Court File and Parties

COURT FILE NO.: CV-13-483419 DATE: 20170112 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Insight Merchandising LLC, Plaintiff – and – 2072223 Ontario Limited, Defendant

COUNSEL: Stephen Wolpert, for the Plaintiff Adriana Carnevale, for the Defendant

HEARD: March 3-6, June 22, September 28, and December 15, 2015, June 6-9, 2016

Reasons for Judgment

CAROLE J. BROWN, J.

The Action

[1] The plaintiff, Insight Merchandising LLC ("Insight") brings this action as against the defendant, 2072223 Ontario Limited ("CDA") for unpaid commissions as regards the project completed for the client, Walmart. Upon completion of the project, the defendant, CDA, failed to pay the plaintiff commission due.

[2] The defendant denies that any monies are owing in the circumstances of this case.

Positions of the Parties

Position of the Plaintiff

[3] The plaintiff seeks damages for unpaid commissions or unjust enrichment.

[4] It is the position of the plaintiff that this is a simple matter of unpaid commissions due and owing. The plaintiff maintains that Insight sold an order to Walmart and that CDA was paid for the order. The plaintiff claims commissions of 10% of the sale price, in the amount of $171,937.65 US or payment of an amount in Canadian currency sufficient to purchase that amount of US dollars in a bank in Ontario listed in Schedule 1 of the Bank Act for unpaid commissions.

Position of the Defendant

[5] The defendant denies that it owes the plaintiff any amounts for unpaid commission or other claims. In its amended counterclaim, it seeks $270,000 in damages and $100,000 exemplary and punitive damages as against the plaintiff for alleged failure to properly manage and deliver on the subject project.

[6] It is the position of the defendant that Mr. Watson is responsible for all commissions, for properly recording the commissions, that due diligence was required of the plaintiff and in this case, not done. It is the defendant's position that the plaintiff did not maintain proper documentation on the project, and the customer demanded that all displays be redesigned and submitted. It is the defendant's position that, as a direct result of Mr. Watson's errors, additional costs were incurred in the Walmart project and Mr. Watson was responsible; that the additional costs should be offset against his commission, that even if Mr. Watson did nothing wrong, the additional costs are higher and must be taken into account regarding profit margin, and that Mr.Watson is entitled only to a lesser percentage commission.

Issues

[7] The issues for determination by this Court are as follows:

a. The terms of the plaintiff's sales representation with the defendant; b. What, if any, commissions are owing to the plaintiff on the Walmart project?; c. Were there any employment terms between CDA and the plaintiff that permitted CDA to reduce or withhold commissions?; and d. Did Insight do anything that would justify a reduction or withholding by CDA of the commission?

[8] There are only a few aspects regarding terms and conditions of employment in dispute. The first issue is whether sales representatives’ commissions were based on estimated sale price or on the company's actual profit margin? The plaintiff maintains that commissions were paid on a sliding scale with the percentage of commission based on estimated sale price. It was the position of the plaintiff that he would not have worked for a company which proposed a commission structure such as that described by the defendant. The defendant maintains that the commission structure never operated on the basis of estimated sale price, but was based on actual profit margin; that there is no other way that it would make business sense. There is no disagreement as regards the sliding scale of commission percentages. The second issue involves responsibilities and obligations of a sales representative and whether there are provisions, explicit or implicit, which require a sales representative to indemnify the company for errors made.

The Evidence

The Plaintiff's Witnesses

Jon Morgan Watson

[9] Jon Watson has, since 1995, resided in St. Peter's, Missouri, a suburb of St. Louis. He never lived in Toronto. For his business, he comes to Toronto/Ajax 1 to 3 times per year. He works through his Corporation, Insight Merchandising LLC Inc., and specializes in permanent point-of-purchase and custom displays. Insight continues to do general contracting work currently.

[10] He worked with AG Industries ("AGI") as a custom display designer from 1990 to 1997; with CDA Industries Inc. (“CDAI”), which he testified is not related to the defendant, from 1997 to 2005 when it ceased existence, and from 2005 until 2012, with the defendant Corporation, CDA Manufacturing Inc. ("CDA"). His commission structure remained the same from 1997 to 2012. He now does general contracting work through his corporation, Insight. He left CDAI for one year from 2004-2005. When he returned to employment with the defendant in 2005, he did not receive an employment letter from the new Corporation. There was no new signed employment agreement, but only an employment arrangement, with the same terms as previously. Nothing changed as regards his employment. He received the same pay, had the same draw against commission, on the same terms.

[11] He was aware that, as of 2005, CDAI was in receivership, but was not aware that it had gone bankrupt. He was aware that the defendant had purchased assets from CDAI. He confirmed again, in cross-examination, that there were no changes to his commission pay structure or responsibilities when the defendant began carrying on business.

[12] He testified that he worked exclusively for CDA, except in 2011 when he did some work with a business regarding LED lighting. This contract was not obtained through CDA, although Curtis (“Curt”) Dudley, who worked at CDA, may have introduced him. He was not working for a competitor.

[13] As regards the predecessor company, he was interviewed by Roland DeVita, the Vice President of Sales and Marketing. Mr. DeVita's father owned the company. He was hired in 1997 and commenced work April 1, 1997. He had an employment contract with that company, which was signed by Mr. DeVita and himself. Neither party can locate the original agreement between the parties. No new agreement was signed.

[14] He was hired as National Account Manager, to bring in opportunities and sell. His role was to solicit new business, obtain contracts for point-of-purchase custom displays, obtain all details, and assist the client in selecting the designs and closing the deal. His role was to interface with the clients and to act as a conduit of information between the client and CDA.

[15] His income was a draw on commission, with a pay cheque every two weeks, and was dependent on generating commissions. His draws would be taken from an account, which contained commissions earned. He described the commission structure as a sliding commission with percentage of commission based on the estimated sale price. For each project, CDA would provide him with the estimated sales price, on which his commission would be based. If the price were X, the commission was 5%; if X+1, the commission was 7.5% and if X+2, the commission was 10%. The percentage of commission, based on the estimated sales price, was not subject to reduction by CDA and the sales person's commission was payable one month after CDA received its payment. Mr. Watson testified that all sales persons worked on the same terms. When the price was given and the job completed and paid for, the salesperson would be paid. He denied CDA was free to reduce his commission as it saw fit. He said he would never work for such a company. He reiterated that the commission was based on sales price/cost.

[16] He testified that both the old and new companies had a division that looked after estimating. The Estimating Division came up with the prices, which included their costs. He was not apprised of the costs. The Estimating Department would generally quote three prices, one at each of the three commission levels. However, when CDA only quoted the 10% level, there was no other option but the one level. The sales price was determined and the commission was based thereon.

[17] The employees in the Estimating Division gradually left, Mr. Gagin in August of 2008, Curt Dudley between 2010 and 2012, after which the estimates were prepared and provided by Freddy Vega. As regards the subject action and project, Curt Dudley had left when the project started, such that the plaintiff was dealing with Freddy Vega for estimates.

[18] He would submit invoices to CDA South, which was responsible for US sales, and which submitted the invoices to the client on whose projects he worked, in this case, Walmart.

[19] He testified that he created Insight in 2010 for certain benefits that it would provide him. He explained that he was paid by CDA in pretax dollars and was responsible for taxes in Missouri. With his own Corporation, he could set aside money on a pretax basis for retirement in the US through his company. The commission itself did not change, but the method of his payment by CDA did, the cheque being made payable to his company rather than himself.

[20] He built the business with Walmart in the United States, attracting large accounts. He was looking to increase his income and also to increase his car allowance and have health insurance included in his employment package. He also sought an elevated title due to his corporate clientele, and became Senior Vice President, which was a change in title only. It did not change his importance, responsibilities, supervisory duties or anything else.

[21] As regards new projects with Walmart, he explained that he would attend a meeting with Walmart at which they would describe the custom design project, guidelines would be laid out including their goals and any design ideas they may have had, which would be communicated to CDA to do the engineering and sourcing of materials, which were done in the Toronto area and not in the United States where he was based, and to provide the cost estimates and, as necessary, sample sizes prior to manufacturing. He testified that, as regards pricing, he would often be given a range of prices which would coordinate with the commission percentages, as described at paragraph 15, above. He would then be able to bid the cost he felt was appropriate given the client and project, taking into account all circumstances such as other potential bidders on the project or whether the client was a new client that he was attempting to attract, in which case he may be at a lower commission amount in order to attract the client. He explained that as the quantities sold increased, the price decreased. He further explained that if toolings were required to be made for a certain project, they would be included in the price, over and above the unit quantity pricing.

[22] Where a client was provided with a quote and wanted changes thereafter, the plaintiff would inquire at CDA as regards the cost of the requested changes. If a higher quote were given to the plaintiff, he would issue a revised quote. He explained that he needed to be consistent with the client in the pricing structure, primarily in order to get the highest commission level and to make money all around. He stated in cross-examination that his primary goal was to make money for himself and that if the manufacturer were smart about running the business, they would also make money. He quoted his jobs for clients at 45% material and 10% commission. He certainly understood that the business wanted to make a profit, but he was never given the actual costs of a project or the profit margins. He was given the estimated prices and unit prices. When he quoted a price to a client, he never factored in the profit or markup, as that information was not given to him. He was not aware that CDA was tying commission rates to margin from 2008. There were no commission adjustments for any reason except client returns.

[23] As regards costs, internal CDA issues regarding sourcing, manufacturing efficiencies and production issues were out of his control. Where a client changed the order, Mr. Watson needed to make sure that the commission stayed at 10%, necessitating an increase in the price.

[24] His evidence as regards the basis on which commission was calculated and paid did not vary in cross-examination. Further, his evidence did not vary as regards any impact that cost changes or price reductions may have on his commission. This was confirmed by Mr. DeVita, who is responsible for US sales, and by the sales representatives who testified at the trial.

[25] He stated that his quotes were very detailed. Typically, he would develop a timeline for everyone, based on the client's deadline for the order. This was modified as necessary. He was not responsible for ensuring that the timelines were met by each department or division. If he were waiting for information from either Walmart or CDA, he would follow up to ensure that it was obtained.

[26] During the project, he would communicate with the client, answer client questions, deal with minor changes, and communicate changes as requested by the client to CDA and the cost of changes as estimated by CDA to the client. If there were changes to the project requested by the client necessitating increases in price, he would advise the client. If he quoted a price based on a certain quantity of the product, and the client thereafter decided to purchase a smaller quantity, he would then go back and indicate to the client the price increase due to the reduction in the order. Price increases did not change his commission.

[27] He confirmed that he had no involvement in the engineering, sourcing of materials, the costing of the project, manufacturing, testing, packaging, and no involvement in the managerial decisions. He did not design or engineer the displays. The materials and design were selected by Engineering, and he could not provide a price to the client until the cost information was obtained from CDA. He testified that he never dealt with suppliers, as it was not his responsibility. He did not know suppliers in Canada. He was not responsible for labour costs, or markups for labour. While pricing was done on a percentage of material cost, the tooling was a straight 25%.

[28] As he was in the United States, he could not be involved with the other aspects above mentioned, nor did he have experience in that regard. Nor was he responsible for shipping methods. As regards Walmart, they used their own carrier/shipper, which Walmart would instruct and pay.

[29] All communication as regards the Walmart project went through him. There were occasions when Walmart also contacted Curt Dudley, and he had often visited Walmart with Mr. Watson. It was the plaintiff’s responsibility to ensure that all Walmart instructions were conveyed to CDA, as well as approvals. Inspections and approvals were not always put in writing, but design directions and written commitments were. He was involved with the sales aspects of, and the communications with, the client. His task was to make Walmart happy and to ensure that the project was on track.

