Court File and Parties

COURT FILE NO.: CV-11-1288 DATE: 20180731 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

V.P.M. MARKETING AND MEDIA CONSULTING INC. and PATRICIA MITCHELL Plaintiffs – and – STEPHEN JENNE, BARBARA JENNE and BAMS MARKETING INC. Defendants

Counsel: E. Bisceglia and A. Di Biase, for the Plaintiffs S.R. Fairley and J. Valler, for the Defendants

HEARD: November 20, 21, 22, 23, 24, 27, 28, 29, 30, December 1, 4, 5, 6, 7, 11, 12, 13, 14 and 15, 2017

JUDGMENT

MULLIGAN J.:

BACKGROUND

[1] This case illustrates the difficulties facing contracting parties when no written agreements are in place. The lack of a succession plan can compound those difficulties if one party passes away.

[2] The Plaintiffs are V.P.M. Marketing and Media Consulting Inc (“VPM”), and its president, Patricia Mitchell (“Patricia”). Patricia’s spouse, David Mitchell Sr. (“David Sr.”), was VPM’s president before his death in July 2010. For a time, their son, David Mitchell Jr. (“David Jr.”) also worked in the company.

[3] The Defendants are BAMS Marketing Inc. (“BAMS” or “BAMS Marketing”), and its shareholders Stephen and Barbara Jenne (“Stephen” and “Barbara”; together, the “Jennes”). David and Stephen had a successful 20-year business relationship in the media consulting industry.

[4] The Defendants also advanced a counterclaim against the Plaintiffs as part of this action.

[5] Both the Plaintiffs and Defendants called experts to assist the court with business valuations and losses on both the claim and counterclaim.

[6] At the trial’s conclusion, I invited the parties to make written submissions. I have now received those. Both counsel provided further submissions on the duty of honest performance between contracting parties, as set out in the Supreme Court of Canada’s seminal decision Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494.

[7] Before I discuss the interaction between these individuals and the difficulties following David Sr.’s death, I will review both the Plaintiffs’ and Defendants’ business structures.

VPM’s Business Structure

[8] David Sr. established his own company VPM in 1991, after being released from his previous position—an executive with a media buying company (the “Previous Employer”). VPM’s only directors were David Sr. and Patricia. Patricia acted as VPM’s Chief Financial Officer and Vice-President. They operated the business continually from an office in their home.

[9] David Sr. used his skill and acumen to attract and retain a small but loyal group of media-buying clients. These clients—including Marineland and Chapman’s Ice Cream (“Chapman’s”)—had substantial advertising budgets to place with media outlets like television stations, radio stations, and outdoor billboards.

[10] Shortly after establishing VPM, David Sr. entered a business relationship with Stephen. Stephen worked at the Previous Employer too, but they had not previously worked together. Stephen’s skill-set included his ability to take a client’s advertising budget and make successful media buys for the client within television, radio, or outdoor billboard outlets to give a client the best possible exposure to its intended target audience.

[11] Patricia became VPM’s president after her husband passed. She was then 63. VPM had no other officers or directors.

BAMS’s Business Structure

[12] Stephen had a background in finance; he graduated from the University of Western Ontario with a Bachelor of Commerce degree. He began his business as a sole practitioner, then established a partnership with his wife Barbara, and eventually incorporated in 2006 as “BAMS Family Inc”, on his accountant’s advice. Stephen always operated from his home. Over time, BAMS’s structure evolved and Barbara’s role expanded.

[13] Stephen acted as a media buyer at the Previous Employer. He testified that he and David Sr. first met there and that he thought David Sr. was a good guy and larger than life. Stephen was about 15 years younger than David Sr.

[14] Barbara also worked for the Previous Employer as a secretary. She began working for Stephen part-time doing office work, including invoices. For several summers she ran a separate business known as “BAMS Bistro”, near their summer cottage.

[15] BAMS Marketing was created by articles of amalgamation on June 30, 2011, about one year after David Sr. passed. The new company amalgamated the Jennes’ two corporations: BAMS Family Inc. and BAMS Bistro Inc.

David Jr.’s Relationship with VPM and the Jennes

[16] David Jr. began working at VPM before his father’s death. He had taken some college courses in media marketing. He continued to work as an employee at VPM after his father passed, primarily from an office inside the Jennes’ home.

[17] Eventually, David Jr.’s relationship with the Jennes broke down and he was asked to leave their home office in 2011. He had some unresolved medical issues. He later came to grips with them, took a college program, and began a new career.

[18] David Jr. used a computer to access all VPM’s files while employed at VPM. Stephen had access to these files when David Jr. left his employment.

David Sr.’s Relationship with Stephen

[19] In 1992, David Sr. invited Stephen to help manage and serve the growing list of clients he was attracting to VPM. They both brought individual strengths to the table.

[20] David Sr. was excellent as the face of the business. He could attract and keep a small but loyal group of clients. He met senior members of his clients for business meetings and social lunches. He met key representatives of media outlets to discuss and arrange his clients’ purchases of advertising spots. His clients, especially the bigger ones, had large advertising budgets. Before David Sr.’s death, the sums available for placement approximated $10 million. When VPM bought ad spots for its clients with media outlets, it earned a commission and sometimes a consulting fee from their client. This became the income stream that VPM and BAMS shared.

[21] Working from his home office on a computer, Stephen’s particular skill was negotiating for and placing ad spots to maximize exposure for VPM’s clients. By negotiating the best prices, Stephen said that they “serviced the heck out of their clients”. Over David Sr.’s and Stephen’s 20-year business relationship, VPM retained and expanded its book of business and their companies shared their revenues.

[22] David Sr. and Stephen were more than business associates; they became close friends. They socialized—sometimes with their families—and travelled together on industry trips and annual fishing trips.

Industry Incentive Trips

[23] Media buyers get a business perk: sometimes media outlets offer trips depending on the ad spot volume bought from them as a reward or incentive to its advertiser, VPM’s client. A VPM client could accept an offer and would often invite David Sr, Stephen, and their spouses on the trip.

[24] David Sr. and Stephen and sometimes their spouses would almost annually travel to Mexico and elsewhere at the invitation of various media outlets and their customers, at no cost to themselves or their companies.

Fishing trips

[25] The friendship between David Sr. and Stephen went beyond industry trips. They both loved fly-in fishing trips. They went on these fishing trips annually and their friendship grew.

[26] Every winter, they attended an outdoor sportsman’s show in Toronto to scout and book their fishing trip for that year at a fly fishing lodge. VPM bought the trips. Sometimes, clients or other friends accompanied them. One year they went to the Amazon river.

VPM’s Marketing Materials

[27] In 1998, Stephen helped design a marketing brochure to present to clients or prospective clients. It explained with clarity his and David Sr.’s respective roles and noted that VPM had two offices one at each of their homes.

[28] The brochure detailed David Sr.’s biography. It indicated his areas of expertise including:

• Development of innovative buying procedures
• Client service
• Negotiating corporate contracts
• Staff training
• Supervision of media planning and negotiating
• New business development
• Financial accountability

[29] The brochure also included Stephen’s biography. It indicated that he joined with David Sr. to create a “better media product” for VPM’s clients. It listed his areas of expertise as:

• Media planning and negotiating
• Staff training
• Corporate forecasting
• Media research and development
• Client service

[30] The brochure also included Barbara’s biography. It indicated that she was a marketing and media consultant with expertise in administration, media planning, computer technology, and presentation enhancements.

The Business Arrangement

[31] As far as their clients or the media outlets were concerned, VPM provided a full service. But David Sr. and Stephen kept their business entities separate. They each operated from home offices, did their own banking, and paid their own companies’ bills. Neither of the Jennes were ever issued a T4.

[32] David Sr. and Stephen entered a verbal agreement that they would share earned commissions from their customers: 55 percent went to VPM and 45 percent to Stephen.

[33] They operated under this arrangement for 20 years. It was lucrative for both companies. Before David Sr.’s death, BAMS was earning approximately $300,000.

[34] BAMS’s counterclaim submits that VPM did not fully disclose or accurately disclose VPM’s earned income and therefore did not apply the 55/45 percent split to all income. I have more to say about this counterclaim in these reasons that follow.

[35] Stephen used a business card with a VPM logo. It listed his own phone numbers and home office address. It did not show his exact title. His email address was steve@vpmmarketing.com.

[36] As VPM’s CFO, Patricia managed the home office, and tracked all GST and office expenses. She received invoices from media outlets for VPM’s ad spot purchases on its clients’ behalf. Because these purchases were based on Stephen’s ad spot buys, Patricia forwarded the invoices to him to check and review. After his approval, she could pay them. She gave their accountant documents to prepare annual unaudited financial statements. With David Sr.’s approval, she paid Stephen or BAMS the agreed 45 percent share from the revenue from VPM clients.

[37] Stephen played no role in VPM’s accounting. Stephen or BAMS paid expenses for his home office and paid his and Barbara’s wages. Patricia looked after all VPM’s expenses, including rent, office supplies, telephone, travel, and entertainment. I note that VPM paid all Stephen’s travel expenses from its own 55 percent share. David Sr. used his vehicle extensively in his role for VPM. VPM also paid those expenses from its 55 percent share. David Sr. and Stephen did not share information about their own companies’ income or expenses.

