures, Inside Information is material investment information which has not been disclosed to the public. Exercising judgment will always be necessary to determine whether investment information is “material” and therefore Inside Information. Some guidance can be taken from the securities laws, and in particular from the Ontario Securities Act, which provides:

“material change” … means a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer …”

“material fact” … means a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of such securities.”

Information on the following items in respect of any company or other business entity should be considered “material” and therefore possibly Inside Information. This list is not exhaustive:

➢ Changes in share ownership that may affect control of the company.

➢ Changes in corporate structure, such as reorganizations, amalgamations, etc.

➢ Take-over bids or issuer bids.

➢ Major corporate acquisitions or dispositions.

➢ Changes in capital structure.

➢ Borrowing of a significant amount of funds.

➢ Public or private sales of additional securities.

➢ Development of new products and developments affecting the company’s resources, technology, products or market.

➢ Significant discoveries by resource companies.

➢ Entering into or loss of significant contracts.

➢ Firm evidence of significant increases or decreases in near-term earnings prospects.

➢ Significant changes in management.

➢ Significant litigation.

➢ Major labour disputes or disputes with major contractors or suppliers.

➢ Events of default under financing or other agreements.

Legal Restrictions on Transmission and Use of Inside Information

In situations where information which will significantly affect or would reasonably be expected to have a significant effect on the market price of a company’s securities has not been disclosed to the public, securities law generally prohibit certain activities by persons or companies which it defines as being in a “special relationship” with that company. The Ontario Securities Act provides that such persons and companies shall not:

1. Purchase or sell securities of the reporting issuer with the knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed. (This practice is called “Insider Trading”); and

2. Inform, other than in the necessary course of business, another person or company of a material change with respect to the reporting issuer before the material fact or material change has been generally disclosed. (This practice is called “Tipping”).

Possible Legal Consequences for Breach of Policy

Breaches of the restriction on the transmission and use of Inside Information could result in the following sanctions imposed by securities law:

1. the person in the special relationship being liable to compensate the other party to a securities trade for damages as a result of the trade;

2. the person in the special relationship being held accountable to the reporting issuer for any benefit or advantage received or receivable as a result of the breach; or

3. the person in the special relationship being found guilty of a quasi-criminal offence and subject to fines and/or imprisonment.

As well, the Board will impose appropriate sanctions including termination of employment of any person in breach of the policies and procedures.

[1] See Statement of Claim, paras. 2, 3, 4, 5, 6, 11, 13 and Statement of Defence, paras. 1, 3 and 10.

[2] Exhibit 1, tab 10.

[3] Exhibit 1, tabs 11 and 12.

[4] The delay between February 2, 2012 and March 21, 2012 was because Rowe was out of the country on a business trip. Teachers’ decision to defer dealing with the issue until Rowe’s return illustrates that the impugned disclosure by Lin was not treated as an urgent situation that required an immediate response.

[5] Exhibit 1, tab 14.

[6] Exhibit 1, tabs 33, 34.

[7] There was a subsidiary allegation of cause that was not pursued at trial; see paragraphs 71 to 72, below.

[8] Examination for Discovery of Jane Rowe (read-in at trial), p.90, Q.337, confirmed in testimony at trial.

[9] Exhibit 2, tab 67, p.107.

[10] Exhibit 2, tab 67, p.121.

[11] Exhibit 2, tab 67, p.121.

[12] Faccenda Chicken Ltd. v. Fowler, [1985] 1 All ER 724 at 731-2 (Ch. Div.), aff’d [1986] 1 All ER 617 (CA).

[13] Jim Leech testified that CIMs were kept because a deal might “come back” to Teachers’. I accept this as an occasional qualification on Teachers’ general practice to return or destroy CIMs, and read in to Leach’s evidence on this point that a CIM would be retained in such circumstances (a) securely; and (b) not against the wishes of the proponent.

[14] WL Ross & Co., and its parent company, Invesco, are described interchangeably as the “proponent”.

[15] Exhibit 1, tab 7.

[16] I have quoted the text in regular type to make it easier to read. “Boilerplate” warnings rendered in block capitals with justified margins, running for two pages of dense text, are actually more difficult to read than regular text, rather than more prominent, for all the capital letters.

[17] Exhibit 1, tab 11, p.25.

[18] Exhibit 1, tab 7.

[19] See for example Exhibit 3, tabs 19, 20, 21.