[30] He stated that in 2012, he had requested that a commission amount be wired to him in the United States and was advised by the administrator that there was not enough money in the account for the draw. When he advised that he had done numerous sales that should have put money in the account, he was told that one of his Walmart commissions had been lowered by the defendant from 10% to 5%, although he had not been previously advised of this. This was the first time that this had happened. He testified that, in this case, because they were in the midst of a $1.5 million contract with Walmart and that the lowering of the percentage from 10% to 5% was only worth a couple thousand dollars in his pocket, he did not want to make a big issue of the reduction and did not argue or pursue the reduction, such that he likely would be seen to have acquiesced in what had occurred. He testified that it had appeared that there had been a return of goods and some fixtures for which the defendant gave Walmart credit, and which had the effect of wiping out his commission. He believed that several other salespersons had experienced the same or similar reductions at approximately the same time.

[31] As regards the subject project, Mr. Watson testified that the project came to his attention in August or September of 2012. He received a call from Cheryl Woodruff at Walmart. Walmart was to introduce into its stores a Disney brand of wall paints manufactured by Glidden paints. The project involved a custom design display for the Disney-Glidden paint chips. They wanted to create a color fixture that would retrofit onto the existing unit. Generally, Walmart would provide details as regards the required project and he would request the concepts to achieve their objectives. In the case of the subject paint display, Walmart actually gave them colour photos. Certain designs had been prepared by Glidden. A colour design of the project was provided to Mr. Watson at the first meeting. Akzo Nobel had a Disney license. He understood that they provided the original design and were joint partners with Walmart creating the paint line and display.

[32] Following the meeting, he opened a new project request at CDA and, on September 30, 2012, sent an e-mail giving the overview of the project to Freddy Vega, the manager and person responsible at CDA, who began the process of putting together costs on the project. Vlad Korobchevky was working on the engineering aspects. Freddy and Vlad were involved throughout, while Mr. Watson was not involved in the designs. The timeline was propounded by Mr. Watson for the project.

[33] As regards this project, he was provided by Curt Dudley with the price at 10%, rather than being given a range, as Walmart was a long-time client. He had been dealing with Walmart for several years.

[34] He kept track of the timeline from design concept through date of delivery. It was not his responsibility to ensure that the timelines were met, which was the responsibility of the manufacturing division. He created timelines based on Walmart's information regarding in-store delivery dates and sent the timelines to everyone. If he was waiting for information from Walmart or CDA, he would follow up, to ensure that the project remained on track. He looked after creating the timelines until January 8, when he was terminated, and no further information was provided to him.

[35] He conceded in cross-examination that he may have sent one e-mail regarding a deadline that was incorrect, but CDA was aware of the dates with respect to the mockup and prototype.

[36] At a meeting on October 12, there was discussion with respect to an acrylic "header", depicting the Mickey Mouse head and ears, which would be consistent with the Disney brand. He confirmed that this was important to Walmart and was communicated to CDA. He made notes of the meeting and there were numerous follow-up discussions. He testified that as of October 18, the method of fixing the header to the base was not determined. Changes to the Disney silkscreen may have been done by Vlad or Freddy. Following this, he was advised that CDA would have the entire order and that it would not be shared with AGI.

[37] The design did not include the Disney logo of hat with ears which was to be attached, as that information regarding the logo or icon and the means of attachment to the display had not been considered by the engineer at that juncture. He attended a meeting as regards the Mickey Mouse ears icon with the clients, including Bill Dodd, Cheryl Woodruff and Jason Scott. Bill Dodd did not want to use acrylic materials as it would be too heavy and expensive. No one had any answers as to the icon design. This was communicated to Freddie Vega and Vlad Korobchevsky, who were to decide on the design.

[38] Mr. Watson provided cost estimates on the Disney project by October 15, having obtained those cost estimates from Freddie Vega. Only the material costs were required to be provided to him. Mr. Watson testified that he could not produce the estimates of the costs, as he was not the designer, engineer or sourcer of materials, and was not provided with the production costs. Shipping costs were not included, as Walmart's own shippers were used and billed directly.

[39] Mr. Watson received the e-mail chain from Cheryl Woodruff with approval to proceed on the Disney project. This was forwarded to William Malisch, Christine Blackie and Freddie Vega. Mr. Watson communicated the timelines, which were very tight, by e-mail and also by telephone.

[40] At that stage, Walmart had not seen any prototypes or approved them. CDA was aware that there had to be two prototypes provided and also was aware of the dates for delivery of the mock-up prototype of the display to Mr. Watson in Bettonville, Arkansas, the Walmart world headquarters, to be presented by Mr. Watson to Walmart at a scheduled meeting. The prototype was a one-dimensional visual mockup of the unit for purposes of approval by Walmart. The final prototype would be sent to Walmart for viewing prior to full production and would also be used by Walmart for purposes of installation, to review how it would be installed. The full prototype was used pre-production, to be safety-checked by Walmart and approved.

[41] At the first meeting, held in December in Bettonville, Arkansas to review the initial one-dimensional mock-up prototype of the display as indicated in the timeline, which is done prior to creating the final prototype, there were a number of people from Walmart and Akzo Nobel, including Cheryl Woodruffe, Bill Dodd, Mr. Hembree from Akzo Nobel and Mr. Watson from CDA. At that time, the decision had not been made as regards the header, so they presented two options at the meeting.

[42] The Mickey Mouse hat was not attached, although there were pictures from Freddie Vega. The Walmart/Akzo Nobel group discussed changes which were communicated to CDA by email, and also, after the meeting, by Mr. Watson from his car phone. While he had been insistent on CDA packing the mock-up prototype carefully, as this was the first mock-up prototype that would be seen by the client, the display had arrived bent at Bettonville, Arkansas.

[43] He communicated changes that Walmart/Akzo Nobel wanted regarding sheen. He does not recall whether the changes were approved. He does not know when the final prototype was provided. Only a one-dimensional mockup was provided and sent while he was there. Safety approval would only come from Walmart after the final prototype had been shipped and reviewed.

[44] The price that had been quoted and accepted was not the final price due to the changes requested by Walmart and the price changes which flowed therefrom. There was an increase in the estimated cost due to increased costs in tooling and metal framing. As well, other changes were made including elimination of the sub-header graphic "Disney tells a story" due to space. As regards the changes requested by Walmart, Mr. Watson was advised by Mr. Vega that these changes increased the cost of the unit by $ 9. Based on this, Mr. Watson increased the unit price by $21, to maintain the 10% commission. The revised pricing quotation was communicated on January 2, 2013 by e-mail. Walmart accepted the quotation through a telephone call. The changes were to be entered into the CDA system to generate purchase orders. At that time, the design for the Mickey Mouse ears icon attachment had been narrowed to two options, either white or metallic decal. There was, at that juncture, no negative feedback.

[45] Subsequently, in January, the plaintiff was requested by Mr. Malisch to contact a printing company, although this was not a part of his normal responsibility. He did so because Mr. Malisch had requested this and he was able to help them. He contacted a printer that CDA had referenced and sent an e-mail to Mr. Malisch. Mr. Malisch responded in what the plaintiff perceived to be an insulting way. Mr. Watson did not like dealing in the business context in what he described as a "nasty" way and suggested that they put the issue behind them. Mr. Malisch' response was "forget that; we are done".

[46] In January 2013, Mr. Watson heard from Cheryl Woodruff who advised him that there was a problem between Mr. Malisch and Mr. Watson and that they should fix it. He was willing to do this as long as the communication link with the client continued to go through him. However, he was cut off by CDA from all communication with Walmart and, as at January 8, was blocked out of the CDA system, such that he could not enter orders or communicate. Further, no one from CDA would return his telephone calls or e-mails. As at January 8, 2013, Mr. Watson was no longer in the "communication loop" and was unable to communicate with Walmart. Mr. Malisch further communicated with Mr. Watson and advised him that there would be no further communication between Mr. Watson and Walmart, but that Mr. Watson was to help as necessary on the Disney project and, if he did so, would get his 10% commission. After he was terminated, he helped whenever he could as regards the Walmart project and supplying information. Not everything was in writing. He provided everything that he was able to.

[47] Thereafter, he had no communication with Walmart, and was cut off all communications during the rollout phase. He was no longer able to be a conduit of information to Walmart.

[48] He testified that when he left, the CDA staff did not have familiarity with Walmart or with the Walmart processes. In order to assist, he had prepared a detailed e-mail regarding the Walmart internal processes. He had no further direct contact with Walmart and had no knowledge of decisions being made. Based on the evidence, he did respond immediately to questions from CDA as regards the Disney project. Mr. Malisch contacted him on one occasion as regards design issues. No one contacted him as regards to prototypes, packaging for prototypes, the attachment of the Mickey Mouse head or the prototype meeting. He was not responsible for the means of attachment of the Mickey Mouse head.

[49] Between March 6 and 8, for the first time, Mr. Malisch requested of Mr. Watson copies of the approvals by Walmart of the project. He testified that Mr. Malisch had inferred that there was a problem with the order, but he did not know more.

[50] He received no further word from Walmart and made inquiries sometime in April after the project was to have been finished, but received no communication in response and no commission payment. An e-mail request referenced $155,000 US based on 10% of the total order from the information that he had as at January 8. He was never provided with any documentation as regards commissions owing. As a commissioned sales person receiving commission since 1997, he had always been provided with commission summaries when he requested them. In this case, he received no response. Nor was he ever advised what the costs for the project were. Akzo Nobel had indicated that the order had been shipped. Based on the terms of employment, under which he had always operated, his commission would be paid after CDA received its payment. In this case, he never received payment on the project.

V. Roland DeVita

[51] Roland ("Roly") DeVita worked at CDA, which was a family company started by his father in 1954. He testified that he worked in various departments while growing up, starting at the age of 12. In the early 60’s, he was the Vice President of Sales, reporting to his father. He owned 10% of CDAI, which was in existence prior to 2004-2005. He did not have an ownership interest in CDA Manufacturing. In 2005, they lost the ownership interest as a result of declaring bankruptcy and the company was taken over by William Malisch.

[52] Both before and after the bankruptcy, Mr. DeVita was responsible for US sales. He was not responsible for Canadian sales. He was involved in hiring, and hired for the Sales Department. He hired 12 people, including Mr. Watson. He testified that he did not hire him for engineering, project management or any other position. He described Mr. Watson as having a vast knowledge in sales in the manufacturing sector. He testified that Mr. Watson had been offered $60,000, which was not sufficient and subsequently was hired at $67,500 with his remuneration based on estimated gross profits. The estimated gross profit at that time was based on materials, overhead, labour and profit.

[53] Mr. DeVita stated that the salesmen did not know what the company profit was, but were given numbers or estimates for the jobs they were bidding on at various commission levels (X, X +1, X +2). The estimated gross profit of the company was never to be conveyed to the sales people, who did not know the file numbers. The estimates given to them for costs of the project included options regarding ranges of commissions from 5% to 7.5% to 10%. His explanation as regards commissions remained consistent through cross-examination. Sales prices would be provided with three pricing numbers for a project and, depending on which number was chosen, the commission would range between 5% and 10%, based on the numbers given by the Estimating Department. The numbers were based on estimated profits. As far as he was aware, commissions were never adjusted. He did receive all commission statements for all of his sales personnel and would have raised the issue if he had seen it, which he never did.