VPM’s Credit Arrangements

[38] VPM established significant credit arrangements with media outlets over a 20-year period. Credit was required because VPM acted as an agent to book their clients’ ad spots with television, radio, and billboard outlets. After booking spots, a client’s advertising campaign ran. The media outlet—who had no direct contractual relationship with VPM’s client—then billed VPM for the cost of these spots. On receipt of this bill, VPM then billed its client. Once it received money from the client, it paid the media outlet.

[39] VPM’s credit arrangements enabled it to conduct business without needing to use bank financing or its own financing. As media buyer and negotiator, Stephen did not need any credit arrangements with the media outlets that he dealt with on VPM’s behalf.

[40] Clients generally met David Sr, but sometimes Stephen participated in meetings. The clients were unaware of their separate business arrangements. Clients dealt with both in their respective capacities. Stephen presented his own VPM business cards, as described above, to clients and media outlets. David Sr. and Stephen were able to provide a seamless media buying service to VPM’s clients.

The Effects of David Sr.’s Death

[41] David Sr.’s unexpected death was a shock to his family and the business community. It was also a shock to Stephen, whose close relationship with David Sr. was undisputed.

[42] David Sr.’s and Stephen’s customers and clients knew about their close business relationship. Their VPM business cards, trips, and socialization made their closeness clear. Clients and media outlets may not have known their precise business arrangement, but they knew that they obtained excellent service from VPM due to their combined strengths. Further closeness of their relationship was illustrated when Stephen delivered a eulogy at David Sr.’s funeral. One of Stephen’s emails to a client stated, “[u]nfortunately, my business partner passed away”.

Maintaining clients

[43] It was important to Patricia and Stephen that the existing client based be seamlessly maintained after David Sr.’s death. This spirit of cooperation was expressed in a draft press release to clients prepared for their consideration. It stated:

We would also like to assure you that there is an existing team in place to provide the necessary continuity during the coming transition period. [Patricia] is fully conversant with the billing and administrative details of all accounts, [Stephen] has over 30 years’ experience in media planning and buying since his early days with [David Sr] at [the Previous Employer] and he is personally been involved in the buys of every client account. David Jr. has been actively involved in several client accounts up until now, and has already taken over lead position in some accounts. As his father has planned David Jr.’s role in responsibilities will increase in the future… While growth with remain a long-term goal for our company in the future, our immediate goal now is to deliver outstanding service to our existing client base.

[44] As introduction to that press release, Patricia sent an email dated August 14, 2011, stating:

Please find attached an important press release. Over the next short while, V.P.M. will be contacting all of our valued customers and media partners to update you on some exciting new developments. In the meantime, if you would like to contact me directly, please don’t hesitate. At V.P.M. it’s “business as usual”. We trust that we can count on you for your continued support.

[45] Stephen sent a notification to some clients on August 25, 2010. It provided in part:

We would like to express our heartfelt appreciation for the tremendous outpouring of affection and kindness we have received on David Sr.’s sudden passing. Your support has been a great comfort to us in this difficult time.

The service of his clients was always top priority for David and in that spirit we would like to assure you that business at V.P.M. Marketing will continue with little or no disruption. Although David’s absence will most surely be felt, the caring, personal service that has always been the hallmark of this company will continue in the future. The following is synopsis of the new V.P.M. team…

Meeting Between Stephen and Patricia

[46] At a brief meeting a few days after David Sr.’s death, Patricia and Stephen agreed to try carrying on the business in a similar fashion for one year. Patricia would continue as CFO. Stephen would continue preparing and purchasing ad spot buys for their existing clients and take on David Sr.’s additional duties as the face of the company. Stephen testified that Patricia said at that meeting that “[y]ou will always have a job with us”. VPM’s credit arrangements with media outlets remained unaltered. Patricia continued working from her home office, and Stephen and Barbara continued to work from theirs. It was unclear to both at the outset if all clients would stay with VPM, but they did.

[47] Barbara quit her summer job running BAMS Bistro and began working full-time to help Stephen as a marketing consultant. Before that, she only helped Stephen part-time.

[48] Before his father’s death, David Jr. had taken community college marketing courses and began assisting his father in a junior role on business trips and meeting with clients. He was paid as a VPM employee. He received a T4 slip and was reimbursed by VPM for any mileage or travel expenses.

[49] After his father died, David Jr. began working at Stephen’s home office to help the business. VPM continued to pay him.

[50] David Jr. developed some health issues, however, requiring his hospitalization and some absence from the office. While working at the Jennes’, he had three seizures. The Jennes became concerned because some of these seizures occurred in front of their children. This led Stephen to email David Jr. an ultimatum on March 5, 2011, stating, “if there is another seizure, then you’ll have to find a different job so going off your medication is not an option”.

[51] In April 2011, David Jr. had another seizure at the Jennes’ home. He was taken to the hospital. He never returned to work at Stephen’s home office, nor for VPM. He returned to college and found successful employment in a new career. The VPM clients for whom David Jr. had worked were notified as needed. For example, Stephen emailed one client on May 16, 201l, stating, “[p]lease take David [Jr] off your email list. He no longer works here.” David Jr.’s departure had no effect on the client base.

The 2010/2011 Business Arrangement

[52] After David Sr.’s death, the business arrangement continued successfully. Patricia continued as CFO while Stephen continued buying ad spots and servicing of all existing clients, with Barbara’s help. No VPM clients left after David Sr.’s death. This was undoubtedly because clients continued receiving the same level of service from VPM. Stephen adequately filled David Sr.’s shoes as the face of the company by taking a more active role in client relations.

[53] Consistent with her previous role, Patricia had little, if any, direct contact with clients. Patricia and the Jennes continued enjoying industry incentive trips. For example, Before Christmas 2011, they went to Germany.

[54] Patricia gave Stephen an unsolicited $10,000 bonus in Christmas 2010. She also gave him a canoe. She gave smaller cash bonuses to Barbara and the Jenne children. Patricia continued paying Stephen 45 percent of revenue. The parties did not discuss changing the financial arrangements. But Stephen was clearly working harder now to maintain close contact with clients and media outlets, in addition to his previous role preparing and booking marketing campaigns for the VPM clients.

The Deteriorating Relationship

[55] The relationship between Patricia and Stephen began deteriorating by May 2011. Two brief meetings that month—neither of which changed the business relationship - eventually led to Stephen terminating his relationship with VPM in August 2011. After this break-up, virtually every VPM client continued dealing with BAMS and ceased dealing with VPM.

[56] Crucial to this case is what happened at those meetings along with the steps Stephen took in the months before terminating the relationship with VPM. The financial implications for both companies was profound. For the financial year-end June 30, 2011, just before this termination, BAMS’s gross margin income was $294,732. One year later, it doubled to over $600,000. Meanwhile, VPM’s income dropped significantly because all the larger clients transferred their business to BAMS.

The First May Meeting

[57] The parties held an unplanned meeting on May 2, 2011. At this point, Patricia was attending the Jennes’ home twice or thrice weekly to deliver business-related invoices and mail.

[58] Patricia testified that this meeting was the first time in the nine months since her husband passed that Stephen expressed dissatisfaction with the business relationship. He wanted to move out of his home office and hire someone. She understood they were working very hard but there was no discussion about changing their 55/45 split. In cross-examination, she indicated that if Stephen hired someone to assist him with the office administrative work, she would have paid it out of VPM’s 55 percent. She did not agree, however, to his request to move his office from his home as an expense that VPM would cover.

The Second May Meeting

[59] A week later, Patricia and Stephen held another spontaneous meeting. She understood that they could not continue working at their current pace and offered the name of an experienced person she thought could work for them and help service VPM’s clients. The Jennes did not follow up on the name Patricia provided them.

[60] Patricia testified that Stephen wanted her to retire because she was making too much money. He expressed at this meeting that he wanted control of the company and she could live on VPM’s remaining retained assets. Patricia testified that she had no intention of retiring. She stated that she left crying, thinking that Stephen would take the business away from her. Neither she nor he testified that Stephen held any knowledge about VPM’s retained assets.

[61] Stephen testified that he could not continue with the relationship given the amount of additional work he was doing. He was prepared to offer Patricia a package and expected that she would come back after speaking to her advisors. He felt that she was an absentee president and their financial arrangements needed to be discussed.

The Termination Letter

[62] In July 2011, the parties engaged lawyers. A series of correspondence followed but no agreement was reached.

[63] Patricia testified that she proposed a meeting with the Jennes and with their lawyers present for July 12, 2011. The Jennes cancelled this meeting.

[64] It is unnecessary to review the entire correspondence between the lawyers. But BAMS’s solicitors wrote a letter dated July 14, 2011, and made a “without prejudice” offer to pay Patricia $4,000 monthly for 12 months ($48,000 total) in consideration of her retirement. Stephen testified that he thought an agreement would be reached. On July 26, 2011, VPM’s solicitors responded: “[p]lease advise your client that it is business as usual until there is an arrangement to the contrary”.

[65] On August 9, 2011, VPM’s solicitors indicated that the $48,000 offer was unacceptable, and that Patricia instead hired an individual, Sean Delaney (“Delaney”), to assist VPM.

[66] The next day, August 10, BAMS’s solicitors sent a letter withdrawing their $48,000 offer and terminated its relationship with VPM (the “Termination Letter”). That same day and in the days that followed, most of its clients began notifying VPM that they no longer required its services. Instead they would do business with BAMS.