[20] Examples of information publicly available on the CalPERS website are found at Exhibit 3, tabs 2, 3, 4, 5, 6 and 7. See Exhibit 3, tabs 15 and 16 and Exhibit 4 respecting this kind of information promulgated by the Oregon Investment Council, the Pennsylvania Public School Employees’ Retirement System and the Rhode Island State Investment Commission.

[21] Exhibit 3, tab 10.

[22] Exhibit 3, tab 14.

[23] See for example Exhibit 3, tabs 8, 9, 10, 11, 12, 13, 14 and 15, which contain this kind of information in respect to WLR and its PPMs.

[24] Exhibit 3, tab 18: see p.114 and following for detailed descriptions of some Invesco offerings, though not the distressed debt fund at issue in this proceeding.

[25] Exhibit 7. This letter was a responding submission to a freedom of information request for the PPM in North Carolina. Gibbons testified that the PPM was disclosed in response to the request, but in heavily redacted form. I was not provided with the redacted version or the decision of the North Carolina authority adjudicating the freedom of information request.

[26] Faccenda Chicken Ltd. v. Fowler, [1985] 1 All ER 724 at 731-2 (Ch. Div.), aff’d [1986] 1 All ER 617 (CA) sets out three categories of information that have different levels of protection. As can be seen from this passage, and the many cases that wrestle with confidentiality in particular circumstances, the issue is not always clear-cut. See Techform Products Ltd. v. Wolda (2000), 1 CCEL (3d) 111, para. 73 (Ont. SCJ), per Sachs J., rev’d but not on this point (2001), 2001 8604 (ON CA), 56 OR (3d) 1 (C.A.).

[27] McKinley v. BC Tel., 2001 SCC 38, [2001] 2 SCR 161.

[28] Tong v. Home Depot of Canada Inc. (2004), 2004 18228 (ON SC), 39 CCEL (3d) 59, para. 1 (Ont. SCJ), per Echlin J.

[29] This conflation was within Teachers’. Rae is an experienced senior employment law lawyer; she is not an expert in securities law and agreed during cross examination that she is not familiar with PPMs, CIMs, and other securities documentation.

[30] Tong v. Home Depot of Canada Inc. (2004), 2004 18228 (ON SC), 39 CCEL (3d) 59 (Ont. SCJ), per Echlin J.

[31] McKinley v. BC Tel, 2001 SCC 38, [2001] 2 SCR 161 at 187.

[32] Carias v. Canadian Imperial Bank of Commerce (2003), 2003 BCSC 587, 25 CCEL (3d) 67 (BCSC), para. 85.

[33] Dowling v. Workplace Safety and Insurance Board (2004), 2004 43692 (ON CA), 246 DLR (4th) 65; 192 OAC 126; 37 CCEL (3d) 182 (C.A.); R. v. Arthurs, 1967 30 (ON CA), [1967] 2 OR 49 (CA), per Schroeder J.A. (dissenting); Thompson v. Boise Cascade Canada Ltd. (1994), 1994 7385 (ON SC), 7 CCEL (2d) 17 (Ont. SCJ), para. 95; Donaldson v. Philippine Airlines Inc. (1985), 7 CCEL 229 (Ont. CA); Alberts v. Mountjoy (1977), 1977 1026 (ON SC), 16 OR (2d) 682 (Ont. HCJ), per Estey C.J.H.C. (as he then was); Ng v. Canadian Imperial Bank of Commerce (2003), 2003 21054 (ON SC), 28 CCEL 224 (Ont. SCJ); Agostino v. Gary Bean Securities Ltd., 2013 ONSC 6918; Ahmed v. RBC Dominion Securities Inc., [1998] BCJ No. 1729; Templeton v. RBC Dominion Securities Inc. (2005), 2005 NLTD 130, 43 CCEL (3d) 279 (Nfld. SC – Tr. Div.); Cotroneo v. Toronto-Dominion Bank, [1988] OJ No. 2695; Takoff v. Toronto Stock Exchange (1986), 11 CCEL 272 (Ont. HCJ).

[34] Stock v. Bank of Nova Scotia, 1988 3307 (BC SC), 22 CCEL 217. Lin had a historic sexual relationship with Holec. By the time of the events at issue in this proceeding, Lin was in a new relationship and was engaged to be married. Even after full disclosure of this history and no evidence to the contrary, Teachers’ continued to pursue an argument that Lin acted in bad faith because of the nature of his prior relationship with Holec. This was not pursued with any vigour by the end of trial, and for good reason: this salacious personal attack was unwarranted in this case.

[35] Global Fund Investments are investments in externally managed private equity funds.