[54] The sales people were remunerated on the basis of a draw against commission. All salespeople were required to keep three months draw in their account prior to taking their regular draws. When the plaintiff was first hired, he signed an agreement, as did all sales personnel. All 12 sales persons were under the same terms and paid the same way as regards draw on commissions. If a customer returned some product, it did not affect the draw against commission, nor did a job that ran higher or lower than the estimate given. The salesperson was paid upon receipt of payment by the client. If a job came in over the estimated cost, it was the company that assumed the risk, and took the loss, which was appropriate as the company prepared the estimates.

[55] If the client wanted changes made to the order, those would be put into the system and the cost of the desired changes would go back to the Estimating Department in order to quote the cost based on the changes.

[56] All salespersons had the same responsibilities with respect to customer relations. They were the primary conduit or contact vis-à-vis the clients, although when management deemed it necessary as regards a project, management as well as the sales representative may attend a meeting on occasion.

[57] Mr. Watson reported to Mr. DeVita throughout. There was no change in the compensation structure nor in responsibilities. He understood that CDAI went through bankruptcy, although he did not know the details. As regards the new company which emerged, he continued as the Sales Supervisor. There was no change in terms of employment, roles, and commission structures, or additional risks that would be assumed by sales personnel. He was never advised by the new owners, William Malisch or Gerald Charbonneau, of any change in Mr. Watson's employment. He left CDA in 2007. He now resides in Duluth, Georgia.

[58] Mr. DeVita was also remunerated on a commission basis. He received a commission based on his personal sales performance and also an override based on what his sales department achieved. If a salesperson in his department made over 10%, he received an override of 1 to 2%. However, Messrs. Malisch and Charbonneau changed that when they took over.

Mike Gordon Shippel

[59] Mike Gordon Shippel resides in Atlanta. He studied finance at University. He is now self-employed in the field of point-of-purchase displays, and the owner and director of a company incorporated in 2008. His background is in sales. He was the National Account Manager/Sales Representative of CDA, hired in the Spring of 2002 by Roland DeVita. His hiring had to be approved by Messrs. Malisch and Charbonneau. He commenced employment in April or May.

[60] In cross-examination, he stated that his current employment was the same or similar to that at CDA. He was not associated with the plaintiff, although they had been friends since they started working together. He was a friend of Mr. DeVita, and had been a client of his prior to working for him. There was mutual respect.

[61] He was an employee, and taxes were held at source. There was no employment agreement, nor any non-compete provision. He worked exclusively for CDA.

[62] He was on a draw against commissions, earning approximately $60,000 per year as a draw and had to earn his commissions. He was required to keep approximately 3 months draw in his account with CDA. His benefits included health insurance, and he thinks there may have been some small retirement pension. He was provided all necessary allowances, hotel expenses, etc.

[63] Commissions were calculated as a percentage of the sales price. Before the purchase order, a quote was provided, given from estimates based on gross profit, with commission 10% of the highest selling price.

[64] The sale prices were based on gross profit. The sales representative was given options as regards sales price, with a different gross margin and chose the best price based on knowledge of the competitive market and the client.

[65] Generally, the sales process is as follows. A salesperson would obtain a new brief, take it to the conceptual design, have the client choose as regards the conceptual design, following which detailed designs would be prepared, a prototype made, client approval obtained, an estimate of the sales price given. Often a "ballpark estimate" would be given at the conceptual stage. After a quote was made to a client, and approval given, a purchase order would be obtained. He had never worked on a Walmart account and did not know if the same process was followed with Walmart.

[66] The sales price was based on estimated cost, obtained from the Estimates Department. As an example, he indicated that prices of $100 and $95 per unit may be given to the sales representative and, on $100 per unit, one would receive 10% commission, on $95, 7.5% commission. Once the price was selected, it would be input into a Word document for the client.

[67] If the actual costs exceeded the estimated costs, there was no impact on commission. Conversely, if the actual price came in lower than the estimate, the sales representative was not paid a higher commission.

[68] As regards CDA, he was aware of a receivership or bankruptcy, but not the details. He was aware that the new CDA took over. There were some changes in name but it did not impact him. The bankruptcy did not affect his compensation and the structure never changed. Just before he left in early 2006, the company acquired "Fixture This" and began to refer to the company as "Fixture This".

[69] As National Account Manager, his responsibilities were in the area of general sales. He did cold calling and setting up of meetings to sell the company. He managed the accounts, met with clients to understand their needs, created briefs of work which were put into a computer document. He would learn from the client the details wanted, timelines, logos and communicate with CDA as regards design and manufacturing. All communication between the client and CDA were from and through him. He was the primary point of contact. There may have been plant visits to see the plant and to meet with Messrs. DeVita and Malisch. Most salespersons resided and worked outside the GTA.

[70] The client would give the design directives to the Design Department at CDA to create the design. CDA would provide the design to the salesperson that would provide it to the client to approve or make changes. The changes would be communicated to CDA. Once the design was approved by the client, a prototype would be made and a final quote given.

[71] If additional changes were made thereafter, there may be a price change, if required, which would be provided by the Estimating Department.

[72] As regards changes, if the client were a longtime client who was well known, a written approval would not necessarily be obtained.

Philip Spencer Bailey

The Text Messages

[73] Philip Bailey received a summons to attend trial. He did not want to attend. He had received text communications from January 9 to February 18 from Mr. Malisch, who did not want him to testify. He was concerned that if he testified, Mr. Malisch would sue him. He believed that Mr. Malisch was trying to persuade him not to testify and was intimidating him. He stated that he did not know why Mr. Malisch would be concerned about his testifying.

[74] The text messages were produced in evidence, redacted, as had been agreed between counsel. Mr. Bailey identified the text messages and Mr. Malisch's phone number.

[75] Mr. Malisch texted Mr. Bailey on February 3, 2015, one month prior to trial, and after he had learned of the plaintiff's list of witnesses to be called to trial, which included Mr. Bailey, Ted Hope, who did not testify, and Gary Rodgers who, at trial, was called by the defendant.

[76] The text messages sent between February 3 and 18, 2015, included the following. On February 3, he texted: "I would like to avoid legal issues between you and myself… I think you know how I feel about this. That is why I texted you first before I make any other legal moves. I suggest you call his [the plaintiff's] lawyer and let him know you do not want to be a witness. I have Terry, Gary, Gerry. Tomorrow I will discuss with Ted as well"

[77] On February 18, 2015, he texted Mr. Bailey as follows: "I heard you are a witness. I regret to let you know that my lawyer will be filing a lawsuit against you personally for non-compete issues. You will need to retain a lawyer and spend $10,000 to defend just to start. I told you I wanted to avoid this but you made a decision to get involved and so I am making a decision as well. I will have my lawyer serve the lawsuit at your home and the new business address in Georgetown… You aren't going to see the end of this. It is going to cost you money. You better get Jon to help cover your legal costs."

[78] In cross-examination he stated that Mr. Malisch did not ask him to lie or to change evidence. He stated that he did not change his evidence at trial.

[79] It appears clear, based on the communication, that the text messages were intended to intimidate Mr. Bailey with a purpose attempting to prevent him from testifying in the proceeding. As a result, he attempted to obstruct justice.

His Testimony As Regards the Action

[80] Philip Bailey attended business college, and was involved in sales for 25 years.

[81] Mr. Bailey was hired in 1991 as an employee of CDAI. CDA Manufacturing became his employer thereafter. He was never employed by or affiliated with the plaintiff Corporation. At CDA, he was the Sales Account Manager. He reported to Mr. Malisch. He understood that Mr. Malisch provided financial support for the company at the time that it was struggling. With the new company, all the terms of his hiring remained the same.

[82] He was a sales representative, representing the company to clients and sourcing new clients. He managed projects, held production meetings, managed timelines and all communications between the client and CDA. He was involved with changes as regards designs. His responsibility would be to communicate any changes required by the client to CDA. Communications with the client were by e-mail, phone or meeting in person.

[83] CDA would provide the pricing and he would communicate that to the client.

[84] His remuneration was a draw against commission with benefits, including health and dental. His commission was a percentage based on total sales price and not on gross margin. The commission was based on estimated cost. If costs exceeded or were less than the estimated costs, there was no impact on the commission. His commission never changed. When CDAI became CDA Management, he was told that his commission structure would continue. He testified that there was a new contract for five years with a drop in the commission rate on a specific amount; the car allowance was removed; this was not discussed, there was no agreement; Mr. Malisch just did it.

[85] He testified that he had never been involved in a project where the commissions were adjusted or where an adjustment was made to the commission if the client did not pay or pay in full.

[86] In 2013, his commission dropped on the Shoppers Drugmart file. He testified that Bill Malisch had developed a relationship with someone at Shoppers and his commission dropped. In the normal course, it was he who controlled communications with the clients, but in this case, Bill Malisch developed a relationship with his client.

[87] He left CDA in August of 2014 and believes that he left on good terms.

Curtis James Dudley

[88] Curtis (“Curt”) Dudley had taken a couple of years of industrial engineering at University. He held a general management diploma from the University of Virginia, where he had taken a two week intensive management course.

[89] He resides in Pickering. He is currently employed as a Production Manager with Holman. He is not involved with creative display.

[90] Curt Dudley was an employee of CDA from 1996. He commenced employment as a plant manager of Creative Wire in Mississauga, which merged with CDA. There, he worked in Pickering/Scarborough. When management changed, he moved to Ajax. He thereafter became Operations Manager. Subsequently, he became Production Manager but his work was more in the line of Project Manager.

[91] From 2008, he was the Production//Project Manager. He was responsible for taking the project through the system. He did the detailing of the design concept, procurement of materials, coordinating with CDA and doing quality control. He had a role in the Engineering Division and how the fixtures were to be built. He would take the design and development and, after approval, have it produced.

[92] He reported to Bill Malisch, Gerald Charbonneau and Vince DeVita, Roly's father.

[93] He was an employee and was salaried. His salary was not dependent on sales commissions. When Vince DeVito was still there, bonuses were sometimes given in a good year. When Messrs. Malisch and Charbonneau became involved in the company, salary and benefits did not change in any material way. There were some changes regarding benefits. The plaintiff's commission structure did not change, nor did his job responsibilities. The receivership/bankruptcy of CDA did not impact compensation nor how jobs were priced.

[94] He testified that he was aware that the plaintiff had incorporated his own company in order to save on taxes and in order to permit himself to put money away tax-free for retirement. The plaintiff's responsibilities did not change after the incorporation.

[95] He always worked on Walmart jobs with the plaintiff. The plaintiff was responsible for the initial contact with the client. His role was to determine Walmart's requirements, work with the designers and, thereafter, it was CDA's responsibility to work out the manufacturing and pricing. Most information regarding Walmart went through the plaintiff to CDA. The plaintiff would prepare the quotes and submit them to Walmart. However, the plaintiff never exercised independent pricing authority. He would generally attend Walmart headquarters with the plaintiff for larger projects. He would not go for all meetings.

[96] He testified that the plaintiff was a detail person. He knew this from the projects they worked on together.

[97] The design could be created by CDA or come from the client. When the plaintiff provided a design/concept, Mr. Dudley would review it to determine if it were able to be produced. He would work out the economics of producing the design and providing an estimate.

[98] He testified that the plaintiff did not contact suppliers regarding sourcing and pricing. Rather, CDA did that and selected the suppliers. The plaintiff did not have the final say on the design for the fixtures or engineering. He may have input as regards concerns that he saw but not the final say. Mr. Dudley did most of the ordering. Freddy Vega managed the labour and getting the job done. He testified that the plaintiff never managed production; his responsibility was to manage the client. Project testing was done by CDA: himself, Freddy and management. He testified that CDA would set the timeline. If they could agree to the customer request they did, and if they could not, due to materials, etc., they would not. In this case, CDA had the materials and "Freddy" would manage the project. Bill Malisch was generally involved.

