Court File and Parties

COURT FILE NO.: CV-16-553772 DATE: 20180921 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Sanford Gray Plaintiff/Respondent – and – Promark Electronics Inc. Defendant/Appellant

COUNSEL: A. Dryer, for the Plaintiff/Respondent G. McGinnis, for the Defendant/Appellant

HEARD: September 14, 2018

REASONS FOR DECISION

CAROLE J. BROWN, J.

[1] The defendant, Promark Electronics Inc. (“Promark”) appeals the interlocutory order of Master Wiebe dated April 9, 2018, wherein the Master ordered Promark to produce a further and better affidavit of documents that contains its financial books and records (including the financial statements and sales records) for the period 2002-2016 and answer certain questions refused on examinations for discovery related thereto.

[2] It is the position of the appellant that the Master erred in law by ordering Promark to disclose information and answer questions which are irrelevant or collateral to the issues in the litigation, thus requiring Promark to undertake a fishing expedition relating to information and documents which are irrelevant or peripheral to the action.

[3] It is the position of the respondent that the documentation ordered to be produced is directly relevant to the issues in the action and that, without said documentation, the respondent will be unable to test the defences of the appellant in the action.

The Action

[4] The plaintiff (respondent), Sanford Gray, commenced this action, seeking damages for his wrongful termination by way of constructive dismissal in December 2015, after 25 years of employment with Promark. The plaintiff claims that he was constructively dismissed by Promark when it unilaterally reduced his compensation package without just cause and without proper notice.

[5] In its amended statement of defence, Promark alleges that over the course of Mr. Gray’s 25 years of employment, Promark adjusted his compensation structure from time to time to conform with its business objectives and overall economic circumstances at the time. Promark alleges that its employment agreement with Mr. Gray gave it unfettered discretion to vary his commission structure and that it was an implied term of his employment that Promark could do so if Mr. Gray’s salary and commission structure became misaligned with Promark’s business realities.

[6] More particularly, at paragraph 6 of the amended statement of defence, the defendant alleges as follows:

1. Over the course of years, as contemplated in the employment agreement, Promark adjusted Gray’s compensation structure from time to time to conform with its business objectives and the overall economic circumstances at the time. It was an implied term of Gray’s employment with Promark that Promark could do so if his salary and commission structure became misaligned with its business realities.
2. Promark in fact adjusted Gray’s compensation package significantly in 2003, 2005 and 2009 for precisely these reasons.
3. …
4. In 2015, Promark determined that Grey’s then compensation structure had become misaligned with business reality.
5. In the years leading up to 2015, sales at Promark’s largest account in Ontario, Skyjack, had continued to increase but at considerably slimmer margins, without any increase in prices. The result was that Promark made less profit from this particular account while Gray’s compensation continued to expand in lockstep with sales.
6. In fact, Promark lost a substantial amount of money in 2015 despite increased annual sales at Skyjack. As Promark lost money, Grey’s income based on his commission structure continued to increase.
7. Accordingly, in 2015, Promark decided that it needed to make another change to Grey’s compensation to realign his incentives with Promark’s business interests.

[7] It is the position of the plaintiff that there was no such implied term and that previous adjustments to his commission were always negotiated and agreed upon. Prior to 2015, Mr. Gray’s compensation structure had been materially changed in 2002, 2003, 2005 and 2009.

[8] It is the position of Promark that it was a discrepancy between earnings and profit margins which led Promark to review and ultimately revise Mr. Gray’s compensation structure. While Promark argues that past business circumstances, financial performance and changes to the compensation structure are not relevant to the change in Mr. Gray’s compensation structure in 2015, it is the position of the respondent that in order to test Promark’s defence that it had unilateral and unfettered discretion to change Mr. Gray’s compensation package pursuant to an implied term of the contract, it needs to be able to test the business circumstances and financial performance of Promark as regards the past changes as well as those in 2015.

The Master’s Order

[9] The plaintiff had moved for an order that the defendant produce a further and better affidavit of documents and that the representative of Promark answer questions refused at examination for discovery. The relevant portions of the interlocutory order of the master dated April 9, 2018 are as follows:

[2] In the underlying action Mr. Gray seeks damages for wrongful termination of his employment with Promark. He was employed as the Ontario sales manager for Promark, which sold electronic control equipment. He alleges he was constructively dismissed when Promark in 2015 unilaterally reduced his compensation package without cause.