Stephen’s 2011 Pre-Termination Steps

[67] Before the Termination Letter, Stephen took certain steps to solidify his own business arrangements. It is important to review those steps.

[68] Traditionally, during David Sr.’s and Stephen’s business relationship, invoices were sent to David Sr.’s home office. In March 2011, Stephen began redirecting mail to his home address—8 Nicholson Cres., R. R. # 3, Minesing, Ontario (the “Jennes’ Address”).

[69] In an exchange about rink board advertising, Stephen emailed the Township of Georgina on March 18, 2011. In that email, he listed the Jennes’ Address as the billing address, and the addressee as Beauty Supply Outlet, a VPM client. Patricia was unaware of this.

[70] A similar address-change letter was sent to Urban Radio about a VPM customer, First Choice Haircutters (“First Choice”).

[71] In an email exchange with CBC Radio about VPM’s client Crossroads TV, Stephen asked that, “[a]ll contracts and invoices will be sent to V.P.M. Marketing” at the Jennes’ Address.

[72] Stephen emailed Rogers on May 17, 2011, asking “[h]ow do I get the billing address changed for V.P.M. so all invoices and contracts come to me? I want this done on the entire Rogers’ system so TV radio, TV listings, etc., invoices all come to me…”.

[73] By May 17, Barbara used this signature for her email: “Barbara Jenne, Media Consultant, V.P.M. Marketing and Media, c/o BAMS Marketing Inc., [the Jennes’ Address]”. As I will describe shortly, BAMS Marketing was not incorporated until June 30, 2011. Noteably, earlier emails from Barbara made no reference to BAMS Marketing. For example, her email dated August 30, 2010, simply read, “Barbara Jenne, Media Consultant, [the Jennes’ Address]”.

[74] On May 18, Stephen emailed Todd Train of Sun TV, stating:

Before you go, can you make sure your accounting computer has the correct billing address for all V.P.M. clients? I want all contracts and invoices to come directly to me. The correct address is [the Jennes’ Address].

[75] On May 27, Stephen received an email from Paul at Objective Broadcast, who asked, “[s]o, are you running the whole show on your own? I guess Barb is helping? It must have been an interesting conversation with Pat but she had to understand…”. On May 30, 2011, Stephen replied, “[y]es, Barb and I are doing everything. The clients love Barb. She does not realize it yet but she is becoming a front person of V.P.M”.

[76] On June 20, Barbara emailed Stephen, showing logo options for use as “BAMS Marketing”.

[77] On June 30, the Jennes amalgamated their two corporations into one. This marked the first time that the Jennes incorporated the word “Marketing” into their corporate name. Patricia was unaware of this amalgamation.

[78] On July 6, an email from Barbara indicated that she was seeking office rental space. She described herself on that email as “Barbara Jenne, Media Consultant, BAMS Marketing Inc., [the Jennes’ Address]”. Her signature line no longer referenced VPM.

[79] On July 6, Stephen received an email from Bell Media with a credit application. BAMS had no prior need for credit arrangements; credit was extended exclusively to VPM by media outlets. Patricia was unaware that Stephen sought credit arrangements for BAMS.

[80] On July 6, Barbara emailed a design consultant about proposed business cards for BAMS. The proposed business card described her as Vice-President and Stephen as President of “BAMS Marketing Inc., [the Jennes’ Address]”.

[81] On July 7, Barbara emailed her design consultant about the business cards as follows: “[a]s we are changing everything over to BAMS Marketing, I just set up new email addresses so the business cards need to be changed as follows: steve@bamsmarketing.ca and barb@bamsmarketing.ca .”

[82] On July 12, emails from a commercial landlord at the Kozlov Centre indicated that the Jennes were moving ahead with new office premises. An email to Barbara stated:

Let me know the time schedule you are in and maybe we can give you a free period of time to help you in your transition. Let’s say that you can move in July after we get the wall and plumbing done and then August rent free and September half rent, and full rent starting in October? How does that sound?

[83] On July 15, Barbara received a letter from her commercial landlord at the Kozlov Centre with an offer to lease commercial space, starting August 15, 2011. The Jennes accepted the offer and submitted a cheque for the first and last month’s rent deposit. Patricia was unaware of this.

[84] On July 25, Stephen received a credit application from Rogers.

[85] On July 27, Barbara submitted a credit application to Shaw Media (“Shaw”), indicating that BAMS had been in business for 20 years. In it, BAMS listed two VPM clients as credit references: First Choice and DDrops.

[86] On July 27, Barbara sent a credit application to CHCH Television.

[87] On July 27, Stephen sent a series of emails to media outlets stating: “For Chapman’s, can you ensure that the contracts invoices are sent to [the Jennes’ Address]”.

[88] On August 4, DDrops was asked to provide a credit reference to Shaw for BAMS. Shannon Fisher of DDrops Company provided this caveat in her response:

I received a credit reference request from you regarding BAMS Marketing Inc. The payment information you require is not applicable in our situation as this company (BAMS) was our vendor not our customer. However, the company provided excellent customer service and we were extremely pleased with their product.

[89] During this time, Patricia was completely unaware that VPM clients were asked to provide credit references for BAMS.

[90] On July 27, Stephen emailed this explanation to David Clark (“Clark”) of Shaw, misstating the state of BAM’s relationship with VPM:

I have been working with an agency for many years now, called V.P.M. Marketing that was based in Oakville and Minesing, Ontario. Last summer at this time actually, the key principal of V.P.M., [David Sr], had a massive heart attack and passed away suddenly. This left his partner, [Stephen] to run the business. Dave’s wife, [Patricia], has been staying on to help smooth out the transition, and Steve’s wife, [Barbara], returned to business to level out the load. Pat Mitchell is retiring now and Steve and Barb Jenne are renaming the business into BAMS Marketing.

[91] On August 5, Stephen emailed Clark describing his address as follows: “Stephen Jenne, President, BAMS Marketing Inc., [the Jennes’ Address]”.

[92] On August 9, Stephen emailed Clark and Paul Macerollo of Bell Media asking if BAMS’s credit application was accepted.

[93] In the Termination Letter of August 10, BAMS stated through its legal counsel:

Please be advised that BAMS Marketing Inc. hereby withdraws its offer set out in our letter dated July 14, 2011 and hereby terminates and severs any and all ties with V.P.M. Marketing Inc. effective immediately.

[94] On August 10, Barbara prepared letters for VPM clients to sign which terminated that client’s relationship with VPM. As BAMS’s Vice-President, Barbara prepared these for the client to sign and send to VPM at Patricia’s residence. The letter Barbara prepared for signature by Athena Kalkanis, First Choice’s Brand Manager (“Kalkanis”), stated this:

We are writing to advise you that, effective immediately, First Choice Haircutters will no longer require the services of V.P.M. Marketing and Media Consulting Inc. … Stephen and Barbara Jenne have been, in our minds, our agency for the past year and we are very satisfied with the services that they provide…

[95] I note that Kalkanis’s actual signed letter to VPM was dated August 8, 2011. Barbara testified that this was a typing error and that the proper date should have been August 10.

[96] Barbara prepared a similar letter, also dated August 10, for Susan Jankus, DDrops’s Director of Sales and Marketing. Barbara’s emailed instructions stipulated:

I have another letter that I was hoping you could sign. This one is for the stations so they know that we are the agency of choice. Again, if you could put it on your letterhead and email it back, I can send it to all the stations. If you want to make any changes, please feel free.

[97] Barbara prepared three other similar letters dated August 10, for the following signatures: Alexandre Rehayem, Marketing Manager for Summerfresh Salads; Patsy Farley-Pope, President of Farleyco Marketing Inc; and Mary Breedon of Chapman’s.

[98] Patricia had no knowledge of these steps.

[99] On August 10, the representatives from First Choice, DDrops, signed the letters, placed them on their company letterhead, and returned them to Barbara. Summerfresh Salads also signed and returned their letter as prepared. Barbara began distributing the letters to various media outlets.

[100] On August 10, Stephen began emailing clients indicating his new email address was “steve@bamsmarketing.ca” and that “[t]he V.P.M. Marketing address no longer works”.

[101] On August 11, Stephen emailed Linda Clayton of CBS Outdoor Signs, stating, “[s]o far every client is coming to my company. V.P.M. may have no clients by the end of the week”.

[102] On August 15, Stephen emailed a representative of Canadian Traffic Network stating, “Barb and I quit because the Mitchells hired Sean Delaney and David LoFranco”.

[103] On August 26, among other similar notifications that VPM received, Kando Advertising Inc (Marineland) notified VPM that they no longer required their services, effective immediately.

[104] Patricia tried to stave off the exodus of VPM clients. On August 11, she prepared an email press release for mass circulation to VPM’s clients and media partners. It provided in part:

Effective immediately, Sean R. Delaney is appointed Managing Director of the company. Sean Delaney has 26 years of advertising sales, management and business development experience within television advertising and marketing at Canada’s leading broadcast network, CTV. … V.P.M. Marketing also announces a new operating agreement with DDR Media of Toronto. DDR Media is a boutique advertising and marketing agency established in 1995 by Dave LoFranco…

[105] The following chart details in sequential order the dates and respective actions taken by Patricia, Stephen, and their counsel:

July 2010 President of VPM David Sr. passes away.