[99] The plaintiff had input as regards the design and the rest of the manufacturing process was internal. Mr. Dudley was involved in building the mock-ups and prototypes. The plaintiff would, on occasion, assist in a tight timeline. The plaintiff and Mr. Dudley would install the mock-up, in this case for the meeting at Walmart headquarters after it was built by CDA. This would typically be the same for prototypes. CDA would build them and the plaintiff would assemble them at the company headquarters prior to reviewing with the client. The plaintiff would need to ensure that the mock-up looked and presented as he intended. The plaintiff was always involved in the mock-ups and prototypes. Mr. Dudley was often there for the meeting along with the plaintiff.

[100] He described the mock-up as a one-dimensional representation of what the final product would look like. It was the concept or layout of the project. Mock-ups were for visuals. The prototype was as close to the final product as possible and was essentially the real item. Prototypes were for functionality. Typically, prototypes were done but not always mock-ups. As regards Walmart, the prototype always had to be done. For larger projects, it was not common to also have the mock-up. Walmart generally provided approval after seeing the prototype.

[101] Prices were determined based on a percentage of the material cost when he did the pricing. He would calculate the material and overhead and whatever was wanted for profit over that. If adjustments were made, the plaintiff may discuss the changes with him, and the price may increase. It was not a common practice to give the salespeople the costs of a project. He testified that he did not recall any time when the plaintiff caused a large overrun of costs, or errors.

[102] As regards the Walmart project, the commission on pricing was 10% and the plaintiff was generally only given one commission option. Usually, more options would be presented to a salesperson, so that the sales person could gauge the price that the client would be able to bear.

[103] Curt Dudley left CDA in October of 2011 and was not involved in the project which is the subject of this dispute. At the time of his departure, no one else was doing Project Management on Walmart jobs. As regards Walmart workers, Freddy was involved. The plaintiff was the only one who had direct contact with Walmart. He testified that he did not know of any time when Bill Malisch dealt directly with Walmart.

Christine Blackie

[104] Christine Blackie worked at CDA from 2002, when it was CDA Industries, to the end of January 2014. CDA Industries became CDA in about February of 2004. The change did not impact her employment or salary. CDA was located in Ajax, Ontario. Her most recent title with CDA was comptroller from 2008. She reported to William Malisch on a daily basis. Everyone reported to Mr. Malisch, directly or indirectly.

[105] She knew the plaintiff and worked with him on projects. He did not work from the Ajax offices, but would come to the Ajax offices approximately twice yearly. She last saw him in late December of 2012. They had lunch together on that occasion.

[106] The plaintiff's functions were to bring sales to the company, to liaise with the customer and to make certain that the customer was happy. He was not responsible for sourcing materials. The plaintiff did not place orders for materials, which was done by the purchasing and project managers. The plaintiff could not track the project, labour or overhead costs. Mr. Malisch would prepare the cost estimates. It was the role of the Project Manager to get the product out and to the client.

[107] She managed finances and accounting from 2008 to 2014. She had approximately 4 support staff reporting to her, including Cathy Romano, who did payroll, Natasha Jusnuz and Teresa Varden.

[108] William Malisch directly oversaw finances, but the day-to-day accounts responsibility was hers. She was responsible for accounts payable and receivable, and commission payments. One payroll person handled the commission payments and Mr. Malisch would approve outgoing payments. The sales representatives would take biweekly draws and also request regular lump sum withdrawals, which would or would not be approved depending on the amounts in the sales representatives’ commission account.

[109] Ms. Blackie tracked the project costs, as requested. The production system used was called Job Plan, which tracked material costs and Work Plan, which logged hours of labour. Mr. Malisch had access to the systems, but generally asked Ms. Blackie to run the reports. He generally did not provide cost information to sales representatives, although he may have discussed such costs with Mr. Watson. She did not know if he made the reports generated available to the plaintiff.

[110] She was not involved in the design or engineering of the projects. She would sometimes become involved in the logistics, including shipping. She was not involved in negotiating regarding sales contracts and did not know the details of the sales contracts.

[111] She was involved in the Walmart project, working on logistics, namely shipping and client services. She was more involved in the Walmart project than she would otherwise be. She was not involved in the project until November of 2012. She was probably involved in the shipping schedules when the product was produced. As regards shipping, she was involved with the Walmart traffic department.

[112] She provided information to the plaintiff from the Job Plan, which was generally approved by Mr. Malisch. The information flow became slower as Mr. Malisch did not always approve sending the information promptly. No information was sent to the plaintiff that she did not prepare.

[113] Ms. Blackie would prepare summaries of the plaintiff's commission account, what was earned, what was in the account and what was withdrawn. Commissions were based on the material estimated costs, as she understood. Commissions were generally not altered. There would typically be no changes if the costs increased. If there were substantial cost increases, the sales representative would generally increase the cost to the customer, which would preserve the percentage commission. CDA gross margin information was prepared for Mr. Malisch, but not provided to the plaintiff.

[114] Orders were generally submitted as follows. Approval of the order from the purchaser would generally be given by e-mail and sent from the sales representative to her. She would then open an order on the system. Until approval was received, no order would be opened. Once the order was opened, it would be assigned a unique order number and distributed to the project manager and others. As regards the Walmart project, Mr. Malisch told her to reduce the commission to 5% due to the job costs, which were higher than estimated. Although the plaintiff requested the commission be changed back to 10%, it stayed at 5%.

[115] The order summaries indicated the sale price, indicating the quantity, price per unit, and commission percentage. No cost or production price was indicated. Any changes would usually be brought forward by the sales representative. Where there were additional fixtures, including replacement parts resulting from damage or increases, CDA did not re-quote costs.

[116] Ms. Blackie would pay the commission as indicated. Typically, the commission would not be altered due to cost overruns. She indicated that in the time that she was doing the accounts and finances, she would have done hundreds maybe thousands of orders. From 2008 to 2012, she only recalled on two occasions when the commission was altered. One was with respect to Phil Bailey on a client project. The other was with respect to the plaintiff and Walmart. She stated that she would have to know when changes were made. She was required by Mr. Malisch to go into the job plan and change the commission line by line manually.

[117] The sales representative would get a commission based on the quantities, including on the additional amounts ordered. Here, quantities were increased due to loss or damage by the carriers who shipped the goods.

[118] The amount to be paid was calculated using the total run monthly. It was prepared manually using the systems data and was run on request. With respect to a rollout (namely the mass distribution of product that is shipped to thousands of stores), there would be timelines and shipment dates.

[119] There were no standard terms committed to writing for the salespeople. As regards commissions, if there were enough in reserve, commission requests would be paid. If there were not enough in reserve, the commission would not be paid. Also, she would hold back commission to cover unpaid receivables. Once receivables were paid, the commission would be paid out to the salesperson.

[120] In the case of the Walmart project, commission was not paid to the plaintiff. It is the only instance of which she is aware that a sales representative was not paid commission. Sales representatives were generally paid after CDA was paid for the project.

[121] Ms. Blackie testified that there were no other instances where the actual job costs would have impacted the payment of commission to the sales representative, and no instances where CDA did not pay commission other than this instance regarding the plaintiff. There was no term or practice requiring a representative to cover errors as regards the project, whether errors were caused by the sales representative or by others.

[122] Commissions were calculated pursuant to an agreed percentage of the sales price based on estimated cost. This was true both for the plaintiff and his company, Insight. The method of calculation regarding the plaintiff did not change to her knowledge. The plaintiff would receive 5%, 7.5% or 10%, as agreed upon when the work order was opened. The documentation provided as regards commissions to the plaintiff did not show any commission less than 5%. Not all salespeople had the same commission percentages. The commissions were paid out when CDA was paid and provided there was enough in the sales representative's account to cover any unpaid jobs in order to obtain the payout. All payments out of draws outside the general biweekly draws were approved by Mr. Malisch, depending upon whether there was enough in the representative’s account after withholding amounts for unpaid sales projects.

[123] To her knowledge, Mr. Malisch did not discuss changes with the sales representatives before they were made. She assumed this as, when the sales representatives found out that there was a change made in their commission rate, they were angry and asked her to change it back. As regards the plaintiff, she told him to take it up with Mr. Malisch. He probably first inquired when he had requested his draw and was told that there were not enough funds in his account for a draw. She was not aware of any communication from CDA previously advising Mr. Watson of the change.

[124] In this case, the plaintiff sent an e-mail dated November 29, 2012, requesting that the commission on the Walmart project be changed back to 10%. The plaintiff e-mailed again on December 17 to follow up to ensure the commission had been changed. To her knowledge, the plaintiff did not receive any response from CDA. As regards the Walmart project, Mr. Malisch told her to reduce the commission to 5% due to the job costs, which were higher than estimated. Although the plaintiff requested the commission be changed back to 10%, it stayed at 5%.

[125] Some projects cost more than estimated, including some work done by the plaintiff and Insight. If the cost were more than estimated, CDA would profit less. Tracking of costs would be requested of her by Mr. Malisch, and would come throughout the job to ensure the job continued to be profitable. In this case, there is documentation to indicate that the job was running at 66% of the sale price.

[126] As regards the Walmart project, there were discrepancies in the recordkeeping concerning project amounts. There was documentation indicating that the total amount of the Walmart project was $1,578,066, and other documentation indicating the total amount of the Walmart project to be $1,570,066. There is a discrepancy in documentation as regards the costs of the project, namely $664,184.29 versus $593,564.29. She does not know which records are accurate.

[127] It was standard for her to be apprised of approvals by the client. It would generally be an e-mail approval which started the process. CDA had no formal systems to track approvals. Rather, manual files regarding a project were kept, which generally included the purchase order, e-mail commitment, approvals, sales invoices, correspondence and collections documentation. Changes were not kept. She testified that there was no proper system to track approvals prior to the final approval of the prototype; rather it was based on hoping that everyone would keep track.

[128] Ms. Blackie was aware, as was Mr. Malisch, that the plaintiff had incorporated the company, Insight. After incorporation of Insight, the plaintiff was responsible for paying his own taxes. As a result of the plaintiff's new company, CDA no longer withheld taxes, and payments were redirected to Insight from the plaintiff personally.

[129] CDA had previously paid through a payroll company which charged a fee. They no longer used the payroll company as the plaintiff was the last US employee. Therefore, there was a payroll savings to CDA when he incorporated his company.

[130] As regards the Walmart project, she testified that glue was used to affix the Mickey Mouse ears to the display. The glues were tested in the Ajax facility. She could smell the glue and workers were wearing masks while working with the glue. This was in about January of 2013. CDA ordered a number of glues for testing and her support staff, Teresa Burton, did the ordering. She testified that there was a problem with the glue smearing between the two acrylic plates and Walmart was unhappy with the appearance of the glued head and ears. As regards the attachment of the Mickey Mouse head, Walmart was unhappy with the appearance of the smeared glue, which was ultimately replaced with a bolt.

[131] She testified that Walmart paid CDA in full for the project in US funds. The plaintiff was to be paid commission in US funds. No monies were ever paid to or received by the plaintiff.

[132] The relationship between Mr. Malisch and the plaintiff broke down and she subsequently received an e-mail in early January of 2013 from Mr. Malisch that the plaintiff was no longer employed with CDA and had been terminated. She does not know why he was terminated. She continued to correspond with him as regards the Walmart project and information required until February of 2013, when Mr. Malisch instructed her not to speak with the plaintiff further. She does not know why.

[133] To her knowledge, Mr. Malisch was not familiar with the Walmart procedures or approval process. He attended the Walmart headquarters once before or during the shipping of the product. He did not present the final prototype and, to her knowledge, no one did. To her knowledge, no one came from Walmart to Ajax to view the final prototype. She indicated that nothing was done to seek final Walmart approval.