[3] In its Amended Statement of Defence Promark alleged that its employment agreement with Mr. Gray gave Promark unfettered discretion to vary Mr. Gray’s commission structure from time to time. The pleading went on to allege that it used this discretion to adjust the great commission structure on four occasions when that structure became “misaligned with [Promark’s] business realities”. These occasions were in 2003, 2005, 2009 and 2015. The pleading indicated that the core relevant “business reality” was the company’s profitability; but the pleading also referred to the diversification of the sales portfolio. Most of Mr. Gray’s accounts were with Promark’s main customer, Skyjack. The pleading also alleged that Mr. Gray caused financial damage to Promark when he “resigned” from his employment in January, 2016.

[4] In his Statement of Claim and Reply, Mr. Grady denied that Promark had such unfettered discretion. He alleged that his compensation was based primarily on his sales, and that the changes to his compensation in 2003, 2005 and 2009 were negotiated. He alleges that in 2015 there was another negotiation that Promark undermined and that led to a unilateral change in his compensation, which he did not accept. Importantly, the Gray Reply at paragraph 9 also expressly challenged the bona fides of the Promark professed reliance on profitability to justify the 2015 compensation reduction. In that paragraph, Mr. Gray alleged that the real reason for the change was Promark’s need to free up funds” to finance business expansion, takeover efforts and the lucrative compensation for Mr.Knecht’s son.

[5] Promark delivered an unsworn affidavit of documents in January, 2017. Mr. Dryer found it inadequate as it did not include documentation about Promark’s profits and losses over the course of Mr. Gray’s employment, and in particular the financial statements of the company for that.. Mr. Gray brought a motion originally returnable August 1, 2017 for a further and better affidavit of documents. Mr.Knecht swore an affidavit in the motion on July 18, 2017 wherein he disclosed sales, profit and loss information about the Skyjack account and the company in general for the period 2013-2016. He attached copies of the Promark statements of earnings for 2004, 2006, 2009 and 2016. He stated that Promark became unhappy with Promark’s declining profit margins and with Mr. Gray’s performance in diversifying customers and managing the workforce, all of which caused Promark to change Mr. Gray’s compensation package in 2015. The motion was adjourned to allow for further disclosure and examinations for discovery.

[10] Mr. Dryer responded by arguing that his client needed the requested documentation to “test” the Promark position as to its discretion, its profitability and its use of the discretion it had, if any. In his factum, he pointed out that a document is relevant if it tends to prove or disprove the matter in issue in the pleadings; see Kulack v. Panolam Industries Ltd., 2016 CarswellOnt 12932 (SCJ), at paragraph 16. He pointed out that, where the financial status of a litigant is in issue, the courts have ordered production of financial documents; see French Estate v. French, 1994 CarswellOnt 539 (Ont. Gen. Div.), at paragraph 5 and Chaban v. Kramer, 2008 CarswellSask 127 (S.C.Q.B.), at paragraph 7.

[11] I do not agree with Mr. McGinnis. The reasons for the previous changes in Mr. Gray’s compensation are important to the case. Both parties rely on the course of conduct of the parties. Mr. Gray alleges that Promark had no discretion in setting his compensation; it was all about his sales. Promark, on the other hand, alleges it had complete discretion, and that in its course of conduct it was driven by its own “business realities” such as profitability and customer diversification. Mr. Gray is entitled to explore in detail the veracity of this pleaded Promark position to establish the circumstances in which previous negotiations of compensation change took place, all with a view to establishing Promark in fact had no discretion to change. Furthermore, and most importantly, given Mr. Gray’s fallback pleading in his reply as described above, the requested documentation is also important to show that, if Promark had discretion, any “business realities” that may have formed the basis of its exercise of discretion to change the compensation in the past did not form the basis of its exercise of discretion in 2015, thereby lending credence to Mr. Gray’s fallback position that Promark was in breach of contract in 2015 in any event, even if it had discretion. Therefore I find as a general proposition that the requested documentation is relevant.

[12] However, the production must be reasonable and proportional. I not believe that the financial books and records for the entire time of Mr. Gray’s employment are relevant. Only those financial books and records leading up to and including the changes in Mr. Gray’s compensation package are important to the case.

[13] I order, therefore, that Promark produce a further and better affidavit of documents that contains its financial books and records (including its financial statements and sales records) for the period 2002- 2016.

[14] I know that Promark is concerned about Mr. Gray misusing this information as he is apparently now working for a competitor. In my view, the deemed undertaking in rule 30.1.01(3) should provide sufficient protection in this regard.

[10] The Master thereafter went on to give rulings as regards the refusals.

