Court File and Parties
Court File No.: CV-12-462203 Date: 2019-06-10 Ontario Superior Court of Justice
Between: MICHAEL CRAIG o/a SYNERGY WORK SOLUTIONS, Plaintiff – and – CEO GLOBAL NETWORK INC., Defendant
Counsel: Howard Markowitz, for the Plaintiff Kevin L. MacDonald, for the Defendant
Heard: April 15, 16 and 18, 2019
Reasons for Judgment
SANFILIPPO, J.
Overview
[1] John William Wilson incorporated the defendant company, CEO Global Network Inc., on June 4, 2008. CEO Global is in the business of providing professional consulting services to corporate executives through group mentoring, expert speaker programs and executive coaching.
[2] Mr. Wilson carried on this business previously with a competitor, TEC Canada Ltd., where he worked with the Plaintiff, Michael Craig. After Mr. Wilson established CEO Global, he invited Mr. Craig to join.
[3] Discussions between Mr. Wilson and Mr. Craig began as early as March 30, 2009, and continued until July 21, 2010, when they entered into a Consulting Agreement. On that day, Mr. Craig became the executive vice-president of CEO Global.
[4] The Consulting Agreement provided for a one-year term that would automatically renew on its anniversary date subject to rights of early termination. Part way through the second term, on February 28, 2012, CEO Global provided sixty days’ notice to Mr. Craig of termination of the Consulting Agreement, effective April 28, 2012. CEO Global agreed to pay Mr. Craig six months’ compensation additional to the sixty days’ notice, consistent with its interpretation of the Consulting Agreement’s provision for termination without cause. On March 12, 2012, Mr. Wilson advised Mr. Craig that he was not required to work at CEO Global during the sixty day notice period.
[5] CEO Global paid Mr. Craig the first month of notice, but then did not pay the second month of notice or the six months of additional compensation. On May 17, 2012, after the effective date of termination of the Consulting Agreement, CEO Global’s lawyer explained why. He notified Mr. Craig that CEO Global was discharged from making any further payments to him because it discovered that he had breached the non-competition provision contained in the Consulting Agreement. CEO Global stated that this entitled it to terminate the Consulting Agreement for cause and thereby without any payment to Mr. Craig.
[6] For over seven years of litigation, the only issue between the parties was whether Mr. Craig was entitled to the amounts that CEO Global agreed to pay upon terminating the Consulting Agreement without cause, which the parties agreed totaled $150,899, or whether CEO Global was entitled to terminate with cause, and thereby without any payment obligation, because of Mr. Craig’s alleged breach of the non-competition provision. However, an additional issue arose in the days leading to trial, culminating in an amendment to CEO Global’s statement of defence after the parties closed their cases at trial.
[7] On March 29, 2019, Mr. Craig produced to CEO Global a confidential client and prospective client list that he had downloaded from the CEO Global computer system on March 4, 2012, four days after he was provided with notice of termination but before the expiry of the sixty-day notice period. On that same day, he also produced a copy of CEO Global’s Strategic Plan created on February 4, 2011 that he had retained. At the start of the closing submissions, CEO Global amended its statement of defence, on consent, to plead that it was entitled to terminate the Consulting Agreement with cause by reason of Mr. Craig’s breach of the confidentiality provision of the Consulting Agreement and his breach of the duty of honesty and good faith that he owed to CEO Global in the performance of the contract.
[8] CEO Global did not tender any evidence of any harm, or detriment of any nature, resulting from Mr. Craig having had confidential documents in his possession in the more than seven years that have passed since termination.
[9] For the reasons that follow, I have concluded that CEO Global failed to establish just cause for its termination of the Consulting Agreement. I find that the Plaintiff is entitled to judgment against CEO Global in the amount of $150,899, plus pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43.
I. Background
[10] Only the parties were called to testify at this trial: the Plaintiff Mr. Craig, and Mr. Wilson on behalf of the Defendant, CEO Global.
A. The Parties
[11] Mr. Wilson graduated with a Master of Business Administration in 1976, and became the Chief Executive Officer for Ultramar, where he said to have directed a multi-billion dollar gas and fuel retailer. He did so for some 18 years, moving from Canada to the United States, after which he started his own business ventures, including an oil company. In 2000, Mr. Wilson sold his business interests in the United States and returned to Canada.
[12] From 2001 to 2007, Mr. Wilson became a Regional Chair for TEC Canada Ltd., which is in the business of assisting in the growth and development of business executives by organizing peer groups led by established and recognized business leaders and providing executive coaching. Mr. Wilson oversaw a region of TEC Canada’s corporate activities, stating that he helped 45 chief executive officers and senior executives improve the delivery of their product to business executives. In the course of this work, Mr. Wilson oversaw the TEC Canada group chairs working within his region, one of whom was Mr. Craig.
[13] Mr. Craig has an undergraduate degree in economics and a graduate diploma in management. He is a generation younger than Mr. Wilson but gave evidence of having been recognized for establishing and directing two privately held companies. Mr. Craig carried on business using the business and trade name of Synergy Work Solutions (“Synergy Solutions”), whose promotional materials explained Mr. Craig’s objective of providing corporate executives and business owners with “leadership performance coaching, peer group learning forums, execution focused strategic planning, workshops, keynote addresses and retreat facilitation”.
[14] Sometime in April or May of 2005, Mr. Wilson met with Mr. Craig to recruit him to become a ‘Group Chair’ with TEC Canada. Later in 2005, Mr. Craig agreed to do so. In that capacity, Mr. Craig worked closely with Mr. Wilson until Mr. Wilson left TEC Canada in 2007. Mr. Wilson testified that he was very impressed with Mr. Craig’s work, stating that he was “good at what he did”.
[15] In 2008, at age 65, Mr. Wilson started CEO Global which, like TEC Canada, was founded to bring CEOs and business executives together in a group setting, with one-on-one coaching and counselling to assist in their growth and development. Mr. Wilson stated that he wanted to recruit someone who had the demonstrated ability to grow the company with him and, in the fullness of time, succeed him. Mr. Wilson identified Mr. Craig for this role.
B. The Consulting Agreement
[16] Mr. Wilson reached out to Mr. Craig to ask him to consider joining CEO Global. The parties testified about the negotiations that ensued, and produced into evidence a series of emails, the first of which is dated March 30, 2009. The parties had different versions of the negotiations, and disagree on the nature of their disclosures and understandings, which I will address later. They concur that they came to an agreement on July 21, 2010 through execution of a document entitled “Consulting Agreement”.
[17] The Consulting Agreement was prepared by CEO Global and provided to Mr. Craig in its earliest version by December 2, 2009. By June 30, 2010, Mr. Craig had forwarded the draft Consulting Agreement to his lawyer for advice. The principles set out in the Consulting Agreement remained in the forefront of the parties’ discussions until they reached a deal and signed the Consulting Agreement on July 21, 2010. It has the following terms material to my analysis:
(a) The parties acknowledged and agreed that ‘Michael Craig carrying on business as Synergy Solutions’ was an independent contractor, and not an employee of CEO Global: Consulting Agreement, sec. 1(a);
(b) Mr. Craig agreed to perform specified services pertinent to the business of CEO Global in accordance with direction provided by the CEO and Chairman of CEO Global, Mr. Wilson: Consulting Agreement, sec. 2(a), (b) and (f);
(c) Upon CEO Global achieving a specified target in revenues, Mr. Craig would become the President of CEO Global and would receive an option to purchase up to fifteen percent of CEO Global’s shares: Consulting Agreement, sec. 2(c), (d) and (e);
(d) Mr. Craig’s consulting fees were tied to the number of subscribing members to CEO Global’s services, with a guaranteed payment that increased as the number of subscribing members increased: Consulting Agreement, sec. 3;
(e) Mr. Craig agreed to a Confidentiality Provision: Consulting Agreement, sec. 4;
(f) Mr. Craig agreed to two restrictions on competition, being both a Non-Competition Provision and a Non-Solicitation Provision: Consulting Agreement, sec. 5;
(g) The parties agreed that the Consulting Agreement could be terminated without cause on sixty days’ notice, provided that where CEO Global so terminates it must pay six months of compensation to Mr. Craig. The Consulting Agreement could also be terminated by either party without notice where the termination is with cause, which included a material breach of one or more of the provisions of the Consulting Agreement: Consulting Agreement, sec. 7;
(h) The Consulting Agreement had an initial term of one year from July 21, 2010, and renewed automatically unless terminated: Consulting Agreement, sec. 1(b).