July 2010 Patricia and Stephen meet and agree to continue David Sr.’s and Stephen’s existing business relationship, with Stephen’s role expanded to take on most of David Sr.’s duties.

December 2010 Patricia pays Stephen a $10,000 bonus.

March 2011 Stephen begins the process of redirecting VPM mail to the Jennes’ Address.

May 2, 2011 Patricia meets Stephen at his home office. He requests that the office be moved from his home.

May 16, 2011 Patricia and Stephen hold a further meeting, where he invites her to retire from the company.

May 17, 2011 In her email address, Barbara Jenne first references a company yet to be incorporated, “BAMS Marketing Inc”.

May 18, 2011 Stephen continues redirecting VPM mail to the Jennes’ Address.

May 22, 2011 Stephen emails a media outlet: “Yes, Barb and I are doing everything.”

June 20, 2011 The Jennes develop logos for an entity known as “BAMS Marketing.”

June 30, 2011 The Jennes amalgamate their two companies into BAMS Marketing.

July 6, 2011 Barbara begins seeking office rental space, describing herself as “Media Consultant, BAMS Marketing Inc”.

July 6, 2011 Stephen requests and receives a credit application from one of VPM’s media outlets, Bell Media.

July 6, 2011 Barbara emails a design consultant with respect to proposed business cards for BAMS Marketing.

July 12, 2011 The Jennes receive an email from a commercial landlord indicating that new office premises are available. The Jennes subsequently accept an offer to lease, commencing August 15, 2011.

July 2011 Both parties engage the services of lawyers.

July 14, 2011 BAMS sends a without prejudice letter to Barbara offering to pay her $4,000 monthly for one year months in consideration of her retirement.

July 26, 2011 VPM’s solicitors reject the Jennes’ offer, stating: “Please advise your client that it is business as usual until there is an arrangement to the contrary.”

July 27, 2011 Stephen emails one of his media contacts stating in part: “Pat Mitchell is retiring now and Steve and Barb Jenne are renaming the business into BAMS Marketing”. Afterwards, Stephen continues pursuing media credit applications.

August 9, 2011 VPM’s solicitors reject the Jennes’ $48,000 retirement offer and indicate that Barbara hired Delaney to assist VPM corporation.

August 10, 2011 BAMS’s solicitors withdraw the retirement offer and indicate that BAMS is terminating its relationship with VPM.

August 10, 2011 Barbara sends draft resignation letters to VPM clients for their acceptance and return. Several VPM clients immediately sign the letter as drafted on their corporate stationary and send it to VPM.

August 11, 2011 Patricia drafts a press release to circulate to VPM clients and media partners announcing its new operational plan.

December 29, 2011 The Plaintiffs issue the statement of claim for this case.

February 24, 2011 The Defendants issue their statement of defence and counterclaim.

[106] I pause to note that after the termination letter, the Jennes moved their office from their home to the Kozlov Centre office. Two and a half years later, they moved the office back to their home. Significantly, the Jennes did not hire any additional support staff.

Sean Delaney

[107] Stephen testified that he sent Patricia a Termination Letter on August 10, 2011, when she advised him that she hired Delaney. Delaney testified at trial. He was David Sr.’s friend and business acquaintance for many years. They had a business and social friendship.

[108] Delaney worked at CFTO as a sales representative for 25 years. During that time, he had numerous interactions with David Sr. when VPM bought ad spots from CFTO. Delaney was familiar with VPM’s major clients, including Marineland and Chapman’s. He knew of Stephen’s work with VPM, but most of his contact was with David Sr. He attended several fishing trips with David Sr. and Stephen. His closeness to David Sr. was apparent when he, too, delivered a eulogy at the funeral.

[109] Patricia testified about reaching out to Delaney to assist her with VPM’s business in July or early August 2011. Based on her meetings with Stephen, she felt she was losing the company. She knew Delaney was a friend who could help her to carry on the work her husband had done for VPM. She knew Delaney was not a media buyer, which was Stephen's traditional role with VPM.

[110] Delaney testified that Patricia called him and he agreed to help retain VPM clients. He had a full-time job and did not anticipate resigning from that position while helping Patricia. Accordingly, he agreed to work part-time for $10,000 monthly, which continued over five months. During this time, he met with several major clients of VPM, including Marineland and Chapman’s, to no avail. The clients transitioned to BAMS almost immediately after BAMS invited them to on August 10, 2011.

[111] After five months, Delaney discontinued working for Patricia. Almost every client had left VPM and it made no economic sense to continue working for her. It is useful to note, however, that Patricia was prepared to pay him $10,000 monthly, the equivalent of $120,000 yearly, on a part-time basis to fulfil David Sr.’s previous role.

Stephen’s Expanded Role and Relationship with the Kalkanises

[112] As noted above, it was expected after David Sr.’s death that Stephen would fulfil the role of the face of the company, along with his existing ad buying duties. He did so.

[113] Under this expectation, Stephen would meet representatives of every VPM client, and socialize and travel with them. The Jennes accompanied by Patricia and David Jr. travelled to Rhine, Germany in October 2011 as guests of one media outlet. First Choice’s Kalkanis and her spouse (together, the “Kalkanises”) also attended this trip.

[114] The Jennes called Kalkanis to give evidence at trial. As expected, after David Sr.’s death, Stephen and Barbara developed a business relationship with Kalkanis, which expanded into a personal relationship with both Kalkanises. The two families socialized together. The Kalkanises were guests at the Jennes’ cottage in July 2011. They continued traveling together, long after First Choice moved its business to BAMS.

[115] Kalkanis’s evidence gives insight about how quickly and fluidly the clients’ transitioned from VPM to BAMS when Stephen terminated his relationship with VPM.

[116] By email dated July 13, 2011, the Jennes invited the Kalkanises to their cottage for the following weekend. (I note here that just before the cottage weekend, BAMS’s solicitors proposed that Patricia retire.) As noted above, First Choice ended its business with VPM in favour of BAMS. Kalkanis testified that they did not discuss changing their business relationship over the cottage weekend.

[117] After this, the Jennes’ and Kalkanises’ personal relationship grew stronger. The two families travelled to Paris in 2012. Stephen also obtained tickets and other perks for Kalkanis’s husband.

[118] As noted above, Barbara prepared several draft resignation letters for VPM clients a few weeks later. One was prepared for First Choice. A draft of that letter filed as an exhibit was dated August 8, 2011. Barbara said this was a typographical error in her drafting. Ultimately, the letter was dated August 10, the same day the Jennes ended their relationship with VPM. Kalkanis’s evidence on cross-examination, however, indicated that she knew about the business change before August 10. The following questions and answers in her examination-in-chief illustrate the point:

Q : You learned that Steve and Pat were parting ways? A : Yes. Q : How did you learn that? A : Steve called me. Q : Where were you? A : In my office. Q : How was the decision made to hire BAMS? Did you do it on your own? A : No. I spoke to my senior manager. Q : Do you recall receiving this? [August 10 email from Stephen to Kalkanis with draft resignation letter for Kalkanis’s signature] A : Yes. I received that. Q : Do you recall when you received it? A : There is a date on it. Q : Do you know when you received it? A : A day or two after the call. Q : Can you say whether you received it before or after? A : I did not receive it before. Q : Do you know who drafted it? A : I believe that Barbara drafted it. Q : Were you expecting to receive it? A : We talked about it.

[119] The timing of the emails to Kalkanis and the swiftness of her response is telling:

(a) Stephen sent the draft resignation letter on August 10 at 10:19 am. (b) Barbara sent a draft letter for all media at 10:40 am. (c) By 11:00 am, Kalkanis had scanned the letter on First Choice letterhead and returned it to Stephen for approval, stating: “Is this okay or do you want me to print it in a Word document with our logo? Let me know.” (d) At 11:20 am, a copy of the signed letter was emailed to VPM and addressed to david@vpmmarketing.com.

Stephen’s Credibility

[120] Stephen testified at trial that he terminated his relationship with VPM because Patricia hired Delaney. He also testified that, when he quit, he had no future plans; he might even have to work at Tim Horton’s. I do not accept his evidence on these points for the following reasons:

(a) Well before his Termination Letter, Stephen and Barbara took steps to (i) establish their new marketing company, (ii) make credit arrangements, (iii) change the corporate name, (iv) change the mailing address on documents from VPM to BAMS, (v) arrange and secure new office premises, and (vi) amalgamate their two companies into BAMS Marketing. (b) Patricia hired Delaney fill David Sr.’s shoes at VPM’s expense. Such a hiring would not have interfered with Stephen’s traditional role as media buyer; however, it would have required that he step back from his new expanded role. (c) Stephen’s assertion about having no future plans and perhaps seeking employment at Tim Horton’s belies his credibility. By the time he quit working with VPM, he had spent months becoming the face of VPM with its clients. While that was expected from his initial agreement with Patricia, it was unexpected that he would establish BAMS Marketing with credit from the same media outlets that had extended credit to VPM for years. Patricia knew nothing about the steps Stephen took. (d) Kalkanis testified that she knew about BAMS’s plans before receiving the email on August 10. The swiftness of her signing and returning on her company’s letterhead suggest she held a considerable amount of prior knowledge. (e) It is telling that Stephen wrote a media representative on August 11 saying “VPM may have no clients by the end of the week” one day after his Termination Letter.