The Issue

[11] The issue to be determined on this appeal is whether the Master made any error of law, mixed law and fact or fact which would permit this appellate court to interfere with and set aside the order of Master Wiebe dated April 9, 2018.

Standard of Review

[12] Appeals from a Master must be heard as appeals and not matters de novo. See Noranda Metal Industries Ltd. v. Employers Liability Insurance Corp., 2000 ONSC 50967, at para 7.

[13] Moreover, an appeal from a Master’s decision is not a re-hearing. On questions of fact and mixed fact and law, deference applies and the role of the reviewing court is limited. The appellate court cannot substitute its interpretation of the facts or re-weigh the evidence simply because it takes a different view of the evidence from that of the Master: Wellwood v. Ontario Provincial Police, 2010 ONCA 386, at para 28. Further, an appellate court is not free to interfere with a factual conclusion that it disagrees with where such disagreement stems from a difference of opinion over the weight to be assigned to the underlying facts: Housen v. Nikolaisen, 2002 SCC 33, at para 23.

[14] The record that was before the Master is the only evidence to be used on appeal.

[15] The standard of review for Masters' orders is the same standard of review that applies to appeals of judges' orders. For questions of law, the appellate court applies the correctness standard. For questions of fact and mixed fact and law, the court should apply a more deferential standard and not intervene unless there is a palpable and overriding error: In-Store Products Ltd. v. Zuker, 2013 ONSC 7091, at para 3.

[16] The standard of review on a question of law is correctness: Zeitoun v. Economical Insurance Group, 2008 ONSCDC 20996.

[17] Appellate interference will be warranted “only if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error”: Zeitoun, at para 40.

[18] As regards findings of fact, the appellate court will not interfere with a Master's decision unless there has been a palpable and overriding error. This same standard applies to inferences of fact. Where there is some evidence upon which the Master could have relied to reach a conclusion, the appellate court will not interfere. It is not the role of the reviewing court to verify that inferences of fact can be reasonably supported by the findings of fact of the Master, but rather to determine whether the Master made a palpable and overriding error in coming to a factual conclusion based on accepted facts, which implies a stricter standard. Further, where evidence exists to support an inference, an appellate court will be hard-pressed to find a palpable and overriding error: Housen, at paras 1, 6, 10, 19, and 21-23.

[19] It is the position of the appellant that the Master erred in law in determining relevance as regards the documents sought to be produced. It is the position of the respondent that no errors of law, mixed fact and law or fact were made.

The Law

[20] The determination of relevance in a proceeding is governed by the pleadings, subject to proportionality.

[21] Where the documents sought to be produced, or a question asked, could elicit a response that the trial judge could rely on to resolve the matter in issue, the document or question is relevant: Smalling v. Toronto Community Housing Corporation, 2018 ONSC 663.

Analysis

[22] In this case, the relevant portions of the pleadings are those that were set forth above. I am satisfied, based on a full reading of the pleadings, that an issue in this action will be the alleged implied term of the contract and whether past changes to the plaintiff’s compensation were made on the basis of “business reality”, “overall economic circumstances”, “alignment with business realities” and profitability, as alleged in the defendant’s Reply.

[23] The Master found the documents sought to be produced to be relevant to an issue in the trial. The pleadings made the financial documentation relevant. They are not peripheral or collateral as urged by the appellant. The Master further took into account proportionality. He did not order production of financial records for the entire 25 years of Mr. Gray’s employment. Rather, he ordered production of the financial documents for a circumscribed period of time, namely 2000-2016, during which time there had been numerous changes to Mr. Gray’s employment package.

[24] Based on all of the pleadings, these allegations of the defendant as regards an implied term of the contract that would permit the defendant to unilaterally change the plaintiff’s compensation package to align with Promark’s business reality, overall economic circumstances, and profitability make relevant the financial books and records of Promark leading up to the previous changes to the plaintiff’s compensation package, as well as the current change.

[25] I have carefully reviewed the evidence, the pleadings, the reasons for decision of the Master, and have considered the caselaw and the submissions of counsel. I find there to be no error of law, mixed fact and law or fact as regards the Master’s decision. I am satisfied that there is no basis on which this appellate court could interfere with or set aside the decision of the Master.

[26] I uphold the decision of Master Wiebe dated April 9, 2018 and dismiss this appeal.

Carole J. Brown, J.

Released: September 21, 2018

COURT FILE NO.: CV-16-553772 DATE: 20180921 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Sanford Gray Plaintiff/Respondent – and – Promark Electronics Inc. Defendant/Appellant

REASONS FOR JUDGMENT

Carole J. Brown, J.

Released: September 21, 2018