[18] On its one-year anniversary date, July 21, 2011, the Consulting Agreement automatically renewed. In the second term of the Consulting Agreement, CEO Global took steps to terminate.
C. The Termination
[19] On February 28, 2012, CEO Global delivered a letter to Mr. Craig wherein it provided Mr. Craig with sixty days’ written notice (“Notice”) of termination of the Consulting Agreement. In addition, CEO Global agreed to pay Mr. Craig six months’ compensation (“Termination Payments”), in accordance with section 7(a) of the Consulting Agreement, which states as follows:
- TERMINATION
(a) Without Cause: This Agreement may be terminated, without cause, by either party providing sixty (60) day’s prior written notice. If the Client terminates the Agreement, in addition to providing written notice, the Client will pay the Consultant six months compensation equivalent to the total consulting fees earned by the Consultant during the six month period prior to the date that written notice is delivered.
[20] CEO Global terminated the Consulting Agreement without asserting or relying on any cause. Mr. Wilson wrote:
“Further to our meetings, I am formally providing you with 60 days prior written notice (“Notice”) of the termination of our Consulting Agreement (“Agreement”), effective April 28, 2012.
Pursuant to the Agreement,
(a) As outlined in sub-paragraph 7(a), CEO Global is required to pay you six months compensation equivalent to the total consulting fees earned by you during the six-month period prior to today (“Termination Payment”); and
(b) Sub-paragraph 5(a) prohibits you from being engaged as a consultant, among other things, in a business similar to the business of CEO Global.”
[21] The parties testified to negotiations conducted on and after February 28, 2012, directed at addressing the timing and mechanics of the Termination Payments, and the potential for Mr. Craig to continue to provide ongoing sales and marketing consulting services to CEO Global through Synergy Solutions. On February 29, 2012, Mr. Craig delivered a letter to Mr. Wilson wherein he accepted certain terms proposed to coordinate his departure from CEO Global and to define his continuing role, which involved recruiting Members for CEO Global’s programs, but throughout accepting that the Consulting Agreement had been terminated without cause.
[22] On March 12, 2012, Mr. Wilson delivered to Mr. Craig a further letter on behalf of CEO Global. He confirmed that the parties were unable to reach an agreement on a revised termination plan, and that CEO Global would rely strictly on the terms of the Consulting Agreement in continuing to pay Mr. Craig until the effective date of the termination, April 28, 2012, and thereafter would pay the Termination Payments. Mr. Wilson told Mr. Craig that he was not required to work with CEO Global during the notice period:
“We have agreed that you will not be required to be actively involved in CEO Global Network Inc. during the 60 day notice. However, CEO Global Network Inc. will continue to pay you until the effective date of the termination, which is April 28, 2012.
With respect to the six month termination period required by sub-paragraph 7(a) of the Agreement, the Agreement does not stipulate a specific payment date. CEO Global Network Inc. will pay you through 6 equal monthly payments commencing on May 15, 2012.”
[23] CEO Global paid Mr. Craig a single monthly payment, representing one-half of the amount owed for Notice, and then made no further payments. Specifically, CEO Global did not pay the second month’s Notice payment and did not pay the six months of Termination Payments.
[24] On May 17, 2012, the lawyer for CEO Global delivered a letter to Mr. Craig stating that CEO Global had determined that Mr. Craig had breached the Non-Competition Provision contained in section 5 of the Consulting Agreement and, on this basis alone, would make no further payments to Mr. Craig. The entirety of the explanation provided to Mr. Craig was as follows:
“We have reviewed, among other things, various postings on your website which clearly establish that you have contravened the [Non-Competition Provision] and breached the Agreement.
Given these developments, CEO [Global] is discharged from any obligation to make any further payments under the Agreement.”
[25] Without expressly saying so, CEO Global converted its termination of Mr. Craig from a ‘without cause’ termination to a termination ‘with cause’ by reason of its alleged discovery of material breach of the Consulting Agreement after the time that notice of termination had been provided (February 28, 2012) but prior to the effective date of termination (April 28, 2012). In so doing, CEO Global was abandoning its reliance on section 7(a) of the Consulting Agreement in favor of a termination with cause based on section 7(b) of the Consulting Agreement. This change of position was based exclusively on CEO Global’s post-termination finding that Mr. Craig had breached the Non-Competition Provision.
[26] For the seven years from when Mr. Craig started this action to the completion of the parties’ evidence at trial, the only cause alleged by CEO Global to justify its revised termination of the Consulting Agreement from ‘without cause’ to ‘with cause’ was Mr. Craig’s alleged breach of the Non-Competition Provision. This changed at the start of closing submissions at trial.
D. CEO Global’s Amendment to Plead Further Cause: Breach of Confidentiality
[27] On March 29, 2019, sixteen days prior to trial, Mr. Craig produced further documents to CEO Global, including the following:
(a) A seventeen-page document entitled “CEO Global Strategy Session”, dated February 14, 2011, which the parties described as the “Business Plan”;
(b) A thirty-seven-page document containing a list of some 2,200 people described as “Leads”, being actual and prospective clients of CEO Global. I will refer to this document as the “Client List”.
[28] CEO Global did not request an adjournment of the trial because of Mr. Craig’s late production of material documents, including the CEO Global Business Plan and Client List.
[29] At the start of closing submissions at trial, CEO Global requested, on consent of Mr. Craig, an amendment to its Statement of Defence to plead that Mr. Craig’s taking and retention of the Business Plan and the Client List are particulars of a breach of “his duty to act in good faith and his common law duty to honestly perform” the Consulting Agreement, and also constitute a breach of the Confidentiality Provision. CEO Global relied upon Mr. Craig’s taking and retention of these documents to supplement its position that it was entitled to terminate the Consulting Agreement with cause and thereby without making any further payments.
II. Issues
A. Admissions that Settled the Damage Issue
[30] Mr. Craig seeks to recover from CEO Global the amounts that he says are owed to him by reason of CEO Global’s termination of the Consulting Agreement. The parties agreed that:
(a) termination by CEO Global without cause, in accordance with section 7(a) of the Consulting Agreement, would entitle Mr. Craig to eight months of his average earnings, consisting of two months of Notice and an additional six months’ compensation in the form of Termination Payments;
(b) Mr. Craig’s average earnings each month was $21,557;
(c) CEO Global paid Mr. Craig one month’s notice, in the amount of $21,557, before declaring on May 12, 2012 that it would not make any further payments;
(d) The one month of remaining Notice and six months of Termination Payments that have not been paid total $150,899.
[31] The parties thereby agreed that if I should find that Mr. Craig is entitled to Notice and Termination Payments because the termination of the Consulting Agreement was without cause, Mr. Craig would be entitled to $150,899 in damages. If I should find that CEO has established a basis for termination of the Consulting Agreement with cause, then Mr. Craig’s action would be dismissed.
[32] Although CEO Global seeks a finding that it was entitled to terminate the Consulting Agreement with cause and thereby without any monetary obligations, it did not advance a counterclaim to recover back from Mr. Craig the one month’s notice that it paid upon termination.
B. Admissions that Narrowed the Analysis
[33] The parties agreed that Mr. Craig’s role with CEO Global was as an independent contractor, not as an employee. This admission removed any need to consider whether Mr. Craig’s role with CEO Global may have been in the nature of a dependent contractor or as an employee.