THE PLAINTIFFS’ CLAIM

[121] The Plaintiffs claim damages for breach of contract, and/or breach of fiduciary duty, and/or interference with economic relations. They also claim punitive damages.

[122] In their closing submissions, the Plaintiffs succinctly set out the issues for determination, summarized as follows:

(a) What was the nature of the relationship between the parties? (b) Did the Jennes stand in a fiduciary relationship with VPM? (c) If so, did the Jennes breach their fiduciary duty by (i) improperly soliciting clients, (ii) improperly competing with VPM, and (iii) improperly misusing confidential information from VPM?

[123] In advancing its theory of liability, the Plaintiffs submit that the Jennes were VPM’s employees, or alternatively, they were “dependent contractors”. In either case, they owed VPM a fiduciary duty.

[124] In the alternative, the Plaintiffs further submit that the Jennes breached their common-law duty of good faith to act honestly in dealings with VPM. As a consequence, the Plaintiffs submit that they are entitled to damages.

[125] The Defendants submit that the Jennes were not employees of VPM. Rather, their relationship was a partnership or a contractual association.

[126] Regarding the submission that the Jennes were dependent contractors, the Defendants submit that this argument was raised nowhere in the pleadings, and not until closing submissions. In any event, the Defendants submit that no dependent contractual relationship existed.

[127] The Defendants deny the existence of a fiduciary relationship. Alternatively, if there was one, it was not breached on this case’s facts. Further, the Defendants submit that any fiduciary obligation they had terminated when they ended their relationship with VPM.

[128] I am satisfied that the Jennes were not VPM employees, according to well-established principles set out in the Supreme Court of Canada decision, 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983 at para. 45. The following points help me reach that conclusion:

(a) VPM did not remit any source deductions or administer payroll for the Jennes; (b) The Jennes owned and maintained their own office premises and equipment; (c) The Jennes had their own partnership and corporate structure without VPM’s involvement; (d) The Jennes received commissions from VPM based on the level of business income that VPM achieved; and, (e) The Jennes paid their own expenses for their premises and office expenses.

[129] I do not accept the Defendants’ submission that the Plaintiffs improperly pleaded their claim that the Jennes were dependent contractors. Pleadings should be read generously. In their claim, the Plaintiffs claimed damages for breach of contract and/or breach of fiduciary duty. They set out in the claims’ para. 14: “Regardless of how the employment relationship is characterized between the defendants and V.P.M., it was a relationship of trust, confidence and good faith akin to a fiduciary relationship”.

ANALYSIS: THE PLAINTIFFS’ CLAIM

Stephen was a Dependent Contractor, not an Employee or Independent Contractor

[130] In McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916, [2009] O.J. No. 5489, the Court of Appeal explored the issue of whether an individual was an employee or a dependent contractor. On the facts of that case, the Court determined that the individual was not an employee but fell into a category known as “dependent contractor”. The Court provided this guidance at para. 30:

I conclude that an intermediate category exists, which consists, at least, of those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity. Workers in this category are known as “dependent contractors” and they are owed reasonable notice upon termination.

[131] The Court also considered exclusivity in the business arrangement, stating at para. 34 that exclusivity might be a “‘hallmark’ of the dependent contractor category vis-à-vis the broader category of contractors.”

[132] In Keenan v. Canac Kitchens Ltd., 2016 ONCA 79, 29 C.C.E.L. (4th) 33, the Court of Appeal considered the issue of whether an individual was a dependent or independent contractor. The Court observed the following at paras. 24-25:

The trial judge observed that, in the jurisprudence leading to a recognition of the intermediate category of dependent contractors, a finding that the worker was economically dependent on the company due to complete exclusivity or a high level of exclusivity weighed heavily in favour of the conclusion that the worker was a dependent contractor.

In my view, this observation is not only correct, it is vital to understanding how the question of exclusivity is to be approached. Exclusivity cannot be determined on a "snapshot" approach because it is integrally tied to the question of economic dependency. Therefore, a determination of exclusivity must involve, as was done in the present case, a consideration of the full history of the relationship. It is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity.

[133] In this case, it is plain and obvious that a contractual relationship existed between David Sr. and Stephen—or their companies—for 20 years. Stephen was not an employee, but I am satisfied he was a dependent contractor. The following points assist in that determination:

(a) Stephen worked exclusively for VPM for 20 years; and, (b) Stephen’s income was solely based on the media buys he placed for VPM’s clients.

Stephen Stood in a Fiduciary Duty Relationship with VPM

[134] It is well settled that fiduciary duties can apply to contractors as well as employees. In Professional Court Reporters v. Carter, [1993] O.J. No. 673 (Ont. Gen. Div.), Ferguson J. touched on this point at para. 15: “The caselaw has also established certain duties owed by some persons who have a former relationship which is not one of employment”.

[135] More recently in 720014 Ontario Inc. v. 7669623 Canada Ltd., 2016 ONSC 3201, 266 A.C.W.S. (3d) 721, Myers J. stated at para. 2:

The plaintiff has established a serious issue to be tried as to whether the defendant Macklin and his company owed fiduciary duties to the plaintiff. While Mr. Macklin says that his company was an independent contractor to the plaintiff, he concedes that he functioned as the "de facto general manager" of the plaintiff's business. The interposition of a corporation does not prevent the recognition of fiduciary duties any more than it prevents a claim by the contractor for damages for lack of notice of dismissal. The court will look at the substance of the relationship rather than its form [citations omitted].

[136] The Defendants’ closing submissions summarized the relevant principles to consider from Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592 (S.C.C.):

(a) The nature of the relationship between the parties; (b) The job function and the responsibilities being performed; (c) The varying degrees of trust, confidence and reliance given to the employee; and, (d) The corresponding vulnerability or dependency of the employer to competition when the person leaves.

[137] In GasTOPS Ltd. v. Forsyth, [2009] O.J. No. 3969 (Ont. S.C.), Granger J. explained at para. 109 that:

[F]iduciaries are not expected to be beholden to their former employer for an indefinite period of time, but it is expected that they will maintain their fiduciary duty post-employment for a “reasonable period”. Certainly during that “reasonable period”, a fiduciary is precluded from competing directly with the former employer and from exploiting corporate opportunities developed during that employment [citations omitted].

[138] In Cygnal Technologies Corp. v. Taylor, [2005] O.J. No. 3093 (Ont. S.C.) at para. 23, McMahon J. incorporated this phrasing from Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd., 1996 ABCA 169, [1996] 7 W.W.R. 736 (Alta. C.A.):

The duty of a departing fiduciary employee subsists for as long after his termination as is reasonable in the circumstances to enable the former employer to himself contact his clients and attempt to retain their loyalty. The length of period will obviously be affected by the nature of the position held by the departing employee. Generally, the higher the level of trust and confidence reposed in the employee, with corresponding vulnerability of the employer, the longer the period will be.

[139] In my view, Stephen stood in a fiduciary relationship with VPM. He exploited that relationship to immediately double his company’s income while leaving VPM virtually no clients and income. The following points help me reach that conclusion:

(a) Patricia was a vulnerable person who had complete trust in Stephen. She was VPM’s office manager but had no direct contact with its clients. She allowed Stephen complete access to those clients. He had access to all the computer records through David Jr.’s computer; (b) Although the parties agreed to try the new relationship for one year, Stephen took steps months before that year’s expiry to appropriate VPM clients to his own company. More specifically, he took the following steps all without notice to Patricia: (i) He had mail from VPM clients and media outlets readdressed directly to his home, contrary to previous arrangements; (ii) He amalgamated his two companies into a new corporation under the name BAMS Marketing; (iii) He sought credit with media outlets for BAMS, using VPM clients as references; (iv) He searched for new office premises, signing a lease before terminating his relationship with VPM; and, (v) He told certain clients that Patricia was retiring before his Termination Letter.

[140] Despite the trust and loyalty of David Sr.—and then of Patricia after he passed—Stephen withheld from Patricia the various steps he took before sending her his Termination Letter. Lacking any notice, Patricia could not hire an employee in a timely manner to replace the duties David Sr. previously provided VPM customers.

[141] Undoubtedly due to Stephen’s swift steps, VPM clients transitioned almost immediately to BAMS. Some were in the middle of advertising campaigns already underway. Others, like Kalkanis from First Choice, developed a close personal and business relationship with the Jennes.

The Defendants Breached the Duty of Good Faith

[142] In Bhasin, the Supreme Court explored the duty of good faith and honest performance between contracting parties.

[143] Both the Plaintiffs and Defendants made submissions about Bhasin ’s applicability at bar. In Bhasin, Cromwell J. began with a comprehensive review of the common law and stated at para. 32 that “[t]he notion of good faith has deep roots in contract law and permeates many of its rules.” He went on to state this at para. 33:

In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.

[144] Justice Cromwell emphasized that this duty existed even when there was a lack of a fiduciary relationship between the parties, stating this at para. 60:

Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce.

[145] The Plaintiffs argue in their written submissions that even if there is no fiduciary duty—the Jennes remained bound to act in good faith and honesty in carrying out their obligations to VPM and Patricia after David Sr.’s passing.