[134] If information was needed regarding the Walmart project, she would contact the plaintiff who responded promptly and was always helpful. He suggested that they obtain instruction as regards the Walmart procedures. However, Mr. Malisch indicated that they would not do that and they would handle it on their own. She stopped reaching out to the plaintiff when she was told by Mr. Malisch not to contact him further. He told her that he would manage the project without the plaintiff. She testified that neither herself nor anyone else had any experience with Walmart. She stated that things became different and frantic without the plaintiff to assist. She stated that the increase in units due to damage or loss from the carriers or Walmart employees was separate from the Mickey Mouse head issue.

[135] As at February 20, 2013, the project was running behind. She stated that there were problems with damage, loss and smeared glue. There were multiple other issues. All issues arose after the plaintiff’s departure and the shipping of the product.

[136] Shipping was handled by Walmart. The fixtures were shipped from the end of February through April or early May. There was a slow start to the rollout due to shipping issues with the carriers hired by Walmart, as there were not enough trucks provided to ship the product. There was damage to the product occasioned by either the carriers or Walmart and replacements had to be provided at Walmart's cost.

[137] When the plaintiff left, Ms. Blackie became more involved in the distribution of the rollout which she would not have done, had the plaintiff remained. She would not otherwise be communicating with the Walmart traffic department.

[138] She stated that the plaintiff was a convenient scapegoat and that Mr. Malisch was using him as such. She testified that Mr. Malisch was the type of person to do this, to her knowledge.

[139] She was told by Mr. Malisch not to pay the plaintiff his commission. It was never explained to her in detail why he was not paid commission. Nothing was ever paid to either Insight or the plaintiff. She knows of no other people who left CDA without getting their commission.

The Defendant's Witnesses

William Malisch

[140] William Malisch studied business at Trent University, and then York University. He worked as a CA at Ernst Young, giving accounting advice to the manufacturing industry.

[141] He is currently the president of CDA Manufacturing. CDA manufactures custom displays.

[142] The company is long-established and was started by Vince DeVita. He was introduced to the company in 2002, as a CA, to provide advice and to assist in "turning it around", as it was struggling due to economic difficulties. The company was ultimately forced into bankruptcy.

[143] The company was represented by the Trustees in Bankruptcy and he and Gerald Charbonneau, through a numbered company, purchased it in 2005. While the old company had approximately 250 employees in Canada and 75 to 100 in the United States, the new company took on very few of the former employees. The company dramatically downsized and became more Canadian-focused. They kept only the more experienced sales representatives. They eliminated the Estimates Department.

[144] Mr. Malisch met the plaintiff in 2002. The plaintiff took a leave of absence from the company in 2002 and returned in 2005 or 2006. Mr. Malisch described the plaintiff as notable for his experience and diligence. He indicated that he had particular expertise in the area of paint chip custom designs. He was very detailed and very good at providing quotations to the customer and the technical aspects of the quotations were very detailed. He indicated that most representatives were not like that.

[145] He testified that the role as a sales representative entailed being experienced in engineering, design, estimating, materials and products. The sales representative knows the company's suppliers, knows those in traffic and logistics and would be deeply involved in a project. He described them as "project managers". Both the sales representative and the purchasing agent would deal with suppliers. Jon was by far the most capable of the sales representatives.

[146] Walmart was a customer from whom they mainly got major rollouts. The plaintiff was responsible for the Walmart account. He worked closely with Curt Dudley. In 2004, when he was on leave, the Walmart communications were handled by Roland DeVita, with billings and logistics handled by others CDA staff.

[147] The plaintiff did the design of the project and would use Paul Nagy to do the renderings. The plaintiff was responsible for quotes, communicating changes, and communicating costs and changes to the client. He stated that a sales representative understood how to adjust the price to keep commissions up. The plaintiff wanted to receive top commission rates.

[148] Sales representatives were paid straight commission based on gross margins, namely sales less the cost of goods (direct materials, direct labour, factory overhead and freight). There was a scale for commissions based on gross margin. For a gross margin of less than 45%, the sales representative would receive 10%; for gross margin of 40 to 45%, a commission of 7.5%; and for a gross margin of 35 to 40%, a commission of 5%. Under 35%, the commission may be 1 to 3% or zero.

[149] While he preferred sales representatives not to work for other companies while at CDA, they were not prohibited from doing so.

[150] The plaintiff's commission was generally in the range of 5 to 10%, sometimes down to 3%. He stated that actual margins were used as the company could not lock itself into a fixed rate. Sales representatives had to be aware of costs and margins. He stated that the plaintiff, being experienced, knew that he had to get a price increase regarding cost changes in order to maintain his margin rate. He stated that the plaintiff's commissions were often higher, as, in providing his client with quotations, he was very detailed and organized.

[151] Ms. Blackie administered and was involved in Work Plan, a software system which tracked material costs and margins. There was a separate software program called Job Plan, which tracked labour.

[152] Mr. Malisch testified that the plaintiff understood costs were tied with commissions and knew that everything was margin-based and that commissions would be adjusted accordingly. He stated that commissions were not just based on estimated cost. One had to look at materials and labour to maintain profit margin. As regards labour costs, he stated that the representatives knew the costs and knew that the custom designs were labour-intensive. He stated that they had full access to the database and would speak to Curt Dudley, Freddy Vega or Christine Blackie. This evidence was contradicted by Christine Blackie. Mr. Dudley was not asked about this.

[153] As regards the Walmart Disney project, he stated that labour was higher due to the many parts required. He testified that the plaintiff wanted to ensure that his commission remained at 10%, and wanted assurance of this across the boards. Mr. Malisch testified that he would not agree to this, as commission is always based on profit margin.

[154] Mr. Malisch testified that he received a draft sales representative agreement prepared by Jon and his lawyer on February 2, 2010. Jon made further changes thereto. The agreement was not signed as they could not agree on a commission based only on sales. He stated that commission was to be based on gross margin and not on gross sales. As regards the inclusion of an indemnification clause, he testified that this was a provision that Jon knew was a term of his position as sales representative, and that sales representatives were to indemnify CDA against all claims, damages, losses and expenses arising out of performance of the sales representative's work that were caused in whole or part by the representative's negligent acts or omissions. No one, other than Mr. Charbonneau, the co-owner, testified as regards the existence of an indemnification clause or was even cross-examined on it.

[155] Mr. Malisch confirmed that as at 2010, CDA began to pay commissions to Insight rather than to the plaintiff directly. He understood that this was because it would permit the plaintiff to save tax dollars in the United States. The arrangement changed nothing as regards the plaintiff's circumstances with CDA and he did not believe that the customers were aware of this.

[156] He testified that the plaintiff was always the point of contact with Walmart and all of his customers. He testified that the plaintiff would only take Curt Dudley, a friend of his, with him to meetings with the client. He stated that the plaintiff kept client relations "close to his chest" and did not like to share client contacts with CDA. Mr. Charbonneau testified that this was not uncommon for sales representatives generally. He testified that, for the most part, the plaintiff would forward instructions from the customer, without an e-mail address, or would simply summarize the client instructions for CDA. After the plaintiff was terminated, Mr. Malisch became the point of contact with Walmart. He testified that Lisa Smith (traffic and logistics), Christine Blackie and Nicole Guanti also had communications with Walmart after the plaintiff left.

[157] The subject Walmart project was to modify the paint chip displays in the Walmart stores. Akzo Nobel was licensed to manufacture Disney paints. Akzo Nobel had their own supplier for store displays and did not know the plaintiff. However, as a result of the plaintiff's affiliation with Walmart, Akzo Nobel travelled to Ajax to the CDA facility to determine whether they would use their own supplier or CDA. Ultimately, CDA was awarded the entire Disney rollout. For the project, there were five different fixtures used in various store locations, such that there had to be retrofits for various fixtures with different configurations. Thus, CDA had to provide five different models and five different prices for the various fixtures.

[158] It was standard procedure for the representative to provide a ballpark price estimate to the client prior to providing a cost quote. To do so, the plaintiff would have had to gather information as regards the mold maker for the tooling and also information regarding materials to be used. The cost estimate was provided October 15, 2012 to Walmart. The initial quote was forwarded to Walmart on October 18, 2012. An additional revision was forwarded on October 31.

[159] As regards the Mickey Mouse ears for the display, the plaintiff described them to the customer in the above-mentioned correspondence as follows: "Mickey Mouse Ears are .25” thick acrylic with black silk screen flat coat on back and 4 colour process silkscreen print on front face. Acrylic is laser cut and mounted to top of header with an L-bracket. This did not change throughout.

[160] Mr. Malisch testified that no quotations provided throughout the process ever mentioned that no bolts should be used. He testified that this was surprising as it was an important part of the display. He further testified that there were only two methods of attachment, either to glue with an adhesive or to use bolts. The plaintiff had indicated to CDA that the customer did not want to use bolts, but this was never specified or confirmed in any documentation. There would be no cost differential between the two methods. He testified that as at January 2013, all parties understood that the adhesive would be used, based on communications with Jon and Walmart, plus drawings. Jon had indicated that no visible bolts were to be used.

[161] While William Malisch testified that the plaintiff indicated in an e-mail to himself and Freddy Vega dated March 6, 2013 that Akzo Nobel stated that the Mickey head should be attached to the header without any screws or bolts visible on the front as this would compromise the integrity of the trademarked images", he was never provided with any written instruction or approval of this from the customer. Discussions were had between the plaintiff, Akzo Nobel and Walmart as to how the displays were to be assembled. The displays were not to require sophisticated equipment for assembly, but just screwdrivers, in order that the Walmart staff could assemble the displays quickly and easily.

[162] Quote request details were provided by the plaintiff and input into the CDA system on November 28, 2012, which triggered everyone to start tracking the project and to determine what to order. Included in the quote request details was the commission which Mr. Watson sought, namely 10%. Mr. Malisch indicated that, subsequently, the margins did not support 10% commission and the plaintiff was told that he would only receive 5%. He testified that there were projects where the commissions had started at 5% and went to 3% due to the margins.

[163] The mock-up/prototype was required for December 20 to be presented by the plaintiff to Walmart to their head offices. He testified that there would not be prototypes prepared for all five models. A full prototype was to be provided by January 21, 2013.

[164] Mr. Malisch testified that as at December 4, CDA knew that no bolts were to be used and adhesives where the only option.

[165] The plaintiff had provided a timeline. He was the only one in control of the communications with Walmart. He came to the Ajax facility from the US on December 12 to inspect the work.

[166] Mr. Malisch testified that, after the relationship was terminated, the plaintiff agreed to assist CDA by working through the current project but needed to come to a formal agreement as to how it would work. He was to provide CDA with any outstanding or open issues, or anything that needed to be done to make sure the customer had no problems. Mr. Malisch contacted Walmart and confirmed that there was nothing outstanding. He testified that the plaintiff indicated to him all training administratively that was required, and advised that there would be one final review of the fixture, to be attended by Akzo Nobel did and Crossmark.

[167] Mr. Malisch told the plaintiff that he was not to communicate directly with Walmart on the project, and he agreed. Mr. Malisch became the primary contact with Walmart on the project. CDA was in full production by January.

[168] The final review of the prototype was held in Ajax and the CDA facilities on February 4 or 5, which was attended by Bill Malisch, Freddy Vega, Akzo Nobel and Crossmark.

[169] At that time, Akzo Nobel raised issues and wanted cosmetic changes, which would increase the cost. Walmart indicated that it did not agree with any changes and that the cost of any changes would be paid by Akzo Nobel alone. Akzo Nobel sent a purchase order for the changes and paid the increased cost by late February, CDA had started the shipment of the product, which ended in March. The shipping was late, as Walmart could not obtain a sufficient number of carriers for all of the products.