[34] The parties agreed that the Consulting Agreement was terminated by CEO Global on February 28, 2012 and that the effective date of termination was April 28, 2012.
[35] During the closing submissions, the parties jointly submitted that they had reached a consensus, in my view correctly, that the doctrine of after-acquired cause is applicable to my assessment of the propriety of CEO Global’s termination of the Consulting Agreement. Where a party breaches a duty during a contract, including through the notice period, the party to whom the services are provided may have the right to terminate with cause, even where the party had previously terminated without cause and with notice, provided that the just cause existed at the time of termination: Aasgaard v. Harlequin Enterprises Ltd. (1993), 48 C.C.E.L. 192 (Ont. Gen. Div.), aff’d [1997] O.J. No. 1112 (C.A.). The conduct must have occurred prior to the effective date of termination but was discovered afterwards to be pertinent to an assessment of cause. The Supreme Court stated the principle in Lake Ontario Portland Cement Co. v. Groner, 1961 SCC 1, [1961] S.C.R. 553 at pp. 563-564: “The fact that the appellant did not know of the respondent’s dishonest conduct at the time when he was dismissed, and that it was first pleaded by way of an amendment to its defence at the trial does not, in my opinion, detract from its validity as a ground for dispensing with his services.”
[36] The justification for the doctrine of after-acquired cause is that a party whose conduct disentitles her or him from damages for termination ought not to be able to recover such damages by reason of the misconduct not having been discovered, or relied on, at the time of notice of termination: Cyril Leonard & Co. v. Sino Securities Trust Ltd., [1971] 3 All E.R. 1313 at p. 1324 (C.A.), leave to appeal to the House of Lords refused [1971] 3 All E.R. 1324 n; MacIntyre v. Hockin (1889), 16 O.A.R. 498 (C.A.) at p. 501.
C. Issues Requiring Determination
[37] The core issue for determination is whether CEO Global established an entitlement to terminate the Consulting Agreement with cause, and thereby without notice, and is thereby alleviated from paying the one month of remaining Notice and six months of Termination Payments. The operative provision of the Consulting Agreement is section 7(b) (the “Termination for Cause Provision”):
- TERMINATION
(b) For Cause: This Agreement may be terminated by the Client [CEO Global] or by the Consultant [Michael Craig carrying on business as Synergy Solutions] at any time, without notice, for cause which shall include a material breach of one or more of the provisions of this Agreement. If the Agreement is terminated by the Client, the Consultant shall not be entitled to any payment.
[38] The Termination for Cause Provision is satisfied by CEO Global establishing a material breach of a provision of the Consulting Agreement, but can also be activated if CEO Global is able to establish that it has just cause for termination of the Consulting Agreement independent of a material breach. This is because the Termination for Cause Provision states that CEO Global may terminate the Consulting Agreement without any payment to Mr. Craig where it establishes “cause, which shall include a material breach of one or more of the provisions” of the Consulting Agreement.
[39] Mr. Craig contends that CEO Global’s defence constitutes nothing more than an excuse to escape the payment obligations that arise upon termination of the Consulting Agreement without cause. CEO Global contends that it has grounds on which to terminate the Consulting Agreement with cause and thereby without payment to Mr. Craig.
[40] The issues that arise from this trial are as follows:
(a) Has CEO Global established an entitlement to terminate the Consulting Agreement with cause and thereby without payment, based on material breach of the Non-Competition Provision?
(b) Has CEO Global established an entitlement to terminate the Consulting Agreement with cause and thereby without payment, based on material breach of the Confidentiality Provision?
(c) Has CEO Global established an entitlement to terminate the Consulting Agreement with cause and thereby without payment, based on the Plaintiff’s breach of honest contract performance?
[41] I will analyse these issues in order.
III. Has CEO Global Established an Entitlement to Terminate the Consulting Agreement on the Basis of Material Breach of the Non-Competition Provision?
[42] Section 5 of the Consulting Agreement is entitled “Restrictions on Competition” and provides as follows:
5(a) The Consultant [Mr. Craig] agrees that during the term of this Agreement and for a period of twelve (12) months following the termination of it, for any reason, he shall not, directly or indirectly, within the Prescribed Area:
(i) Either as principal or agent, or as consultant, director or officer; carry on, be engaged or concerned; or interested in a business similar to the business carried on by the Client [CEO Global];
(ii) Solicit on his own behalf, or on behalf of any other person, firm, or business entity, business from the Customers of the Client;
(iii) Accept on his own behalf, or on behalf of any other person, firm or business entity, business from the Customers of the Client; and
(iv) Solicit or entice, or attempt to solicit or entice, any of the Employees of the Client to enter into employment or service with any other person, firm or company;
(b) For the purposes of this paragraph;
“Customers” means Members or Prospective Members of the Client;
“Prescribed Area” means the geographic area of Canada and the United States in which the Client carries on business.
[43] There are two distinct restrictions on competition contained in section 5. Section 5(a)(i) constitutes a Non-Competition Provision, and I will refer to it as such. Section 5(a)(ii), (iii) and (iv) constitute, together, a Non-Solicitation Provision, and I will refer to them in this manner.
[44] CEO Global contended that it was justified in terminating Mr. Craig for cause on the basis that he materially breached the Non-Competition Provision. It claimed that Mr. Craig did so both while working with CEO Global and in the one-year time period after termination of the Consulting Agreement. Only Mr. Craig’s conduct prior to the effective date of termination is relevant to my determination of whether CEO Global had cause to terminate the Consulting Agreement without the payment of any compensation to Mr. Craig: Aasgaard.
[45] CEO Global submitted that Mr. Craig competed with CEO Global during the term of the Consulting Agreement and up to the effective date of termination, such that CEO Global was justified in terminating the Consulting Agreement with cause. Mr. Craig responded with two submissions: first, that the Non-Competition Provision is void at law and unenforceable; second, that even if it is enforceable, he did not materially breach the Non-Competition Provision. I will analyse these issues in turn.
A. Is the Non-Competition Provision Enforceable?
[46] The burden of establishing that the Non-Competition Provision is lawful and enforceable is on the party seeking its enforcement: IRIS The Visual Group Western Canada Inc. v. Park, 2017 BCCA 301, 416 D.L.R. (4th) 151 at para. 17. In this case, this is CEO Global.
[47] The general principle applied in most common law jurisdictions is that “non-competition clauses in employment contracts are void”: Lyons v. Multari (2000), 50 O.R. (3d) 526 (C.A.) at para. 19, leave to appeal dismissed, [2000] S.C.C.A. No. 567; ThyssenKrupp Elevator (Canada) Limited v. Amos, 2014 ONSC 3910, 16 C.C.E.L. (4th) 313; Berkeley v. Miller, 2018 ONSC 3645, 48 C.C.E.L. (4th) 264. In Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157 at paras. 15-16, the Supreme Court explained that this is because a non-competition provision in an employment contract is a restraint of trade, and restraints of trade are contrary to public policy considerations because they interfere with individual liberty of action, citing Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., [1894] A.C. 535.
[48] The Supreme Court has stated that restrictive covenants are enforceable only when they are reasonable: Shafron at paras. 17-19; J.G. Collins Insurance Agencies Ltd. v. Elsley, 1978 SCC 7, [1978] 2 S.C.R. 916 at para. 13. This follows from the finding in Nordenfelt at p. 565, that: “It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable.” The onus is on the party seeking to enforce the restrictive covenant to establish that its terms are reasonable: Shafron at para. 27.
[49] In Shafron at para. 22, and in Elsley at paras. 15-16, the Supreme Court drew a distinction between restrictive covenants contained in commercial contracts and in contracts pertaining to employment, noting that different considerations are pertinent to each: also Payette v. Guay Inc., 2013 SCC 45, [2013] 3 S.C.R. 9. In particular, in the employment setting there may be an imbalance in power between the parties to the employment contract.