[146] The Defendants argue in their closing submissions that Bhasin is inapplicable at bar because the Plaintiffs “advanced a claim in its written submissions solely on the basis of the alleged existence of a breach of fiduciary duty. Bhasin outlines principles that are distinct from those that are applicable to fiduciary relationships.” They add that, even if Bhasin applies, BAMS and the Jennes not only did not breach the duty of good faith, rather it was the Plaintiffs’ conduct that breached this duty.

[147] I have found that the Jennes stood in a fiduciary relationship with the Plaintiffs and breached it by appropriating to BAMS all VPM’s clients without any notice to Patricia of their plans to do so. I find the Jennes also breached their duty of good faith and honest dealings with the Plaintiffs.

[148] David Sr. and Stephen had a mutually beneficial business arrangement for 20 years. They both earned considerable income from clients that David Sr. attracted and maintained while Stephen successfully bought ads for their clients. Their relationship’s success was underscored by their maintaining the same book of clients over the 20 years.

[149] Stephen told Patricia he was overworked when they met in May 2011 but declined her offer to hire an administrative assistant. Well before he learned that Patricia was going to hire Delaney, he took numerous steps to transition VPM clients to BAMS without giving her notice. Again, that lack of notice directly resulted in her inability to hire anyone to replace David Sr.’s duties. By the time she entered a contract with Delaney, VPM no longer had any clients.

[150] For these reasons, I find that Stephen’s actions do not meet Bhasin ’s basic standards of good faith or honest conduct in his dealings with Patricia and VPM.

[151] The plaintiffs have been successful in proving their claim and I now turn to an assessment of damages.

Damages

[152] The Plaintiffs and Defendants each hired an expert to provide business valuations relating to profit, loss, and the value of goodwill for both the claim and counterclaim.

[153] Both experts acknowledged their duty to assist the court in accordance with rule 4.1.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 which provides:

DUTY OF EXPERT 4.1.01 (1) It is the duty of every expert engaged by or on behalf of a party to provide evidence in relation to a proceeding under these rules, (a) to provide opinion evidence that is fair, objective and non-partisan; (b) to provide opinion evidence that is related only to matters that are within the expert’s area of expertise; and (c) to provide such additional assistance as the court may reasonably require to determine a matter in issue.

Duty Prevails (2) The duty in subrule (1) prevails over any obligation owed by the expert to the party by whom or on whose behalf he or she is engaged.

[154] The Plaintiffs called as their expert Harry Figov, President of HJF Financial Inc. (“Figov”). Figov is a Chartered Accountant, Chartered Financial Analyst, and Chartered Business Valuator. He was qualified to give expert evidence on business valuations for this trial. He prepared an expert report and gave evidence at trial. He also had an opportunity to review and critique the Defendants’ expert report.

[155] The Defendants called as their expert, Joseph Hilton (“Hilton”). Hilton is a partner of BDO Canada LLP, is a Chartered Accountant, and a Chartered Business Valuator since 2002. He was also qualified to give expert testimony on business valuations.

The Plaintiffs’ Expert, Figov

[156] Based on Figov’s knowledge, training, experience, and his review of the financial records and assumptions, he concluded that the Plaintiffs suffered lost profits—by reason of BAMS actions—of $1,468,275. This figure was calculated as a loss of profits over a five-year period after VPM received Stephen’s Termination Letter.

[157] Figov also opined that VPM experienced an immediate loss of goodwill due to Stephen’s actions, calculating the fair market value (“FMV”) of VPM’s loss at $567,500.

[158] In arriving at these figures, Figov made several assumptions including the following, as set out in his report:

(a) VPM would have continued operating its business into the foreseeable future, had the Defendants not appropriated its business and accounts for their own benefit; (b) VPM lost its opportunity to sell its business operations at some future point in time because the Defendants’ appropriated VPM’s business and accounts for their own benefit. (c) Figov used a five-year forecast, assuming that “five (5) years is a reasonable period that V.P.M. would have continued to operate”. A review of Figov’s financial summary in his report shows the profound effect the termination had on both companies. (I quickly note that the two companies had different financial year-ends. VPM’s was October 31, while BAMS’s was June 30, starting in 2011.)

VPM’s Revenue

[159] For its fiscal year ending October 31, 2010, VPM’s consulting revenue was $2,683,810. This was reasonably consistent with the consulting revenue averages for prior years. Although David Sr. died in June of this fiscal year, it had no effect on VPM’s revenue because Stephen continued his own work as well as that of David Sr. However, by October 31, 2011, VPM’s consulting revenue dropped to $2,076,497.

[160] In August 2011, Stephen terminated his relationship with VPM. Afterwards, substantially all income—subject to minor adjustments between the parties—flowed to BAMS. According to Figov’s evidence, VPM was out of business by 2012.

BAMS’s Consolidated Revenue

[161] In 2011, BAMS had a gross margin of $294,722. Its year-end then was September 30. Its gross margin went up substantially in the years following, as follows:

2011 $294,722 2012 $600,509 2013 $610,672 2014 $510,870

[162] Figov arrived at his conclusion—that the lost profit was $1,468,275—by determining the average difference between the pre- and post-gross-margin profit and multiplying it by five years, as illustrated by this table:

BAMS 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 Gross Margin | $270,891 | $303,346 | $256,395 | $276,445 | $294,732 | $600,509 | $610,672 | $510,870 Average 2007-11 | $280,362 Average 2012-14 | $574,017 Difference | $293,655 Five-year average | $1,468,275

[163] I pause to note that BAMS hired no additional employees in the years that followed after termination.

Fair Market Value

[164] Figov calculated the FMV of VPM shares as of the date of David Sr.’s death on July 25, 2010, at $567,500. He arrived at this calculation according to his report:

The FMV of operations represents approximately two (2) to three (3) years of normalized after-tax earnings. This appears reasonable for the following reasons:

• VPM appears to be a mature company with stable earnings;
• Customers appear to be established companies, with whom VPM has long standing relationships; and
• We assume there would be an orderly transition and assistance provided to a potential purchaser to ensure clients remain with the purchaser.

The Defendants’ Expert, Hilton

[165] Hilton reached different conclusions about the lost profits and FMV calculations. He concluded by indicating that the lost profits were nil and the loss of goodwill at valuation date was also nil.

Lost Profits

[166] In determining the lost profits, Hilton made certain key assumptions which I find were not borne out by evidence at trial. He noted this in his report:

In providing our conclusion and comments herein, we have been asked to make the following key assumptions (the “Key Assumptions”):

(a) No contractual obligation existed for Stephen and BAMS to continue to provide services jointly with VPM to BAMS and VPM’s mutual customers during the relevant periods. (b) There was no contractual obligation preventing Stephen or BAMS from competing with VPM during the relevant periods.

[167] In my view, the Defendants had obligations to the Plaintiffs arising from their fiduciary duties as dependent contractors. As to the termination of the relationship between the parties, Hilton described his understanding in his report:

Approximately one year after David Sr.’s death, Stephen and Barbara were not satisfied with continuing the business relationship on the same terms. Stephen and Barbara entered into negotiations with Patricia to alter the arrangement. During this negotiation, Patricia informed Stephen and Barbara that she had hired Sean Delaney to run VPM, thereby effectively reducing/eliminating Stephen and Barbara’s responsibilities. Patricia sent a letter to Stephen and Barbara on August 10, 2011, declining the offer and letting Stephen and Barbara know of the “new” VPM structure. As a result, Stephen and Barbara confirmed that their working relationship with VPM was at an end the same day (August 10, 2011 referred to as the “Termination Date”).

[168] Hilton’s report does not acknowledge the numerous steps that Stephen took before the termination. It is unnecessary to review these steps in their entirety, but they included changing the mailing address, amalgamating his corporations into a new company, seeking credit for BAMS from media outlets before termination, and discussing Patricia’s retirement with clients when no such agreement was entered.

Loss of Goodwill

[169] In his report, Hilton made further assumptions and noted the following:

We focus on the loss of VPM’s goodwill for the following reasons:

(a) If any loss of earnings are attributable to any alleged wrongdoing committed by the Defendants, this would directly impact VPM’s goodwill (if any). (b) Other tangible assets would be unaffected as VPM could continue to operate or could otherwise convert its tangible assets to cash in the normal course of operations.

[170] Hilton also considered the following issues:

(a) Did VPM have commercially transferrable goodwill at the valuation date? (b) If so, did the goodwill decline significantly after the valuation date? (c) If so, is the decline in goodwill attributable to any alleged wrongful act contributed by BAMS?

[171] Hilton’s report signaled this further note of caution about the goodwill valuation:

[I]f Stephen and BAMS were contractually obligated not to compete with VPM for many years, then VPM may have significant goodwill value. Under such conditions, if Stephen and BAMS broke their contractual commitments to VPM, then we would likely conclude that VPM did realize a loss of goodwill. However, David was not alive at the Valuation Date, and we were instructed to assume that no contractual obligations existed between Stephen and BAMS and VPM which eliminates the possibility of any loss of goodwill.

[172] In my view, the assumptions underlying Hilton’s report regarding goodwill were undercut by the evidence at trial. Fiduciary obligations existed between the Jennes as dependent contractors and VPM. Further, over a several months, Stephen began efforts to transition all VPM clients to BAMS without any notice to Patricia. The process of siphoning off goodwill began long before the Termination Letter.