[170] Mr. Malisch testified that very few issues arose regarding the shipping of the product. There was minimal damage, the average being approximately 1%. A product damaged in shipping is covered by the carriers.

[171] In March, Walmart contacted Mr. Malisch to advise that brackets where detaching from the ears. They initially complained about the silk-screening, until they were shown a purchase order specifying silk-screening and approved by them. Mr. Malisch denied Ms. Blackie's evidence that Walmart had an issue with glue smearing.

[172] As regards bolts, Mr. Malisch testified that the client had quotes and drawings which did not include bolts. The prototypes and samples also did not include bolts.

[173] While he had originally testified that the prototype review was the only way to catch final errors, he subsequently stated in cross-examination that drawings are also necessary and that they had 26 pages of engineered drawings which were relied on by everyone. These drawings were not produced in their entirety in evidence at trial. Thereafter, he stated that the prototype review was not the way to catch errors, but only changes, such as Akzo Nobel had done at the end.

[174] He testified that the client became upset due to the fact that L-brackets began snapping and coming loose from the head. At one point, he stated that it was due to the fact that the carriers began stacking the shipping boxes, the bracket was sticking up in the air and the weight of stacking compressed it such that the bracket would snap off. He stated that Akzo Nobel ultimately wanted a solution to the problem that made safety a top priority, and was also less disruptive to the branding graphics.

[175] In the end, Mr. Malisch placed the blame and responsibility for the additional cost of $270,000 on the plaintiff on the basis that he should have had documentation and obtained written approval as regards not using bolts but rather using adhesive glue. As a result, CDA refused to pay any commission to the plaintiff.

[176] Mr. Malisch admitted that he personally stands to gain if CDA makes a profit. CDA's revenue in 2012 was in the millions of dollars.

[177] He conceded in cross-examination that he did not do all the work himself, but rather delegated it to the staff. He did not personally prepare customers or suppliers invoices and did not follow-up on accounts receivable. He did not place the orders with tooling and material suppliers. He did not personally work on product design, draft quotations, manufacturing of the prototype, although he insisted that he was always on the floor running equipment with his staff. He did not personally cut payroll cheques or prepare spreadsheets relating to sales representatives commissions, which was done by Ms. Blackie.

[178] He gave several explanations as regards the problem with the Mickey Mouse heads, and how the problem arose. He initially stated in cross-examination that the problem with the Mickey Mouse heads started during shipment when the brackets were coming off the Mickey Mouse ears. He said that there was no other problem with glue or the method of fixing the heads. It was just that they were being stacked and too much weight was being put on them. He testified that the carriers were not supposed to stack the shipping boxes but they did.

[179] Later in cross-examination, he stated that the stacking was not the problem, but rather created the problem. He stated that ultimately, the customer believed that the plaintiff had not specified how the items should have been put together and assembled. They were concerned that if an extreme weight or force were put on top of the brackets, the brackets would come loose from the Mickey Mouse head. They were afraid that children would be attracted to the Mickey Mouse head and would try grabbing and holding on to it and providing a similar force and weight against it.

[180] Previously in cross-examination, when asked why the glue had failed, he stated that the kids were hanging off the Mickey Mouse ears and it couldn't take that amount of weight. He stated that it was after the display was mounted in the stores that this problem was discovered.

[181] He subsequently stated that during shipment when there was weight on the fixtures, Walmart started to assess it and became concerned that what happened during shipping may also have happened after the displays were in the stores for long periods of time. He stated that Walmart contacted him and told him that the glue had failed and this is not what they wanted. He stated that the failures happened after the kids started hanging off the displays and not before that time.

Gerald Charbonneau

[182] Gerald Charbonneau is now self-employed as a business consultant. He was previously Managing Director of BHP Markets and Finance. He has presided over a few public companies.

[183] He became involved with CDA after selling his previous company. He was looking to acquire a new company and hooked up with Bill Malisch, who had been his accountant. Mr. Malisch was also looking to acquire his own company.

[184] At that time, in approximately 2002, CDA needed funding, so they began as investors. It was, at the time, a public company, so they owned a portion of it and subsequently took over more and more of the ownership.

[185] When they became involved, the bank called the company's loan. The company defaulted on the loan and declared bankruptcy in about 2005.

[186] Messrs. Charbonneau and Malisch purchased some of the assets from the Trustee in Bankruptcy. They maintained some of the previous workforce, most of the sales representatives. They continue to pay the sales representatives in the same way as they had been previously. He stated that this is a standard practice. The sales representatives’ remuneration was all commissioned, with some advances against commission and varied based on profit margins.

[187] He was with CDA from 2002 to 2010/2011. He and Mr. Malisch now see one another from time to time, but do not socialize.

[188] He was responsible for the sales representatives and, at one point, Roland DeVita was VP of US sales.

[189] Walmart was the plaintiff's largest account. Communication with Walmart was through the plaintiff. This was standard with many representatives, as they guarded their accounts very closely. The plaintiff’s method of communication with his client was not unusual.

[190] As regards commissions, sales representatives would set a selling price, based on estimates of the cost of the project, which would set the margin and the commission percentage. They would estimate the margin at the beginning and the actual margin at the end. They were usually quite accurate and there was not much difference.

[191] As regards larger orders, accuracy was important as there was much work to be accomplished from start to finish. If, at the end, the margin wasn't as anticipated, it would be adjusted at the end. This did not happen often.

[192] A 10% commission is exceptional; a very high amount. Other sales representatives did receive 10% commission from time to time. In most manufacturing companies, sales representatives are lucky to make 3 to 5%. The plaintiff was trying to get a higher commission.

[193] When the plaintiff sought commitment to a higher commission from CDA, Messrs. Charbonneau and Malisch would often use one another as an excuse for not doing something or responding to something. They always hoped his request would go away.

[194] As regards the indemnification agreement, it was Mr. Charbonneau's evidence that the clause would have been understood for all sales representatives. If a sales representative did a negligent act or omission, CDA would not go so far as to have them indemnify the Company for the damages or costs, but an amount within the amount they were paid for commissions but not exceeding the commission may be sought. CDA would never claw back all of the commission, but would leave the sales representative some commission pay. In cross-examination, he stated that he did not read the indemnification agreement as being more onerous, but did agree that it did not have a provision capping indemnification.

[195] If a sales representative received instruction but did not document it, and it resulted in increased costs, those costs would be offset against the commission.

[196] CDA insisted that all representatives be detailed with quotes. The plaintiff was probably at the top of the list as being more detailed than most.

[197] As regards attachment of the Mickey Mouse ears to the display, attaching the bracket was an important issue. Mounting the acrylic/glass to wood or metal would result in it being prone to damage or wear and tear. From a brand perspective, Walmart/Disney would not want anything impeding the graphics. They may have wanted no bolts, and probably would not want to have seen bolts. This would have to have been signed off by the client.

[198] Regarding affixing of the Mickey Mouse head, there were several options including glue, encasing it in wood, taping and inserting a threaded screw or bolt.

Gary Rogers

[199] Gary Rogers is the president of Summit Retail Solutions. He worked with CDA from 2004 to 2008. He provided consulting services to CDA and evaluation of sales representatives.

[200] The commission structure for sales representatives was paid on the basis of potential margin. The margins included materials, labour, tooling and any expenses based on the cost of the job.

[201] The commission was based on actual margin.

[202] Every sales representative with whom he dealt was reluctant to share their contacts and communications with management/owners of CDA. They wanted to keep their client as close to the chest as possible.

[203] He testified that he had no issues with Mr. Malisch, nor any lawsuit with CDA. He is currently involved on a consultant basis with Mr. Malisch. They have a business venture together and he is doing sales for CDA/Fixture This.

[204] As regards the text messages from Mr. Malisch, he testified that he did not speak to Mr. Malisch as regards the litigation. Nor did he speak with Mr. Hope. He testified that Mr. Malisch did not tell him anything about the litigation. He stated that the e-mail in evidence, which he had sent to the plaintiff's counsel, appeared to be a result of the conversation he had with Mr. Wahlberg, whose office had been trying to reach him. He advised that he did not want to be involved. He testified that if Mr. Hope had sent a similar response to Mr. Wahlberg's office, it was a coincidence.

Credibility

[205] This is, in many respects, a fact-based case, with credibility in issue. The evidence on many of the material points is divergent.

[206] In assessing the credibility of the witnesses in this case, I am guided by the observations made by D. Brown J. in Atlantic Financial Corp. v. Henderson et al, as follows:

In deciding between these two diametrically opposed positions, I am guided by the observations made about assessing the credibility of witnesses by O’Halloran, J.A. in Faryna v. Chorny, [1952] 2 D.L.R. 354 (B.C.C.A.) where he stated, at page 357:

The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.

[207] Additional factors to take into account when assessing a witness’ credibility include the presence or absence of evidence contradicting a witness’ statements and corroborative evidence: Sopinka and Lederman, the Law of Evidence in Civil Cases (1974), pp. 527-8.

[208] I found Mr. Malisch’s evidence throughout to be inconsistent and in some instances contradictory, and many of his answers to be self-serving. He appeared to reverse numerous statements given in examination in chief, when confronted in cross-examination with documents that contradicted his previous evidence. When confronted with prior inconsistent statements that he had made, he attempted to explain his way around them.

[209] Mr. Malisch’s testimony in cross-examination was not forthright. He failed to directly answer many questions put to him. He seemed unable to give a straightforward answer. On numerous occasions, he attempted to avoid answering questions or, when confronted with facts which did not correspond with his version of facts, attempted to justify his previous answers or explain away the other versions, or to answer another question altogether. On other occasions, when confronted with evidence, documentary and otherwise, which was not consistent with his version of the facts, he often became vague, evasive or defensive and argumentative. In some instances he simply changed his evidence. Mr. Malisch attempted to change or skate around answers he had given in his testimony-in-chief when inconsistent. He equivocated on answers and discrepancies between his evidence-in-chief, cross-examination and the documents in evidence.

[210] As regards the cause of the detachment of the Mickey Mouse heads from the displays, he gave several different reasons therefore. I did not find him to be a forthright witness.

[211] Further, his evident on several key issues was inconsistent with others who had worked at CDA, including sales representatives, supervisors of US sales representatives, the CDA comptroller and the co-owner, Gerald Charbonneau. As regards the calculation of commission, and the basis therefore, his evidence did not accord with the evidence of the sales representatives or the supervisor of US sales representatives. As regards the existence of an indemnification clause, his evidence was inconsistent with that of the plaintiff, and differed from that of Mr. Charbonneau as regards any application of it. No other witnesses were asked about it in cross-examination or examination in chief. As regards the Comptroller, Christine Blackie, her only evidence was that she did not know of anyone whose commission was held back once payment was received from the client.

[212] While an e-mail had been sent from the plaintiff to CDA and Mr. Malisch on January 2, 2013, indicating that the Mickey Mouse head should be attached to the header without any screws or bolts visible on the front, as visible screws or bolts would compromise the integrity of the trademark images, Mr. Malisch testified in chief that he first knew about this stipulation on March 6, 2013. In cross-examination, when shown the e-mail of January 2, he conceded that he knew of the stipulation as at January 2.

[213] In contrast, the plaintiff’s evidence was forthright, direct, clear and concise in both examination-in-chief and in cross-examination. Where the plaintiff’s and defendant’s evidence diverge, I prefer the evidence of the plaintiff, unless otherwise stated.