[50] Dickson J. explained in Elsley at para. 14 that the validity of the restrictive covenant “can be determined only upon an overall assessment, of the clause, the agreement within which it is found and all of the surrounding circumstances”. The reasonableness test for assessment of a restrictive covenant has been found to be applicable to independent contractor relationships as to employer-employee relationships: Winnipeg Livestock Sales Ltd. v. Plewman, 2000 MBCA 60, 150 Man.R. (2d) 82 at paras. 23-24, citing with approval Dynamex Canada Inc. v. Miller (1998), 161 Nfld. & P.E.I.R. 97 (C.A.) at para. 38.
[51] Here, there are three factors that render the Non-Competition Provision unreasonable.
[52] First, the Consulting Agreement contains a Non-Solicitation Provision, which prohibited Mr. Craig from soliciting, enticing or accepting work from Members and Prospective Members of CEO Global. In Lyons at para. 33, MacPherson J.A. stated that: “Generally speaking, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests.” In Elsey at para. 19, Dickson J. stated that only in “exceptional cases” would the nature of employment “justify a covenant prohibiting an employee not only from soliciting customers, but also from establishing his own business or working for others so as to be likely to appropriate the employer’s trade connections through his acquaintance with the employer’s customers.”
[53] I do not consider that this is one such exceptional case, where CEO Global reasonably requires a Non-Competition Provision for the protection of its business once it already has in place the Non-Solicitation Provision that covers both Members and Prospective Members for one year. The Non-Competition Provision would foreclose Mr. Craig from advancing his own business to service clients over whom CEO Global has not asserted any proprietary interest. Also, Mr. Craig contracted to serve CEO Global as an independent contractor, which implies that he would operate independently and that his business would provide service to more than one client. Unlike the circumstances present in Lyons, I find that the Non-Solicitation Provision was sufficient to reasonably protect the interests of CEO Global, such that the Non-Competition Provision is void on this basis alone.
[54] Second, an ambiguous restrictive covenant is prima facie unreasonable. The Supreme Court stated in Shafron at para. 27: “An ambiguous restrictive covenant will be prima facie unenforceable because the party seeking enforcement will be unable to demonstrate reasonableness in the face of an ambiguity”. The ambiguity in the Non-Competition Provision is its prohibition that Mr. Craig cannot engage in or carry on a “business similar to the business” carried on by CEO Global. This presents an ambiguity in the scope of the Non-Competition Provision that was made obvious by the disproportionate amount of trial time expended in debate concerning whether Mr. Craig’s provision of one-on-one executive coaching was a “business similar” to that conducted by CEO Global.
[55] I agree with the finding by Wong J. in Magnetic Marketing Ltd. v. Print Three Franchising Corp. (1991), 4 B.L.R. (2d) 8 (B.C. S.C.) at p. 40-41, that the “use of the words ‘or a business similar thereto’ introduces a massive breadth of possible interpretations and hence introduces great uncertainty and ambiguity into the clause”: applied in Allegra of North America Inc. v. Stevens, 2008 BCSC 1220, 51 B.L.R. (4th) 32 at para. 110. The business of CEO Global in providing professional consulting services to corporate executives is already broad in scope, and the use of the term “business similar” broadens the provision so vastly that it becomes ambiguous and cannot be reasonable.
[56] Third, CEO Global has not established that the geographic scope of the Non-Competition Provision, being “the geographic area of Canada and the United States in which the Client carries on business”, is reasonable. I accept that the Non-Competition Provision was negotiated between Mr. Wilson and Mr. Craig as parties of balanced power in the negotiation process. Both parties had agreed to non-competition provisions in their contractual arrangements with TEC Canada, and so were familiar with the nature of a restrictive covenant. Both had independent legal advice and commented on the provision. However, the reasonableness of a restrictive covenant must take into consideration the “extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of the prohibition”: Shafron at para. 43. CEO Global sought to restrain the business of Mr. Craig as an independent contractor through Synergy Solutions in the entirety of Canada and the United States for a year. There must be a rational basis for the breadth of its reach in order to be reasonable, and this has not been established: ThyssenKrupp at para. 30. I conclude that the geographic scope of the restrictive covenant is unreasonable because its scope is broader than necessary to protect the interests of CEO Global.
[57] As CEO Global has failed to establish the reasonableness of the Non-Competition Provision, it is not necessary to consider whether Mr. Craig has proven that it is contrary to the public interest: Elsley at para. 26.
[58] I conclude that CEO Global has not satisfied its burden of establishing that the Non-Competition Provision is valid and enforceable. I find that it is void.
B. Positions of the Parties on Breach of the Non-Competition Provision
[59] In light of my determination that the Non-Competition Provision is void and unenforceable, CEO Global cannot rely on its breach as a basis for termination of the Consulting Agreement for cause. However, in the event that I have erred in my finding, I have analysed whether CEO Global has established a material breach of the Non-Competition Provision.
[60] CEO Global’s contention that Mr. Craig competed with CEO Global during the term of the Consulting Agreement is based on Mr. Craig’s continued use of a website for Synergy Solutions, and the continued provision of one-on-one executive coaching through Synergy Solutions during the term of the Consulting Agreement. I will analyse the parties’ evidence on this issue.
[61] Mr. Craig testified that when Mr. Wilson approached him to join CEO Global, he was carrying on business through Synergy Solutions: indeed, that he did so while with TEC Canada. He produced a website for Synergy Solutions that he says was operational since at least March 2009. It described in detail that the work of Synergy Solutions was in enhancing productivity and performance of corporate executives through executive coaching.
[62] Mr. Craig testified that on August 29, 2008, he provided, through Synergy Solutions, a proposal to Hamilton Kent to provide executive one-on-one coaching to certain of its executives on an hourly basis. The evidence showed that at the time that Mr. Craig was negotiating with Mr. Wilson to provide services to CEO Global, he was providing executive coaching to one, and at times two, representatives of Hamilton Kent, usually once a month at a rate of $200 each hour.
[63] Mr. Craig testified that he told Mr. Wilson that in order to provide services to CEO Global as an independent contractor he had to maintain more than one client, failing which he would, for the purposes of the Canada Revenue Agency, be characterized as an employee rather than an independent contractor. Mr. Craig stated that this is why he maintained the Synergy Solutions website, the blogs connected with it, and his arrangement to provide executive coaching to a representative of Hamilton Kent during the currency of the Consulting Agreement. Mr. Craig is adamant that this was designed for tax purposes, and not to compete with CEO Global.
[64] Mr. Wilson conceded that Mr. Craig discussed with him that Mr. Craig needed to have income from more than one source in order to qualify as an independent contractor for tax purposes, but stated that this was accomplished by CEO Global paying Mr. Craig for only a portion of his compensation, with the remainder paid by a related entity, American Fleetcard. Mr. Wilson denies that Mr. Craig discussed with him providing executive coaching to solidify his status as an independent contractor.
[65] Mr. Craig did not say that he directly discussed with Mr. Wilson his ongoing business activities with Synergy Solutions. Mr. Wilson testified that he did not. Mr. Craig did not state that he provided Mr. Wilson with a copy of his Proposal to provide executive coaching to Hamilton Kent. Mr. Wilson swore that he did not.
[66] Mr. Craig is certain that Mr. Wilson knew that he maintained the Synergy Solutions website during the years that he was with CEO Global. He stated that if he was concealing this business activity, he was doing so “in plain sight”, as the Synergy Solutions website broadcast throughout 2009 to 2012, to all who cared to look, that Mr. Craig was marketing his services as an executive coach independent of his role with CEO Global.
[67] Mr. Craig and Mr. Wilson strongly disagree on whether the business of providing executive coaching is a “similar business” to the business provided by CEO Global. Mr. Craig says that it is not, that CEO Global occupies itself with peer group learning and high-level speakers and presentations, while the Synergy Solutions executive coaching is one-on-one. Mr. Wilson was adamant that all manner of provision of educational and experiential development to business executives falls within the business of CEO Global and thereby within the scope of the Non-Competition Provision.