Mitigation of Damages

[173] Patricia tried to mitigate the damages suffered by VPM, without success. She sent a press release to all of the clients and media outlets. She hired Delaney to help. She held meetings with clients, like Chapman’s and Marineland, without success. I am satisfied that she did all she could to mitigate damages in the circumstances.

Conclusion on damages

[174] I am satisfied that an award for the loss of profits over the period following the Termination Letter is a better measure of damages to award VPM. An award for goodwill or FMV, in my view, would amount to double recovery.

[175] Figov calculated VPM’s loss at $1,468,275, based on a five-year average of BAMS’s gross-margin increase, or $293,655 yearly. In my view, a four-year award is more appropriate, subject to further reductions: Figov’s calculations take the gross margins six years beyond David Sr.’s death; but calculations based on five years after his death is a better measure of damages. I reason that VPM suffered no serious loss, nor did BAMS significantly increase its gross margin during the first year after David Sr.’s passing while the status quo was being maintained.

[176] Further reductions ought to made, however, in the amount awarded to VPM. As previously noted, VPM had no major increase in expenses for the first year of operations after David Sr.’s death. Patricia did not hire a replacement. The expenses previously attributable to David Sr—automobile use, social activity with clients, and fishing trips—were eliminated. Patricia recognized that the Jennes were working harder and was prepared to hire an office administrator help them, at her expense. The salary for such a position was not discussed in evidence. Patricia hired Delaney to try to retain the clients rather than accepting the Jennes’ retirement offer. She paid Delaney $10,000 monthly for five months or the equivalent annual salary of $120,000, for part-time work.

[177] Undoubtedly, if Delaney worked full-time to fulfill all the functions previously performed by David Sr, his salary would have increased. Figov’s estimate premises that Stephen would do the additional work for no additional compensation in the years that followed. He also failed to recognize that if the relationship continued, VPM would have had to increase its expenditures to replace the work previously done by David Sr.

[178] I therefore calculate the damages to VPM as follows:

Average gross-margin increase to BAMS per year	$293,656
Less average annual estimated increase of expenditures by VPM (for salary and related expenses)	$140,000
Net average loss for VPM per year	$153,656
VPM’s loss multiplied by four years (x4)	$614,624

[179] I therefore award the Plaintiffs $614,624 for damages with respect to their claim.

[180] I will deal with the plaintiffs’ claim for punitive damages after I consider the counterclaim.

THE DEFENDANTS’ COUNTERCLAIM

Overview

[181] Stephen, Barbara, and BAMS, the Defendants in the main action, are plaintiffs by counterclaim (from now, the “Counterclaim Plaintiffs”). The defendants by counterclaim are the Plaintiffs in the main action: VPM and Patricia (from now, the “Counterclaim Defendants”).

[182] Both sides called evidence for the counterclaim, including their business valuation experts Figov and Hilton to again give evidence about quantification.

[183] As I previously reviewed in the “BACKGROUND” section above, Stephen and David Sr. enjoyed a profitable business relationship and a personal friendship over 20 years.

[184] For one year after David Sr.’s death, Stephen continued as media buyer and took on David Sr.’s role as the face of the company. But one year later, he terminated his relationship with Patricia and VPM. VPM’s clients almost immediately transitioned to BAMS. Stephen continued to successfully service the book of clients that David Sr. had built over the years. VPM was meanwhile unable to retain clients, despite Patricia’s efforts.

[185] The Counterclaim Defendants issued a statement of claim on December 29, 2011. The Counterclaim Plaintiffs then filed a Statement of Defence and Counterclaim, dated February 24, 2012.

[186] Stephen received access to some of VPM’s documents through a computer David Jr. had used at his office, at the Jennes’ home. He received further documents from Patricia after his Termination Letter, which was used to prepare a reconciliation between the two parties. He also received further documents as part of the discovery process in this action.

The Defendants’ Position

[187] This counterclaim essentially posits that David Sr. failed to report certain consulting fees and commissions earned by VPM either accurately or at all, over a 20-year period. Stephen submits that he was therefore deprived of his 45 percent share of these earnings.

[188] Based on Hilton’s financial analysis, the Counterclaim Plaintiffs submit that they are entitled to damages of $443,098.75 using the income approach. Alternatively, they are entitled to damages in the amount of $519,085 using the financial statement approach, for unpaid amounts from 2004 through 2010. Hilton reviewed in detail invoices for VPM clients during that period, including the following:

• Carrier/Bryant
• Chapman’s Ice Cream
• Crossroads TV
• Flow 93.5 FM
• Linsey Foods
• Standard Radio Inc
• Warnaco Company
• Beauty Supply Outlet
• Astro Media Radio GP
• Farleyco
• Home Service Club
• LA Ads
• Starkey

[189] Hilton testified that the financial statement approach represents a more accurate calculation of damages because not all invoices were available to review to ensure the accuracy of the invoice approach. Hilton’s report made assumptions based on information Stephen provided him. He made the following assumptions:

(a) V.P.M. and BAMS had an agreement that any such commissions would be retained 55 percent by V.P.M. and 45 percent by BAMS; (b) …after David Sr.’s death, when Stephen had access to the books and records, Stephen became aware that David Sr. had not previously been sharing commissions in the agreed to amount through various methods; (c) Patricia informed Stephen and Barbara that she had hired Sean Delaney to run V.P.M. thereby effectively reducing/eliminating Stephen and Barbara’s responsibilities; (d) Upon hearing that Stephen and Barbara were no longer associated with V.P.M., many of V.P.M.’s and BAMS’ mutual clients decided they did not want to work with Sean and Patricia (V.P.M.) and became sole clients of BAMS.

[190] I pause here to note that I disagree with Hilton’s assumption (c) above. Delaney was hired to do the very work David Sr—not Stephen—had done throughout the past 20-year period. Unlike Stephen, Delaney was not a media buyer. Media Buying was Stephen’s role historically.

[191] Further, the VPM clients’ resignation letters suggested nowhere that they did not want to work with Delaney. In fact, the VPM clients transitioned to BAMS almost immediately upon receipt of Stephen’s Termination Letter and were not advised about Delaney’s hiring until several days later.

The Plaintiffs’ Defence

[192] Patricia testified about her knowledge of the relationship between the parties over the 20-year period. Figov also gave evidence, as did former media representatives who had previous dealings with David Sr.

[193] The Counterclaim Defendants were at a substantial disadvantage because David Sr. passed away. His evidence was unavailable about his day to day dealings with Stephen. The Counterclaim Defendants therefore submit that they are prejudiced in responding to this counterclaim.

[194] In MacDougall v. Royal Insurance Canada, (1996), 31 O.R. (3d) 109 (Ont. Gen. Div.), Desmarais J. considered this issue in the context of a pleading amendment. In that case, the plaintiff’s mother died and could not answer the substance of proposed amendments, which related specifically to her. The court held that she would be a material witness if the motion were granted, so her passing constituted a prejudice to the plaintiff that could not be compensated by costs or adjournment.

[195] The Counterclaim Defendants advanced several other defences beyond the prejudice caused by David Sr.’s inability to give evidence. They are listed as follows:

(a) The Counterclaim Plaintiffs failed to prove their claim on a balance of probabilities; (b) The Limitations Act, 2002, S.O. 2002, c.24 (the “Limitations Act”) applies here eliminating or severely reducing the Counterclaim Plaintiffs’ claim; (c) Estoppel—since the parties entered a reconciliation of the financial numbers months after Stephen’s Termination Letter; (d) Laches and acquiescence.

ANALYSIS: THE DEFENDANTS’ COUNTERCLAIM

Figov’s Expert Testimony

[196] As noted, Hilton gave expert evidence for the Counterclaim Plaintiffs to quantify their claim. Figov gave evidence and provided a report in response, indicating that the Counterclaim Plaintiffs’ financial loss ranged from $0 to $66,195. Figov reached these values by correcting certain acknowledged errors in Hilton’s calculations based on information that was supplied to Hilton by Stephen. Figov also bypassed any aspect of the claim predating 2008, on his understanding the applicable limitation period rendered anything prior irrelevant. In critiquing Hilton’s report, Figov made the following points:

• Certain invoices regarding Astro Media and Standard Radio had been double counted;
• Contrary to Hilton’s report, the Jennes indeed received commissions regarding the Farleyco account;
• Hilton incorrectly included amounts for invoiced services to Warnaco;
• Hilton incorrectly included the Carrier/Bryant invoices; and,
• There were issues with the Chapman’s invoices.

Stephen’s Credibility

[197] This counterclaim posits that VPM did not share its earnings with BAMS from all or substantially all the outdoor advertising spot buys. Stephen testified that these buys were easy to do, and that David Sr. could arrange them by phone call. They did not require the same level of expertise that Stephen used for ad buys with radio and television outlets.

[198] In cross-examination, Stephen acknowledged several occasions where he brought certain invoices that were not split to David Sr.’s attention. I am satisfied that he knew or ought to have known that not all VPM revenue was subject to their 55/45 percent split. He acquiesced in the status quo arrangement with which he was otherwise quite satisfied.