[214] Further, the evidence of the other witnesses, including other CDA sales representatives, the CDA US sales representative supervisor, the comptroller of CDA and the co-owner of CDA differed from that of the defendant on numerous key issues. Also, where the evidence of the defendant differs from his employees and co-owner, I prefer the evidence of these witnesses over that of Mr, Malisch, unless otherwise stated.

[215] Based on the texts sent by Mr. Malisch to Mr. Baily, it would appear that Mr. Malisch threatened some witnesses who were on the plaintiff's witness list as regards testifying for the plaintiffs. It is clear that he threatened the plaintiff's witness, Mr. Bailey, with a lawsuit, given that Mr. Bailey was testifying for the plaintiff or was on the plaintiff’s witness list. In the case of Mr. Bailey, he testified that the threat of a lawsuit did not cause him to change his testimony at trial. Gary Rogers, the defendant’s witness, testified that he did not speak with Mr. Malisch about the litigation after receiving his text messages. He continued to work with Mr. Malisch as regards joint business ventures and his continued sales role with CDA. I have taken this into account as regards his testimony. Nevertheless, it would appear, based on all of the evidence that Mr. Malisch attempted to intimidate or interfere with three witnesses who were to testify at trial, thereby obstructing the administration of justice.

Analysis

What were the terms of the plaintiff's sales representation with the defendant?

[216] There was no written agreement between CDA and its sales representatives which would specify the terms of the sales representation with the defendant, or the commission structure.

[217] As regards the basic responsibilities vis-à-vis the work of sales representatives, based on all of the evidence, the sales representatives at CDA were responsible for attracting clients, obtaining work from clients for CDA, acting as a conduit for all communications between CDA and the client, managing the customer and ensuring that the projects brought to CDA progressed according to a timeline based on the client requirements, communicating estimated costs of projects to clients, communicating with CDA any changes to the project required by the clients and having control over the costs related to customer-driven changes and their effect on the overall price estimates on commission.

[218] The sales representatives were not responsible for managing CDA's costs, managing all aspects of the project brought to CDA, purchasing supplies, tooling, supervising or overseeing labour. Indeed, because, in this case, the plaintiff was based in the United States, and not Canada, where the production facilities were located, such responsibilities as sourcing of and purchasing materials for a project or supervising and overseeing labour would not be practical.

[219] As regards payment of commissions concerning a client project, it was the position of the plaintiff that his income was based on a draw on commission, with a biweekly draw every two weeks, and was dependent on generating commissions. His draws would be taken from a personal account, which contained his earned commissions. He described the commission structure as a sliding commission scale with the percentage of commission based on estimated sales price. For each project, CDA would provide him with the estimated sales price, on which his commission would be based. If the price were X, the commission was 5%; if X +1, the commission was 7.5% and if X +2, the commission was 10%. The percentage of commission was based on the estimated cost, was not subject to reduction by CDA and, when the project was completed, the sales person's commission was payable one month after CDA received its payment from the client. Mr. Watson testified that all salespersons worked on the same terms.

[220] Further, he testified that if the actual cost exceeded the estimated cost, there was no impact on commission and, conversely, if the actual price came in lower than the estimate, the sales representative was not paid a higher commission. He testified that there was only one exception to this which occurred after Messrs. Malisch and Charbonneau became co-owners. His commission was reduced a small amount on one project, but he testified that it was such a small amount (a couple of thousand dollars in his pocket lost), and the project was large and still ongoing, such that he did not wish to "rock the boat".

[221] Mr. Malisch maintained that commissions were based on gross profit margins, namely sales less the cost of goods (direct materials, direct labour, factory overhead and freight). There was a scale for commissions based on gross margin. For a gross margin of less than 45%, the sales representative would receive 10%; for gross margin of 40 to 45%, a commission of 7.5% and for a gross margin of 35 to 40%, a commission of 5%. Under 35%, the commission may be 1 to 3% or zero. I note that no other witnesses gave evidence of such a commission scale based on gross margin and including the commission of 0 to 3%.

[222] The preponderance of evidence was that the commission structure was based on estimated cost. All sales representatives, their supervisor, Roland DeVita, and Christine Blackie, who was responsible for commissions, confirmed this in their testimony. Only Mr. Malisch, and his co-owner, Mr. Charbonneau, testified that it was based on actual gross margin, which would include manufacturing and labour costs that the plaintiff was not able to control. I do not accept the defendant's evidence in this regard. Indeed, Mr. Malisch confirmed to the plaintiff, at the time of the relationship breakdown that the plaintiff would be entitled to 10% commission on standard terms. At trial, he attempted to explain this away, saying the standard terms were actual gross margin and one would receive 10% if margins were 40 to 45%. This is not what he said. The statement regarding 10% would have otherwise been superfluous and misleading. I do not accept his explanation.

[223] While the defendant maintained that the sales representative commission incomes were tied to and based upon the actual cost of the project, this is not consistent with the evidence. There is no or no sufficient evidence to support this. I am further of the view that basing commissions on all actual costs does not accord with commercial reality. The plaintiff, as sales representative, did not have control over CDA's production and labour costs. There is no or no sufficient evidence to establish that the sales representatives had access to the actual costs in order to monitor such costs. The evidence before the Court does not establish that sales representatives had or were provided such access to these costs. The plaintiff and Christine Blackie, who was the Comptroller and handled commission payments to the sales representatives, testified that the sales representatives did not have such access. The sales representatives who testified, including Phil Bailey, M Gordon Shippel and Roland DeVita, who was responsible for US sales, were consistent in their testimony that commissions were not affected by actual margins.

[224] The evidence of the other sales representatives who testified was consistent with the evidence of the plaintiff as regards the commission earned and the basis for calculation therefore. Further, their evidence was consistent that if the actual cost exceeded the estimated cost, there was no impact on commission and if actual price came in lower than the estimate, the sales representatives were not paid a higher commission. This evidence was also confirmed by Christine Blackie, the Comptroller, who stated that she only saw a commission reduced on two occasions, one being the plaintiff, and the other, Philip Bailey. She never saw a sales representative's commission withheld completely.

[225] Based on all of the evidence, I find that the terms of the sales representative's employment as regards their commission structure were as follows: the sales representatives' commissions were based on the estimated sale price. The estimated sale price, based on the estimated cost of production, was provided to the sales representative by CDA. Generally, CDA would provide three different estimated sale prices. The commission would be 5%, 7.5% or 10% of the estimated price chosen by the sales representative, who would make the choice based on knowledge of the client, the amount the project could bear, other bidders for the project and other market factors that may be calculated in.

[226] Also based on the evidence, the percentage of commission, based on the estimated cost, was not subject to reduction by CDA, and, when the project was completed, the salesperson's commission was payable by CDA one month after CDA received its payment from the client.

What, if any, commissions are owing to the plaintiff on the Walmart project?

[227] The evidence indicates that the percentage of commission originally payable to the plaintiff on this project was 10% of the sales price. Based on the evidence, as changes were made or a price had to be altered, Mr. Watson notified the client and sent a revised quotation, with a 10% commission calculated into the revised quotation to ensure that he received the highest commission.

[228] As indicated below, it is the evidence of Mr. Malisch that CDA lost a significant amount of money due to the necessary redesigning of the Mickey Mouse heads, such that nothing was owed to the plaintiff in the way of commission, as Mr. Malisch placed the blame for the redesigning on Mr. Watson.

[229] For the reasons below indicated, I have found that Mr. Watson cannot be held accountable for the damage to the Mickey Mouse heads, nor for the absence of approval from the client as regards the manner in which the heads were to be affixed to the display. I therefore reject CDA’s claim that its losses were due to the actions and/or omissions of Mr. Watson.

[230] As regards the commission owing on this project, there was some confusion concerning the documentation kept by CDA regarding the costs of the projects. CDA produced material cost sheets and invoices. As regards the material cost sheets, Mr. Malisch confirmed that one included costs unrelated to the Walmart project. He did not create the documents, but stated that he could identify the correct one if he went through and reviewed it. This was not done. He also stated that some items were or may have been missing in some of the cost sheets. Further, Christine Blackie, the Comptroller, when shown two different cost sheets for the project with different amounts indicated thereon, was unable to state which was accurate. As well, as regards two different versions of a document purporting to quantify the total amount of the Walmart project, which were both in evidence, she was unable to identify which was correct.

[231] I find this documentary evidence as regards costs of the subject project to be unreliable. With items included from different projects, which were admitted to be wrongly included, invalid invoices, items potentially missing, as admitted, and different versions of the same documents with different totals, the recordkeeping appeared to be, at the least, sloppy and unable to be relied upon. I place no weight on it.

[232] As analyzed below, I am satisfied, on all of the evidence, that the plaintiff is entitled to his commission on the Walmart project in the amount of $171,937.65 US, plus prejudgment interest and costs.

Were there any employment terms between CDA and Insight that permitted CDA to reduce or withhold commissions?

[233] There was no written agreement between CDA and the sales representatives. The witnesses in this trial who held the position of sales representative all confirmed this, as did Roland DeVita and Christine Blackie. However, the defendant, William Malisch, maintained that the CDA employees understood a number of unwritten terms and requirements of employment, upon which he relied in this case. He insisted that there was a provision which required all sales representatives to maintain proper documentation on their client projects, and particularly all client approvals. Further, he relied on what he maintained was a well-known unwritten provision, an indemnity clause which required sales representatives to indemnify CDA against all claims, damages, losses and expenses arising out of performance of the sales representative's work that were caused in whole or part by the representative's negligent acts or omissions.

[234] There was no evidence adduced at trial to document the rules and requirements imposed upon sales representatives and other employees of CDA. There was no evidence of a rule, whether in the form of a memorandum, employee handbook or other form, to establish the type or nature of documentation that would be required of sales representatives, nor any indication or warning of the consequences for failure to maintain such documentation. There were numerous examples of the type of documentation kept by the plaintiff for the Disney project, and explanations of different stages in the manufacturing/production process that such documentation would trigger. However, this does not establish the fact that there was, as maintained by the defendant, a provision which required all sales representatives to maintain proper documentation for client projects and particularly all client approvals in writing. I do not accept that this is an unwritten part, policy or rule of the employment relationship of the plaintiff and defendant that imposes a duty of due diligence on the plaintiff as urged by the defendant. Nor do I find any evidence to indicate that any such duty, if it did exist, was breached by the plaintiff, as I address below.

[235] There was no evidence, other than the defendant’s testimony concerning an employee's duty of due diligence as regards recordkeeping, nor any evidence that if such duty were breached, it could result in negative consequences. There was no memorandum, no employee handbook, or other evidence adduced at trial. While there was documentation produced as regards the project in question, this documentation does not establish a duty required of employees, the requisite documentation to be kept, the means of completing said documentation, the means of maintaining such documentation, nor any consequences of failure to do so.

[236] I do know that there was a significant amount of documentation maintained on this project, coming both from Mr. Watson and from the clients, as a result of which the production of the displays in question proceeded. Nevertheless, this is not proof of a body of rules and/or regulations which may have existed regarding recordkeeping, and it is not for this Court to speculate as to what any such rules or regulations, if they did exist, would provide.

[237] CDA relies on an unwritten indemnification clause which would require a sales representative to indemnify CDA for all losses caused in whole or part by his or her negligent acts or omissions. I note, however, that the defendants do not plead or rely in their defence and counterclaim on the indemnification clause. The pleadings define the issues in a lawsuit. In this case, the pleadings do not raise the issue of an indemnification clause. Further, there was no examination or cross-examination of witnesses, other than Messrs. Malisch and Charbonneau, and the plaintiff as regards an indemnification clause. Nevertheless, I make the following observations and findings.