[68] Mr. Wilson testified that he was looking for an executive vice-president who was prepared to work fully and exclusively in the development of CEO Global, not a “part-timer”. He is certain that Mr. Craig never told him of his one-on-one coaching with a representative of Hamilton Kent and that had he known, he would not have moved forward with the negotiations with Mr. Craig. Mr. Wilson conceded that the Synergy Solutions website may have been operational throughout but stated that he did not resort to the internet for information gathering, did not conduct any internet searches on Mr. Craig and was thereby unaware of it.
C. Factual Determinations on Plaintiff’s Executive Coaching during the Consulting Agreement
[69] I find that Mr. Craig has established that the Synergy Solutions website was active before, during and after the time that he was with CEO Global. There was no evidence to the contrary. I accept, as well, that Mr. Craig and Mr. Wilson discussed the requirement that Mr. Craig have more than one source of income to qualify, for CRA purposes, as an independent contractor, as this is conceded by the parties. This was accomplished by splitting Mr. Craig’s payments between CEO Global and its related entity, American Fleetcard, but Mr. Craig contended that this was also done by his continued provision of executive coaching through Synergy Solutions.
[70] Mr. Craig conducted business through Synergy Solutions during the term of the Consulting Agreement by providing executive coaching to one representative of Hamilton Kent, and sporadically to one other Hamilton Kent executive. Mr. Craig established that the total monetary revenue earned by him from this executive coaching was on average $337.50 each month, totaling $3,712.50 for the entirety of the 2011 term of the Consulting Agreement and $2,700 for the entirety of the 2012 term.
[71] I do not accept Mr. Wilson’s evidence that he was unaware that Mr. Craig continued to carry on business as Synergy Solutions during the term of the Consulting Agreement for two principal reasons. First, Mr. Wilson’s evidence on this point is inconsistent with the very document prepared and implemented by Mr. Wilson and CEO Global, the Consulting Agreement, a review of which shows the following:
(a) The party who contracted with CEO Global in the Consulting Agreement was “Michael Craig carrying on business as Synergy Solutions”;
(b) The Consulting Agreement was signed by “Synergy Solutions per Michael Craig”;
(c) The address for service of the “Consultant” in the Consulting Agreement was listed as: Synergy Solutions;
(d) Mr. Wilson’s letter of February 28, 2012, delivered to terminate the Consulting Agreement, was addressed to Synergy Solutions, to the attention of Mr. Craig. In this letter, Mr. Wilson proposed terms for the wind-up of their relationship, including that Mr. Craig “stay connected to CEO Global by providing sales and marketing consulting services through Synergy Solutions.”
[72] This documentary evidence, all authored by Mr. Wilson, establishes that he was aware of Mr. Craig’s continued role in Synergy Solutions during the term of the Consulting Agreement.
[73] Second, I do not accept that in the one year of negotiations with Mr. Craig, from March 2009 to July 2010, it never occurred to Mr. Wilson, clearly an experienced businessperson, or to any other member of CEO Global, to conduct an internet search for the business conducted by the independent contractor with whom CEO Global was contracting: Synergy Solutions. Had Mr. Wilson or any member of CEO Global done so, they would have seen the Synergy Solutions website, which overtly marketed that Mr. Craig provided one-on-one executive coaching.
[74] I have determined that Mr. Craig provided one-on-one executive coaching to one, sometimes two, members of Hamilton Kent during the time of the Consulting Agreement through a business known to CEO Global, on average for one hour each month. To contravene the Consulting Agreement, this conduct must rise to the level of a “material breach” of the Non-Competition Provision. I will now assess this.
D. Does the Plaintiff’s Conduct Constitute a Material Breach of the Non-Competition Provision?
(a) Applicable Principles
[75] In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at para. 47, the Supreme Court set out the modern principles of contractual interpretation. The over-riding objective is to determine the intention of the parties by reading the contract as a whole, “giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” The purpose of this contractual interpretation is to achieve “a fair and sensible commercial result”: Eli Lilly & Co. v. Novopharm Ltd., 1998 SCC 791, [1998] 2 S.C.R. 129.
[76] The Termination for Cause Provision states that termination for cause includes “material breach of one or more” of the provisions of the Consulting Agreement. In Guarantee Co. of North America v. Gordon Capital Corp., 1999 SCC 664, [1999] 3 S.C.R. 423 at para. 44, the Supreme Court stated that a breach is “material” when it is “substantial” or “goes to the root of” the contract. In 968703 Ontario Ltd. v. Vernon (2002), 58 O.R. (3d) 215 (C.A.) at para. 16, the Ontario Court of Appeal identified several factors relevant to an assessment of how substantial a contractual breach is:
a) the ratio of the party’s obligation not performed to the obligation as a whole; b) the seriousness of the breach to the innocent party; c) the likelihood of repetition of the breach; d) the seriousness of the consequences of the breach; and e) the relationship of the part of the obligation performed to the whole obligation.
[77] My assessment of whether there has been a material breach of the Consulting Agreement will focus on the character, nature and gravity of the breach alleged by CEO Global in the factual context of the relationship between the parties. To be material, the breach must be substantial, serious and consequential in nature.
(b) Analysis
[78] If Mr. Craig was competing “in a business similar” to CEO Global during the currency of the Consulting Agreement, as CEO Global contends, he did not do so well. Mr. Craig did not acquire a single client through Synergy Solutions while working with CEO Global. The only client for which he provided executive one-on-one coaching outside of CEO Global, an executive with Hamilton Kent, dates back to 2008, some two years before the Consulting Agreement.
[79] An inordinate amount of trial time was expended on the parties’ debate of whether the provision of one-on-one coaching by Mr. Craig to the Hamilton Kent executive(s) for an hour or so a month constituted a “business similar” to that conducted by CEO Global, as required to trigger the Non-Competition Provision. This debate was a factor that I considered in making my determination earlier that the term “business similar” was ambiguous.
[80] The more pertinent analysis was whether Mr. Craig’s provision of one-on-one executive coaching to single client one hour each month constituted any business at all. Mr. Craig earned an average of $337.50 each month for this work. He earned $3,712.50 for this work during the 2011 term of the Consulting Agreement and $2,700 for the 2012 contract term. As a percentage of the compensation received by Mr. Craig from CEO Global this accounts for 1.56% of his earnings.
[81] Presuming that this executive coaching by Mr. Craig was a “business similar” to that conducted by CEO Global, I do not accept that it constitutes a “material breach” of the Non-Competition Provision because it is monetarily and substantively modest: de minimis. If competition for one hour per month constitutes a material breach of the Non-Competition Provision – if it is substantial, serious and consequential in nature – then what would constitute an immaterial breach?
[82] There is another basis on which I find that Mr. Craig’s executive coaching did not constitute a material breach of the Non-Competition Provision sufficient to constitute just cause for termination. Mr. Wilson did not consider that it was material. Mr. Wilson testified that he knew that Mr. Craig was competing with CEO Global at the time that he terminated the Consulting Agreement but nonetheless terminated the Consulting Agreement with notice, thereby not relying on a breach of the Non-Competition Provision.
[83] In his direct examination, in answer to his lawyer’s question concerning why CEO Global waived, in March 2012, the requirement that Mr. Craig be actively involved in the business of CEO Global during the 60 day notice period, Mr. Wilson answered that CEO Global waived the requirement that Mr. Craig work during the 60 day notice period “because we determined he was competing with us. He was in the executive coaching business.” Mr. Wilson testified that he held this belief at the time that he delivered CEO Global’s March 12, 2012 letter to Mr. Craig confirming the termination of the Consulting Agreement effective April 28, 2012, without cause.
[84] During cross-examination conducted the next day in the trial, Mr. Wilson sought to change his evidence. Mr. Wilson stated that he reflected on his direct testimony during the overnight break, and he believed now that he did not know at the time of terminating the Consulting Agreement that Mr. Craig was in the executive coaching business.