[36] Asia Direct Investments are investments by Teachers’ directly in companies in Asia (including Australia and New Zealand), often to an extent entitling Teachers’ to one or more seats on those companies’ board of directors.

[37] See Exhibit 1, tab 9, for Lin’s written performance review for 2010, conducted January 26, 2011.

[38] Exhibit 1, tab 13, first resolution, para. 3. This is not the amount paid or to be paid in 2010, but the amount credited to Lin’s LTIP account, to be paid to him in future in accordance with the program’s terms.

[39] See, for example, the list of Lin’s responsibilities pleaded in paragraph 5 of the statement of claim, admitted in the statement of defence.

[40] Annual Incentive Plan.

[41] Long Term Incentive Plan.

[42] These are prospective but agreed amounts.

[43] This number is contested and is addressed below. The base salary is agreed. It is agreed that the Board approved the listed amounts for Lin in respect to 2011. However, Teachers’ argues that these amounts were not payable as a result of Lin’s termination on March 11, 2011, after the Board meeting that approved these amounts.

[44] Lin was 44 years old as of the time of trial, three years later.

[45] See Trask v. Terra Nova Motors Ltd. (1995), 1995 9836 (NL CA), 9 CCEL (2d) 157 (Nfld. CA); and see the discussion by Echlin J. of circumstances where a “Wallace” bump-up is appropriate in Tong v. Home Depot of Canada Inc. (2004), 2004 18228 (ON SC), 39 CCEL (3d) 59 (Ont. SCJ), paras. 24-26. This issue is considered further, below, in respect to aggravated damages.

[46] For comparable cases on the length of reasonable notice see Barakett v. Levesque Beaubien Geoffrion Inc. (2001), 2001 NSSC 40, 8 CCEL (3d) 96 (NSSC); aff’d 2001 NSCA 157; Kussman v. AT&T Capital Canada Inc. (1999), 2000 BCSC 268, 49 CCEL (2d) 124 (BCSC); Greaves v. OMERS (1995),1995 7288 (ON SC), 129 DLR (4th) 347; 15 CCEL (2d) 94 (Ont. SCJ); Serrao v. National Bank, 2004 880 (Ont. SCJ).

[47] Exhibit 1, tab 13, first resolution, para. 1.

[48] Mady Development Corp. v. Rossetto, 2012 ONCA 31, para. 44.

[49] Schumatcher v. Toronto Dominion Bank (1997), 1997 12329 (ON SC), 147 DLR (4th) 128, 29 CCEL (2d) 96 (Ont. SCJ), para. 225, 234-240, aff’d. (1999), 1999 3727 (ON CA), 173 DLR (4th) 577, 44 CCEL (2d) 48, 120 OAC 303 (Ont. CA).

[50] Chandran v. National Bank of Canada, 2011 ONSC 777, para. 122.

[51] Gryba v. Moneta Porcupine Mines Ltd. (2000), 2000 16997 (ON CA), 5 CCEL (3d) 43 (Ont. CA), para. 51.

[52] Exhibit 1, tab 13, first resolution, para. 2

[53] Exhibit 1, tab 13, first resolution, para. 4.

[54] Wallace v. United Grain Growers Ltd. (1999), 1997 332 (SCC), 36 CCEL (2d) 1 at 37 (SCC).

[55] Exhibit 1, tab 31.

[56] Techform Products v. Wolda (2001), 2001 8604 (ON CA), 56 OR (3d) 1, para. 24 (CA), leave to appeal refused [2002] 3 SCR xii; Hobbs v. TDI Canada Ltd. (2014), 2004 44783 (ON CA), 246 DLR (4th) 43; 192 OAC 141; 37 CCEL (3d) 163, para. 42 (Ont. CA).

[57] See Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, paras. 22, 31-36.

[58] Ng v. Canadian Imperial Bank of Commerce (2003), 2003 21054 (ON SC), 28 CCEL (3d) 224 (Ont. SCJ), para. 124, quoting Trietel on Contract (9th ed.), p.763.

[59] See Levinsky v. Toronto Dominion Bank and TD Securities Inc., 2013 ONSC 5657, per D.M. Brown J. (as he then was), para. 82.

[60] Mady Development Corp. v. Rossetto, 2012 ONCA 31, paras. 10 and 44.

[61] Elsoley v. J.G. Collins Insurance Agencies Ltd., 1978 7 (SCC), [1978] 2 SCR 916; Nortel Networks v. Jervis, 2002 49617 (ON SC), [2002] OJ No. 12 (SCJ), per Rivard J.