[238] The indemnification clause relied upon by Mr. Malisch for CDA is contained in a proposed, draft employment agreement. Said agreement is not valid or binding on the parties, as the parties did not arrive at any agreement regarding the draft and did not sign it. Thus, there was no final, binding signed agreement.

[239] The defendant further takes the position that the indemnification clause was a clause that was known to all sales representatives and it was for that reason that it was contained in the draft agreement prepared by the plaintiff and his lawyer. Mr. Malisch's business partner at the material time, Gerry Charbonneau, also confirmed that the clause would have been understood to apply to all sales representatives. However, it was his evidence that CDA would not go so far as to have a sales representative indemnify the Company for the damage or costs, although an amount within but not exceeding the commission on that project may be sought. He further testified that CDA would never claw back all of a sales representative's commission pay. Ms. Blackie testified that such a clause, policy or rule was not a part of the employment relationship as regards sales representatives and CDA, and that no sales representative's commission had ever been denied.

[240] None of the other sales representatives was examined or cross-examined as regards the indemnification clause, so none of their evidence is available to this Court as regards whether this was a standard unwritten rule or policy in the company, known to the sales representatives, as the defendant maintained. Nor was there any documentary evidence of such a policy or rule adduced at trial. It is not a clause which would be implicitly imported into any unwritten employment arrangement, and I am not prepared to find that such an implicit provision existed in the employment relationship, based on the evidence before me.

[241] I do not accept that such an indemnification clause is an unwritten part, policy or rule of the employment relationship of the plaintiff and defendant.

[242] Accordingly, I do not find there to have been any terms between CDA and Insight which would permit CDA to reduce or withhold commissions on the basis of an unwritten indemnification clause, or any other unwritten rules, regulations or policies.

Did Insight do anything that would justify a reduction by CDA of the commission?

[243] In determining this issue, I look at the following:

1. Whether the plaintiff owed a duty of due diligence to the defendant to record all instructions and approvals between CDA and Walmart and, if so, was that duty breached?
2. Whether the plaintiff breached any duty owed to CDA, such that he would be responsible to CDA for any costs incurred by CDA for replacement and/or retrofitting of the Mickey Mouse heads?

[244] I have found above that there is no evidence upon which to base a finding that there was a duty of due diligence rule or regulation as regards recordkeeping owed by sales representatives to the company, which was breached by the plaintiff.

[245] I have further found that there was no valid or binding indemnification clause that may require the plaintiff to indemnify CDA for all losses caused by any negligent acts or omissions, such as would justify the withholding of the plaintiff's commission as occurred in this case. I have found that such a clause is not the type that would be considered implicit in an employment arrangement, in particular based on the evidence before this Court.

[246] Even had I found the indemnification clause to be an unwritten part of the employment relationship, which I have not found to be the case, there is not sufficient evidence to definitively find that the reason for the need for replacement of the Mickey Mouse heads was due to the error, negligent act or omission of the plaintiff, such that the costs should be borne by the plaintiff and no commission paid to him.

[247] The defendant takes the position that the plaintiff breached his duty of due diligence to CDA by failing to maintain proper records as regards this project, as required by CDA. The defendant further maintains that because the plaintiff was unable to produce written approval regarding the L-brackets and the method of attachment of the Mickey Mouse head to the display, being glue and no bolts/no visible bolts sticking through the front, the error is his fault. They maintain that if he had been able to produce written approval as regards the method of attachment of the Mickey Mouse heads, the customer would have been shown the written approval and would have gone away.

[248] There are several problems with this position. First, based on the plaintiff's evidence, at the time the relationship between the defendant and plaintiff broke down, no method had been fixed upon for attachment of the head. Based on the evidence of the plaintiff, Akzo Nobel had specified no bolts sticking through the front which would affect the Disney "brand". The plaintiff had suggested to Freddy Vega and Vlad Korobchevsky at CDA tapping holes and threading screws into the back of the acrylic head. They indicated that they would get back to the plaintiff with solutions. At the December 20 mock-up review, the two heads (foil and white) were detached, as no solution had been proposed. No CDA document in existence before the Court showed how the head would be affixed.

[249] I am satisfied that the method of attachment had not been fixed by January 8, 2013, when the plaintiff was terminated and cut off from communication with the client. Therefore, no approval could, at that time, be obtained. The finalization of the method of attachment was therefore left to CDA and Mr. Malisch, who had taken over the project. At the time of the relationship breakdown, when Mr. Malisch took over the project, there was nothing to approve as regards the method of attachment of the head. The responsibility for finalizing the method of attachment of the head and obtaining any approvals from the client regarding attachment was that of CDA and Mr. Malisch, not the plaintiff.

[250] Mr. Malisch stated in testimony that everyone knew that no bolts were to be used as of October; the quotation sent to the client did not have bolts, nor did the 26 drawings sent to the client. The quotation and drawings were approved by the client, as was the mock-up prototype reviewed by the client at the meeting on December 20. I do note that two heads were presented at that meeting, neither of which was affixed. CDA was to finalize the aesthetics of the head (foil or silkscreen) and was to propose the methods of attachment in order that the client's approval could be obtained. CDA had not done that by the time that the plaintiff was terminated. It appears that CDA and Mr. Malisch did not follow up thereafter as regards finalization of the attachment of the head and obtaining approval as regards the attachment method. Nevertheless, Mr. Malisch, both in his examination-in-chief and his cross-examination, stated that the 26 pages of drawings would have indicated the method of attachment. The drawings and quotation were approved by the clients. The full set of drawings was not introduced by CDA at the trial, and therefore it cannot be verified what was shown on the drawings as regards the depicted method of attachment. I note further that the final prototype was reviewed by Akzo Nobel and the installer, Crossmark, on February 4 and 5, 2013 and approved by them, well after the plaintiff had been terminated. If written approval of the attachment method was required, the responsibility was that of CDA/ Mr. Malisch to obtain it.

[251] Second, there is no evidence to establish what actually caused the heads to detach from the L-bracket. I note that there was evidence of some damaged ears that would have been replaced in any event. Mr. Malisch testified that it was minimal. There was no evidence as to how many heads had to be replaced or who should have paid (likely the carriers), no evidence as to the cost of those heads that would have been replaced in any event if there had been no error.

[252] There was testimony from Mr. Malisch suggesting that the detachment occurred when carriers incorrectly, and contrary to instruction, stacked packing boxes containing the displays during shipment, and the weight on the displays caused the L-bracket to snap and detach from the head. Was this because of the way the carriers stacked the boxes, which would be the fault of the carriers? Mr. Malisch did testify that the damage to the heads (namely the detachment of the L-bracket from the heads) was minimal in shipping. At one point, he stated that as a result of the detachment, the clients were concerned about the potential for the heads to fall off in the stores and wanted them to be replaced for safety reasons.

[253] As an alternative, the detachment may have been attributable to the type of glue used, which would be CDA's fault. It was the evidence of Philip Bailey and Christine Blackie that glues were being tested for the Walmart project in January. Detachment may have been attributable to CDA having chosen the wrong glue or bonding adhesive. Ms. Blackie testified that there were complaints from the customer of glue smears on the back of the heads, and that the heads had to be replaced because of this smeared glue, which smearing was not acceptable to Walmart and Akzo Nobel. That testimony was refuted by Mr. Malisch. There is no other evidence in this regard.

[254] There is no evidence in support of any of the potential theories regarding detachment of the head. It is not clear whether the detachment may have occurred even if CDA/ Mr. Malisch or the plaintiff had been able to produce a written approval in addition to the notes and documents sent to the client and the prototype reviewed by them.

[255] Further, Mr. Malisch's evidence regarding the cause and detachment of the heads varied throughout his testimony. In Mr. Malisch's cross-examination, prior inconsistent statements from his examination for discovery were put to him, as regards the reason for the detachment of the heads. He clearly stated on three different occasions that the problem arose after the displays had been assembled in the stores and children began grabbing the heads and attempting to hang off them. At trial, he reiterated this and then altered his testimony and attempted to explain away the evidence given on examination for discovery, stating that there had been no actual incidence of children hanging off the displays, but that the client was concerned that this may happen due to heads, which arrived after shipment, detached. The examination for discovery transcripts, however, are clear and do not reflect his version of his testimony at trial. Given the various explanations provided, I do not accept his explanation at trial. The prior inconsistent statements given by him on examination for discovery provide different explanations, were clear, and indicate that the problem occurred in-store after children began to grab the heads and hang from them.

[256] I do not accept the defendant's position that fault can be definitively pinned on the plaintiff rather than CDA, the carriers, or whether the issue was due to performance of the models in the stores when children attempted to grab onto the heads. Based on the evidence before me, the final approval should have been obtained by CDA/Malisch after the plaintiff's termination in any event.

Conclusion

[257] I am satisfied, based on all of the evidence, that the plaintiff, who resides and works in the United States, was not responsible for managing CDA's costs, nor all aspects of the projects he brought to CDA. I am satisfied, based on the evidence, that he was not responsible for purchasing supplies, supervising or overseeing labour, but was responsible for acting as a conduit of communications between the client and CDA. He managed the customer and had control over the costs related to customer-driven changes and their effect on the overall price estimates of projects. Indeed, the evidence shows that when the customer requested changes to the product, the plaintiff would increase the product price to the client based on new cost estimates provided by CDA, in order to maintain his commission rates, and would forward a new quotation to the client for approval. There is no evidence to suggest that he had any control over the manufacturing costs, nor over the labour costs of producing the product.

[258] I am satisfied, based on the evidence before the Court, that the plaintiff had properly fulfilled his responsibilities vis-à-vis the project and the client communications to the time of his termination, including quotations, estimates, timelines and approvals.

[259] While the defendant maintains that the plaintiff failed to obtain the necessary approval from the client as regards attachment of the Mickey Mouse heads, I am of the view, based on all of the evidence, as reviewed above, that the method of attachment (whether glue, bolting, threaded screw or other) was not as yet finalized when the plaintiff was terminated. Thus, all responsibility for finalizing the method and obtaining any needed approval of the method of attachment rested with Mr. Malisch/CDA who took over the Mickey Mouse project.

[260] CDA has claimed that the plaintiff is liable for breach of contract, negligence, negligent misrepresentation and breach of fiduciary duty. It has failed to establish the elements of any of the above allegations. I do not find that the plaintiff, as independent contractor, owed a fiduciary duty to CDA as regards approvals. The evidence does not support such a finding, nor does it establish the necessary elements of such a duty as set forth at Hodgkinson v. Simms.

[261] Nor does the evidence sufficiently or at all establish that the plaintiff was negligent or negligently misrepresented communications to CDA.

[262] Finally, there is no basis, in this case and on the evidence before the Court, to pierce the corporate veil as urged by the defendant. Insight is not a "sham" corporation. It was clearly set up for a valid purpose, namely US tax purposes, as the plaintiff was a US resident, as was known to CDA, and its president, William Malisch.

[263] I find that CDA breached its contract with the plaintiff. The plaintiff is entitled to his commission on the Walmart project which, based on all of the evidence, amounts to $171,937.65 US, or payment of an amount in Canadian currency sufficient to purchase $171,937.65 US dollars in a bank in Ontario listed in Schedule 1 of the Bank Act, plus prejudgment interest and costs.

[264] I find, on all of the evidence that the defendant has failed to establish its counterclaim. That counterclaim is dismissed in its entirety.

Costs

[265] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown, J.

Released: January 12, 2017

COURT FILE NO.: CV-13-483419 DATE: 20170112 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Insight Merchandising LLC Plaintiff – and – 2072223 Ontario Limited Defendant

REASONS FOR JUDGMENT Carole J. Brown, J. Released: January 12, 2017