[85] Having observed Mr. Wilson’s testimony, I accept as truthful the evidence that he provided in direct examination and reject the correction offered by Mr. Wilson during his cross-examination. Mr. Wilson’s direct testimony that he knew on March 12, 2012 that Mr. Craig was “in the executive coaching business” was provided purposefully and resolutely in explanation of why CEO Global waived the 60-day working notice. It was not prompted or led, in any manner. Mr. Wilson had seven years to reflect on this answer prior to providing it so deliberately, as opposed to his overnight reconsideration to the contrary.
[86] This testimony not only supports my earlier finding that CEO Global knew that Mr. Craig was operating Synergy Solutions during the currency of the Consulting Agreement but also shows that CEO Global knew that he was, during that time, “in the executive coaching business”. Mr. Wilson’s conduct in terminating the Consulting Agreement without cause, notwithstanding his knowledge that Mr. Craig was “in the executive coaching business”, showed that he did not consider this conduct to breach the Non-Competition Provision or, if so, not to breach this covenant in a material way.
[87] Further, this testimony shows that CEO Global did not discover any evidence post-termination that constitutes “after-acquired cause” to entitle CEO Global to terminate the Consulting Agreement based on breach of the Non-Competition Provision. CEO Global knew, during the term of the Consulting Agreement and at the time that it terminated the Consulting Agreement without cause, that Mr. Craig, as an independent contractor, was continuing to carry on business as Synergy Solutions and was “in the executive coaching business”.
(c) Conclusion – CEO Global has not Established Cause on the basis of Material Breach of the Non-Competition Provision
[88] On the basis of my determination that the executive coaching conducted by Mr. Craig through Synergy Solutions during the term of the Consulting Agreement was modest in nature and scope, that Mr. Craig’s executive coaching pre-dated the Consulting Agreement, and on my acceptance of Mr. Wilson’s evidence that he knew that Mr. Craig was “in the executive coaching business” at the time that he provided notice of termination of the Consulting Agreement without cause, I conclude that Mr. Craig’s conduct does not constitute a material breach of the Non-Competition Provision.
[89] Mr. Craig’s once-a-month executive coaching, even presuming that it was a “business similar” to that conducted by CEO Global, simply did not rise to the level of a “material” breach. Not every breach entitles a contracting party to terminate a contract. As Myers J. stated in Reserve Properties Limited v 2174689 Ontario Inc., 2015 ONSC 3469, 56 R.P.R. (5th) 131 at para. 29: “A termination for an immaterial breach is an over-reaction that is not fair and is implicitly beyond the deemed contemplation of the parties at the time that the contract was formed”.
IV. Has CEO Global Established an Entitlement to Terminate the Consulting Agreement with Cause on the Basis of Material Breach of the Confidentiality Provision?
[90] The Confidentiality Provision states that Mr. Craig agrees to keep in strictest confidence all confidential information that he received while with CEO Global, and not to publish, communicate, disclose or use any such information, as follows:
- CONFIDENTIAL INFORMATION
(a) During the term of this Agreement and at anytime thereafter, the Consultant agrees to keep in the strictest confidence all confidential information which he may acquire as a result of the performance of this Agreement and further agrees not to publish, communicate or disclose to any unauthorized third party any such information without the prior written consent of the Client.
(c) The Consultant agrees not to use any confidential information except in the furtherance of his obligations under this Agreement.
(d) The Consultant acknowledges that any wrongful disclosure or use of any confidential information will cause the Client irreparable harm, for which damages will not be adequate compensation. Thus, the Consultant consents to the issuance of an injunction to stop any breach or threatened breach.
(e) Upon the termination of this Agreement, for any reason, the Consultant shall transfer and deliver to the Client, all documents, notebooks and records containing or referring to confidential information of the Client, including copies, computers, software programs, whether complete or in development in the possession or control of the Consultant.
[91] CEO Global submitted that Mr. Craig materially breached the Confidentiality Provision because he obtained and kept in his possession confidential documents. I will assess this issue by reference to the parties’ evidence.
A. Positions of the Parties on the Breach of Confidentiality
[92] Mr. Wilson contended that Mr. Craig breached the Confidentiality Provision by downloading the Client List after he was provided with notice of termination of the Consulting Agreement on February 28, 2012 but prior to the effective date of termination, April 28, 2012.
[93] The Client List auto-records, on a footer on its last page, the details of its downloading: “Generated by Mike Craig 3/4/2012 3:56 pm”. Mr. Wilson testified that Mr. Craig did not ask permission to download the Client List on March 4, 2012 and that he would have had no reason to do so, having just been provided with notice of termination. He was adamant that in the ordinary course of business, the Client List is “never printed” and was available to only three people within CEO Global: Mr. Wilson, his daughter and Mr. Craig. Mr. Wilson said that if Mr. Craig had asked to print the document, he would have been denied permission.
[94] Mr. Wilson emphasized that the Client List is a “valuable document” that contains both actual clients and prospective clients, referred by him as “leads”. Mr. Wilson stated that his company paid for certain of the leads and so had a monetary investment in the development and protection of the Client List. Mr. Wilson testified that the Client List would be very valuable to a competitor.
[95] The evidence showed that Mr. Craig also kept other confidential documents, such as the Business Plan and the Competitor Comparison Chart. Mr. Wilson stated that the Business Plan set out the precise corporate objectives of CEO Global and is a very sensitive document that “he would not want to be in the hands of a competitor”. The Business Plan was created in a strategic planning session conducted on February 14, 2011 with the direct participation and input of Mr. Craig.
[96] Mr. Craig admitted that the Client List is a “highly confidential document” that was, throughout, the property of CEO Global. He conceded, as well, that the Business Plan was proprietary information belonging to CEO Global, as was the Competitor Comparison Chart.
[97] Mr. Craig provided an explanation for printing the Client List after receiving notice of termination. He stated that he printed the Client List in furtherance of the discussions that were underway between him and Mr. Wilson in the period from February 28, 2012 to March 12, 2012, wherein Mr. Wilson proposed that Mr. Craig would continue to provide sales and marketing consulting services through Synergy Solutions. This was established from the parties’ exchange of the following written proposals:
(a) Mr. Wilson proposed on February 28, 2012 that CEO Global would pay Mr. Craig post-termination a specified amount for each new member that he recruited;
(b) In addressing this offer by letter dated February 29, 2012, Mr. Craig placed specifically in issue the identification of the ‘leads’: “I’d like to get clarification on what leads will be passed to me: will it be all member leads, website visit leads, Steelmark leads, event leads, etc?”
[98] Mr. Craig stated that he printed the Client List during these discussions to guide his assessment of the nature of the ongoing role that he would have with CEO Global, to help him understand the current leads and consider further leads that he could identify and present to CEO Global. This explanation addresses why he printed the Client List but does not account for why he did not return it when, on May 12, 2012, Mr. Wilson ended all discussions of a post-termination relationship between Mr. Craig and CEO Global.
[99] Mr. Craig swore that he did “absolutely not” ever use the Client List or the Business Plan or any other confidential information belonging to CEO Global. Indeed, he testified that he did not even recall that he had the documents until conducting a search of documents material to CEO Global for the purpose of trial. Mr. Craig swore that he “never” breached any confidentiality obligation owing to CEO Global and, in particular, “never used” the Client List for any purpose.
[100] Mr. Craig stated that no one at CEO Global requested that he return documents after termination. Mr. Wilson stated that he could not recall precisely, but “cannot imagine” that he would not have asked Mr. Craig to return all documents belonging to CEO Global.
B. Factual Determinations on the Breach of Confidentiality Issue
[101] I accept that the Client List, the Business Plan and the Competitor Comparison Chart constitute confidential information belonging to CEO Global. I will refer to these documents collectively as the “Confidential Documents”.
[102] I find that Mr. Craig printed the Client List from the CEO Global computer system on March 4, 2012, without first having obtained the permission of Mr. Wilson. I do not condone this conduct because in the circumstances present at that time, Mr. Craig ought to have sought Mr. Wilson’s permission to print the Client List.