[199] Stephen was never denied access to any VPM financial statements. It appears he never asked about how the 45 percent amount sent to him was calculated. He was satisfied with David Sr.’s calculations. In addition, he had substantial knowledge about the ad buys. He knew what the major companies were spending on ads; that was the amount he used to buy ad spots on their behalf.

[200] After the Termination Letter and before the Statement of Claim’s issuance, the parties entered a series of correspondence leading to a reconciliation of accounts. Stephen prepared this for BAMS. After he conducted a reconciliation, he prepared a statement indicating that VPM was owed $5,901.56. A cheque dated October 30, 2011, was sent to VPM to complete this reconciliation. Stephen raised no issues about any funds owing by VPM due to the improper split of commissions in previous years.

[201] The final reconciliation statement, dated October 4, 2011, was prepared by Stephen. A chart reconciled fees owed to BAMS and fees owed to VPM. The result was that VPM was sent a cheque for $5,901.56. The chart reviewed the various VPM clients, the medium involved, such as television, outdoor or radio. Some clients used various mediums. One client in particular, CTS, used outdoor advertising (billboards) exclusively. One of the counterclaims of BAMS was that David Sr. had not split outdoor advertising. Clearly Stephen knew about outdoor advertising when he did this reconciliation. He knew or ought to have known from an examination of the accounts that these items were not previously shared, yet he raised no issue with Patricia about the sharing for previous years.

[202] Stephen was cross-examined about several VPM clients. One such client bears scrutiny to assess Stephen’s credibility regarding when he became aware that David Sr. was doing work for which commission was not shared.

[203] According to Hilton’s counterclaim report, BAMS is owed over $100,000 for commissions earned from the Carrier/Bryant book of business from 2004.

[204] Stephen testified that, before that date, he worked on that account and commissions were earned. In 2004, however, a falling-out occurred because of an email sent to David LoFranco of DDR Media (“LoFranco”). Stephen explained that, after this falling-out with LoFranco, BAMS was asked to no longer work on this account. It is clear from the financial reports, however, that VPM continued earning commissions from this account. Stephen testified that he was unaware that VPM kept this account and argues that the commissions should be split.

[205] Stephen’s evidence on the LoFranco account is not credible. David Jr.’s evidence is helpful here. He worked on this account on his computer while at the Jennes’ home office. The Jennes could access this computer, and all the materials were left in their care when his employment was terminated due to illness. I accept David Jr.’s evidence that Stephen asked him once or twice why he (Stephen) was not being asked to help with the LoFranco clients. David Jr. testified that Stephen told him about the email which fractured the relationship between Stephen and LoFranco. It is clear from this evidence that Stephen knew that VPM continued LoFranco’s account.

[206] Emails between Dave LoFranco and Stephen started on August 30, 2010. LoFranco’s email began: “To help us arrive at a fair fee on V.P.M.’s involvement with Starkey, here is an overview.” Mr. LoFranco then listed 25 points of his involvement with his company (DDR Media) and Starkey, a VPM client. His email closed with: “that’s the overview of Starkey. Total media expenditure is $142,406.08. It’s a labour intensive account. Hope this provides you with enough insight. Let’s discuss this and arrive at a fair number.”

[207] Upon reviewing this email, Barbara emailed to Stephen on the same day, stating: “Based on the email, it looks like David [Sr.] did the buy/negotiations for Starkey and got it all in place and gave it to Dave [LoFranco] to present and run with. Dave [LoFranco] did all the maintenance on the buy from then on. So, basically the way I see it, David [Sr.] put it all in place and Dave [LoFranco] maintained.” Barbara then recommended what Stephen should charge as a percentage.

[208] Dave LoFranco responded by email, dated September 7, 2011, stating: “Thanks for the email outlining the suggested fees. I think we are all on the same page with respect to fee calculations.” He then commented and discussed the fees for the Starkey client and the Carrier/Bryant account. Clearly by this point, if not substantially sooner, Stephen knew that David Sr. had been working on these accounts for many years without any involvement by Stephen. Yet Stephen raised no issues with Patricia that he was not properly paid by David Sr. over the previous years.

[209] In the following years, 2004 to 2010, Stephen did no work on the Carrier/Bryant account.

The Limitations, Laches and Acquiescence Arguments

[210] Sections 4 and 5 of the Limitations Act provide as follows:

Basic limitation period 4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery 5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[211] The issue to consider here is discoverability. In Lawless v. Anderson, 2011 ONCA 102, [2011] O.J. No. 519, Rouleau J.A. stated at para. 22:

The principle of discoverability provides that “a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence. This principle conforms with the generally accepted definition of the term ‘cause of action’ — the fact or facts which give a person a right to judicial redress or relief against another” [citation omitted.]

[212] In Longo v. MacLaren Art Centre Inc, 2014 ONCA 526, [2014] O.J. No. 3242, Hourigan J.A. stated at para. 42:

A plaintiff is required to act with due diligence in determining if he has a claim. A limitation period will not be tolled while a plaintiff sits idle and takes no steps to investigate the matters referred to in s. 5(1)(a).

[213] I am satisfied that the limitation period began to run when Stephen discovered years earlier that not all VPM’s revenue was being shared. Stephen knew or ought to have known that David Sr. was billing certain clients and not sharing those commissions. In prior years, Stephen confronted David Sr. about two or three accounts. Stephen did not raise the issue with Patricia at any time in the year after David Sr.’s death. In my view, Stephen acquiesced in such arrangements. His acquiescence was based on the following:

(a) He was doing very well financially on the 45 percent commission split that he received over 20 years. David Sr. worked with LoFranco, another media buyer, indicating that Stephen’s work, although valuable to VPM, could be done by others; (b) He also enjoyed several perks, including several annual trips sponsored by media outlets and the annual fishing trips he took with his good friend David Sr; (c) The clients were VPM’s, whom David Sr. attracted and maintained. During David Sr.’s lifetime, any confrontations may not have proved beneficial to Stephen. David Sr.’s clients were with him and VPM for 20 years. Although Stephen did the media buying, he was held out to those clients as part and parcel of VPM.

[214] I also find that laches applies to this case. As Penny J stated in Indcondo Building Corp. v. Sloan, 2014 ONSC 4018, [2014] O.J. No. 3722 at para. 157:

Laches is an equitable doctrine, akin to estoppel, founded on the principle that one is obliged to assert legal rights in a timely way or risk losing them. Laches is a form of equitable limitation period. Two factors dominate the consideration of this doctrine: (1) delay and its circumstances; and (2) prejudice resulting from that delay.

Conclusion

[215] Considering all the above, including Stephen’s credibility, the counterclaim’s timing, and the prejudice to VPM from David Sr.’s death, the Counterclaim Plaintiff has not proved its claim on a balance of probabilities. The counterclaim is dismissed.

PUNITIVE DAMAGES

[216] The Plaintiffs allege a further claim for punitive damages against the Defendants for their conduct in abrogating all VPM’s clients to themselves after David Sr.’s death without any recognition of their fiduciary duties to VPM.

[217] In Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, the Supreme Court of Canada clarified the purpose and factors a court should consider before awarding punitive damages. Justice Binnie listed these at para. 94:

(1) Punitive damages are very much the exception rather than the rule, (2) Imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) Having regard to any other fines or penalties suffered by the defendant for the misconduct in question. (5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the plaintiff, but (7) To give a defendant his or her just desert (retribution), to deter the defendant and others from similar misconduct in the future (deterrence), and to mark the community’s collective condemnation (denunciation) of what has happened. (8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) They are given in an amount that is no greater than necessary to rationally accomplish their purpose. (10) While normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages. (11) Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient.

[218] Justice Binnie also emphasized at para. 111 that “[r]etribution, denunciation and deterrence are the recognized justification for punitive damages, and the means must be rationally proportionate to the end sought to be achieved.”

[219] In my view, this is one of those rare cases that demands punitive damages. The factors informing my decision are as follows:

(a) Patricia put her complete faith in Stephen following her husband’s death; (b) Stephen breached his fiduciary duty by following a secretive and well-orchestrated plan over several months to acquire the VPM clients without notice or compensation; (c) The Defendants’ failure to give Patricia notice deprived her of the opportunity to hire an individual to fulfil the role her husband fulfilled so that the VPM could continue business with Stephen still acting in the role of media buyer; and, (d) Stephen’s Termination Letter was immediately followed by resignation letters signed by VPM clients. Barbara drafted those letters.

[220] Stephen’s conduct falls well within the category that Binnie J described in Whiten, where “there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.” Accordingly, a further punitive award is required under the circumstances, beyond the compensatory damages award. I am satisfied that punitive damages of $30,000 serves the purpose intended and is proportionate to what is sought to be achieved in this case.

CONCLUSION

[221] Judgment is granted of $614,624 in favour of the Plaintiffs’ claim, together with judgment of $30,000 for punitive damages.

[222] The Defendants’ counterclaim is dismissed.

COSTS

[223] The parties are encouraged to reach an agreement on the issue of costs. If no agreement is reached, I will receive written submissions not exceeding five (5) pages, plus a bill of costs from the Plaintiffs within twenty (20) days from the release of this judgment. Thereafter, the Defendants will have ten (10) days to reply with submissions not exceeding five (5) pages, plus a bill of costs. There will be no right of reply. Correspondence may be directed to my Judicial Assistant in Barrie.

MULLIGAN J. Released: July 31, 2018