[103] However, I accept Mr. Craig’s explanation that he printed the Client List to understand the remaining sector of leads that he could target for presentation to CEO Global apart from those already listed as prospects on the Client List. I do so because the timing of the printing of the list coincides with the discussions then-underway between the parties and because the information formed part of the ongoing analysis required by those discussions. Also, Mr. Craig knew that the “salesforce.com” software housing the Client List would create a digital record that he had printed it, recorded as: “Generated By: Mike Craig 3/4/2012 3:56 PM”.
[104] CEO Global established that Mr. Craig did not return the Confidential Documents to it at any time until the days before trial. CEO Global provided no explanation regarding why it did not request the return of confidential information in its letters of February 28, 2012 or March 12 2012, or indeed the letter of May 17, 2012 by which notification was provided of the intention to terminate with cause.
[105] CEO Global did not lead any evidence that it had sustained any damage, or any harm of any nature, by reason of Mr. Craig’s possession of the Confidential Documents. CEO Global did not lead any evidence that Mr. Craig used or disclosed any of the Confidential Documents, at all.
C. Does the Plaintiff’s Conduct Constitute a Material Breach of the Confidentiality Provision?
(a) Applicable Principles
[106] I will apply the principles identified earlier regarding the requirements necessary for CEO Global to establish a “material breach” of the Consulting Agreement. Namely, CEO Global must establish that the breach of the Confidentiality Provision was substantial, serious and consequential in nature in the context of the relationship between the parties.
[107] CEO Global submitted that Mr. Craig breached the Confidentiality Provision in two ways: by failing to return the Confidential Documents, and by his possession of the Confidential Documents.
(b) The Failure to Return Confidential Documents
[108] I do not condone Mr. Craig’s failure to return the Confidential Documents to Mr. Wilson after the effective date of termination of the Consulting Agreement. Mr. Craig is mistaken in his understanding that his obligation to return confidential information was dependent on CEO Global’s request to do so, and that in the absence of an express request, he was alleviated of any such duty. Section 4(e) of the Consulting Agreement imposes on Mr. Craig a positive obligation to return all such documents upon termination of the Consulting Agreement: “Upon the termination of this Agreement, for any reason, the Consultant shall transfer and deliver to the Client, all documents, notebooks and records containing or referring to confidential information of the Client.”
[109] Mr. Craig breached section 4(e) of the Consulting Agreement. However, this duty matured, and the resultant breach of duty occurred “upon the termination” of the Consulting Agreement. As such, this breach on the part of Mr. Craig does not qualify as after-acquired cause, because it is not conduct that occurred prior to effective termination of the employment contract: Kirby v. Amalgamated Income Limited Partnership, 2009 BCSC 1044, 75 C.C.E.L. (3d) 186 at para. 161, relying on Sjerven v. Port Alberni Friendship Centre (1999), 43 C.C.E.L. (2d) 250 (BC SC). To seek a remedy from Mr. Craig for conduct that occurred post-termination, whether in the nature of failure to return documents or competing with CEO Global post-termination, CEO Global was required to do so by way of set-off in its statement of defence or by way of counterclaim. As Doherty J.A. stated in Rodaro v. Royal Bank (2002), 59 O.R. (3d) 74 (C.A.) at para. 60: “It is fundamental to the litigation process that lawsuits be decided within the boundaries of the pleadings”.
(c) Mr. Craig’s Possession of Confidential Information
[110] I do not condone Mr. Craig printing the Client List on March 4, 2012 without the express permission of Mr. Wilson, and not returning it to CEO Global upon termination or, indeed at any time prior to the days before trial.
[111] However, to constitute a material breach of the Confidentiality Provision sufficient to constitute just cause for termination, CEO Global must establish more. CEO Global must establish that Mr. Craig: (a) breached his obligation to keep the confidential information in the “strictest of confidence”; or (b) breached his obligation “not to publish, communicate or disclose to any unauthorized third party any such information”.
[112] Whether confidential information was misused, and if so how, is a factual determination to be made on a case-by-case basis. A detailed evaluation must be made of the actions of the former employee or contracting party: Murphy Oil Co. v. Predator Corp., 2006 ABQB 680, 67 Alta. L.R. (4th) 325 at para. 86; R.B.C. Dominion Securities Inc. v. Merrill Lynch Canada, 2007 BCCA 22, 275 D.L.R. (4th) 385, aff’d on this point, 2008 SCC 54, [2008] 3 S.C.R. 79 at paras. 72-73, quoting Universal Thermosensors Ltd. v. Hibben, [1992] 3 All E.R. 257 (Ch.) at 266-267.
[113] CEO Global did not lead any evidence that Mr. Craig failed to keep the Confidential Documents in confidence or that he, in any manner, published, communicated or disclosed to anyone any of the Confidential Documents. Mr. Craig swore that he has, throughout the last seven years, kept the Confidential Documents in confidence and has not published, communicated or disclosed to anyone any of the Confidential Documents. I accept Mr. Craig’s evidence on his treatment of the Confidential Documents for two reasons.
[114] First, CEO Global did not lead any evidence, at all, that contradicted Mr. Craig’s sworn testimony, which was unshaken by cross-examination, that he has not used or disclosed the Confidential Documents. CEO Global had no evidence that, at any time over the last seven years, it had gained any knowledge, or any indication in its market sector, that would cause it to conclude that any Confidential Documents had been disclosed or used by Mr. Craig. Mr. Wilson stated that competitors of CEO Global were doing better than it in the marketplace, pointing to his perception of increased market presence by MacKay & Associates, without tendering any detail in support. I do not place any weight on this evidence, as I find it to be speculative and not an inference that can reasonably be drawn from the facts presented: R. v. Morrissey (1995), 22 O.R. (3d) 514 (C.A.) at 530: “An inference which does not flow logically and reasonably from established facts cannot be made and is condemned as conjecture and speculation”.
[115] Second, there was no evidence that Mr. Craig’s current business activities, including through Synergy Solutions, have in any way built upon or applied the Confidential Documents. Indeed, Mr. Craig’s business activities over the last number of years did not impact CEO Global sufficiently to cause CEO Global to even plead that Mr. Craig had used its confidential information. It was only Mr. Craig’s very late return of the Confidential Documents that caused CEO Global to seize upon this issue, and not any experience by CEO Global that would lead it to suspect that Mr. Craig had misused its confidential information.
[116] CEO Global submitted that “possession” of confidential information is equivalent to “use” of confidential information, so that Mr. Craig’s admitted “possession” of the Confidential Documents is sufficient to support a finding that he materially breached the Confidentiality Provision. CEO Global did not present to me a single case authority in support of this submission.
[117] My review of the case authorities supports a finding that the Confidentiality Provision is not breached in this case by possession of confidential information that was not used. As Perell J. stated in Maudore Minerals Ltd. v. The Harbour Foundation, 2012 ONSC 4255, 111 O.R. (3d) 660 at para. 90: “It seems trite to say it but a misuse of confidential information requires a use of confidential information.” In Free Trade Medical Network Inc. v. RBC Travel Insurance Co. (2006), 215 O.A.C. 230 (C.A.) at para. 13, a claim of breach of confidence failed because the confidential information had not been misused: also, Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 SCC 34, [1989] 2 S.C.R. 574 at para. 54. In Barrick Gold Corp. v. Goldcorp. Inc., 2011 ONSC 3725, 99 B.L.R. (4th) 1 at paras. 817-834, Wilton-Siegel J. held that there was no breach of confidence, as the defendant had not used the confidential information it possessed in coming to its decision to pursue the business opportunities in question.
[118] Applying the principles of contractual interpretation summarized earlier, “giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”, I find that the Confidentiality Provision requires more than possession to establish a breach, it requires use. Section 4(c) of the Confidentiality Provision states: “The Consultant agrees not to use any confidential information.” Also, section 4(d) contains a presumption of irreparable harm resulting from use of confidential information, but not from its possession: “The Consultant acknowledges that any wrongful disclosure or use of any confidential information will cause the Client irreparable harm for which damages will not be adequate compensation.”
[119] For these reasons, I have concluded that a breach of the Confidentiality Provision, in the context of the Consulting Agreement and the relationship between the parties, requires more than Mr. Craig’s possession of Confidential Documents. It requires also a finding that Mr. Craig used the Confidential Documents in a way that the Confidentiality Provision did not permit.
(d) Conclusion – CEO Global has not Established Cause on the basis of Material Breach of the Confidentiality Provision
[120] Mr. Craig’s conduct in downloading the Client List without CEO Global’s permission, while disappointing, does not, in the particular circumstances of this case, cross the legal line to a material breach of the Consulting Agreement because CEO Global did not establish, indeed did not lead any evidence that Mr. Craig used this information in any way, or that he published, communicated or disclosed this confidential information to anyone.
V. Has CEO Global Established an Entitlement to Terminate the Consulting Agreement with Cause on the Basis of the Plaintiff’s Breach of His Duty of Honest Contractual Performance?
[121] Having determined that CEO Global has not established a material breach by Mr. Craig of the Consulting Agreement, the final issue that I will address is whether CEO Global has established that it had just cause to terminate the Consulting Agreement on the basis that Mr. Craig breached his duty of honest contractual performance.
(a) Applicable Principles
[122] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, the Supreme Court set out two “incremental steps” in contract law. The first was to acknowledge that good faith contractual performance is an organizing principle that recognizes obligations of good faith in contractual performance. The second “incremental step” was the Court’s finding that there is a common law duty, which applies to all contracts, to act honestly in the performance of contractual obligations. Cromwell J. explained the general duty of honesty in contractual performance in Bhasin at para. 73:
I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. [Emphasis added]
[123] It is important to recognize the nature of the duty of honesty set out by the Supreme Court in Bhasin. It consists of a bilateral duty between contracting parties not to lie or to mislead in matters pertaining to performance of the contract. It does not create a fiduciary duty where one otherwise does not exist at law.
[124] CEO Global contends that Mr. Craig breached his duty of honest contractual performance by failing to disclose the Proposal to provide executive coaching to Hamilton Kent and continuing to provide this coaching during the term of the Consulting Agreement; by continuing to operate the business of Synergy Solutions while working with CEO Global; by competing with CEO Global; and by downloading the Client List after notice of termination and not returning the Confidential Documents.
[125] I have already found that Mr. Craig did not materially breach either the Non-Competition Provision or the Confidential Information Provision. However, I will assess all facets of CEO Global’s submission that Mr. Craig breached his duty to act honestly in discharging his duties under the Consulting Agreement.
(b) Analysis
[126] CEO Global relied on two cases that it submitted were directly applicable to an assessment of whether Mr. Craig breached his duty of honesty: V.P.M. Marketing v. Jenne, 2018 ONSC 4627, 83 B.L.R. (5th) 60 and Computer Workshops Ltd. v. Banner Capital Market Brokers Ltd. (1988), 64 O.R. (2d) 266 (H.C.J.), affirmed (1990), 1 O.R. (3d) 398 n (C.A.). I find that the findings in these cases were based on facts that are not present between Mr. Craig and CEO Global.
[127] In V.P.M. Marketing, the defendant Stephen Jenne was found to be in a fiduciary relationship with the plaintiff, and was determined to have breached his duty of good faith or honest conduct by accessing the plaintiff’s database to expropriate clients to his own company, resulting in the transition of the plaintiff’s clients to the defendant. He thereby was found to have appropriated the plaintiff’s clients without any notice to it of his plans to do so.
[128] In Computer Workshops, the plaintiff sued for breach of a supply contract. The defendant contended that it was relieved of any obligation to the plaintiff under the supply contract by reason of the plaintiff’s breach of confidence, breach of fiduciary duty and breach of duty of good faith in agreeing to supply a competitor with a software system similar to that developed for the defendant with use of confidential information supplied by the defendant. The Court found that, in the circumstances, there was an implied term that the plaintiff would not sell a similar system to a competitor and that breach of this term discharged the defendant from any responsibility under the supply contract even though the sale to the competitor did not complete.
[129] On the findings that I have made, these cases are factually distinguishable. I found that Mr. Wilson knew that Mr. Craig was carrying on business as Synergy Solutions, at all times, and that he was involved in executive coaching. As such, there was no deception of CEO Global on these issues. I have found that, unlike in V.P.M. Marketing and Computer Workshops, Mr. Craig did not use or disclose to others the confidential information in his possession belonging to CEO Global.
[130] I have taken into consideration that in the employment context, there is case law suggesting that an employee’s theft of confidential information alone, without use, may in certain circumstances constitute a cause for summary dismissal, not on the basis that it is a breach of confidentiality specifically but that it is a breach of the over-arching implied obligation of good faith: Partridge v. Botony Dental Corp., 2015 ONSC 343, 80 C.H.R.R. D/357 at para. 28, citing Imperial Sheet Metal Ltd. v. Landry, 2007 NBCA 51, 315 N.B.R. (2d) 328 at paras. 33-34; C.H.S. Air Conditioning Ltd. v. Environmental Air Systems Inc. (1996), 20 C.C.E.L. (2d) 123 (Ont. C.J.) at para. 18; Quantum Management Services Ltd. v. Hann (1993), 11 O.R. (3d) 639 (C.A.) at para. 3; Edward Jones v. Klassen, 2006 ABQB 41, 14 B.L.R. (4th) 212 at paras. 34, 35. However, in each of these cases, the former employee was alleged to have used the confidential information against the interests of the former employer.
[131] Mr. Craig failed to disclose to CEO Global the details of his pre-Consulting Agreement Proposal to Hamilton Kent and the details of his once-a-month executive coaching of a single client. I find this to be an omission in disclosure, but not a breach of a duty not to lie or to mislead. Mr. Craig erred in downloading the Client List without CEO Global’s permission and breached the Consulting Agreement by not returning it, together with the other Confidential Documents, upon the effective date of termination. In the absence of any evidence of use or disclosure of the confidential information, or that it was obtained through deceit or by misleading, and in light of my acceptance of Mr. Craig’s explanation of the reason for downloading the Client List and his evidence that it was never used or distributed to anyone, I am not satisfied that this breach rises to the level of dishonest conduct necessary to support a termination of the Consulting Agreement with cause, in the particular circumstances of this case.
(c) Conclusion – CEO Global has not Established Cause on the basis of Breach of the Duty of Honest Contractual Performance
[132] A finding of dishonesty in the performance of a contract requires a solid evidentiary basis for its determination. It cannot be made on speculation or supposition. On the evidence before me, I find that Mr. Craig’s conduct falls short of a breach of the general duty of honest contractual performance as would be necessary to justify termination of the Consulting Agreement for cause.
VI. Disposition
[133] The Plaintiff is awarded judgment against CEO Global in the amount of $150,899, plus pre-judgment interest in accordance with the Courts of Justice Act.
VII. Costs
[134] I encourage the parties to discuss and agree on the issue of costs.
[135] If the parties are not able to agree on the issue of costs by June 21, 2019, the Plaintiff may serve on the Defendant and deliver to me no later than July 5, 2019, written submissions on costs of no more than four pages in length, plus his cost outline, any offer to settle and authorities relied on. The Defendant shall then serve on the Plaintiff and deliver to me, within 15 days of receipt of the Plaintiff’s cost submissions or by July 19, 2019, whichever is earlier, its written submissions of a similar length on the issue of costs.
[136] If neither party delivers written costs submissions by July 19, 2019, I will deem the issue of costs to have been settled.
Sanfilippo J. Released: June 10, 2019
Ontario Superior Court of Justice
Between: MICHAEL CRAIG o/a SYNERGY WORK SOLUTIONS, Plaintiff – and – CEO GLOBAL NETWORK INC., Defendant
Reasons for Judgment Sanfilippo J. Released: June 10, 2019