COURT FILE NO.: CV-17-579766

DATE: 20210325

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LONGBO CHEN

Plaintiff

– and –

MAGINDUSTRIES CORP.

Defendant

C. West, for the Plaintiff

No One Appearing, for the Defendant

HEARD: By Videoconference on March 22, 2021

Chalmers, J.

REASONS FOR JUDGMENT

OVERVIEW

[1] The Plaintiff, Longbo Chen (“Chen”) brings this action for breach of contract and wrongful dismissal arising from his employment with the Defendant, MagIndustries Corp. (“MagIndustries”). By letter dated July 28, 2011, MagIndustries offered to hire Chen as its president and CEO. That letter provides that upon termination, Chen is entitled to a payment of four months per year or partial year of service. The letter also provides that Chen is entitled to a bonus, which is subject to the discretion of the compensation committee of the Board of Directors.

[2] Chen began his employment at MagIndustries on August 1, 2011. He worked in a full-time capacity from August 2011 to the date of his termination on September 1, 2015. No reasons were provided for the termination of his employment. MagIndustries made no payment to Chen following the termination of his employment.

[3] Chen issued the Statement of Claim on July 27, 2017. An attempt was made to personally serve the Claim at the head office of MagIndustries on January 16, 2018. There was no one at the office. The Claim was served by mailing a copy by regular letter mail on January 23, 2018 to the corporate address recorded with the Ministry of Consumer and Commercial Relations pursuant to R. 16.03(6). By order of Master Wiebe dated January 25, 2018, the time for service of the Claim was extended to July 27, 2018. No Statement of Defence was served. The Defendant was noted in default by the Registrar on February 27, 2018. Chen brought a motion in writing for default judgment. The motion came before Sanfilippo, J. on January 29, 2019. Justice Sanfilippo stated that the nature of the damages sought do not allow for default judgment in writing. He ordered Chen to bring the motion for judgment by way of an undefended trial.

[4] The undefended trial proceeded before me today. For the reasons set out below I grant judgment in favour of Chen.

BACKGROUND FACTS

[5] Chen testified at the trial. He was the only witness.

[6] Chen is a Chinese resident. He is currently living in Beijing. He is 52 years of age.

[7] In December 2010, Chen was employed with China National Complete Plant Import and Export Corporation Ltd. as its Vice Chairman and Chief Executive Officer. He had been employed with China National for 27 years. Qiang Jiang, the Chief Executive Officer of Evergreen met with Chen for the purpose of recruiting him to work with Evergreen. Evergreen is a Chinese company thah develops and invests in natural resources and marine engineering businesses. Evergreen was in the process of acquiring MagIndustries and in particular the Mengo Potash Project in the Republic of Congo.

[8] MagIndustries is a publicly traded company incorporated under the Canada Business Corporations Act (CBCA), with its head office at Toronto. It is involved in the development of potash salt deposits and forestry in the Republic of Congo. MagIndustries was purchased by Evergreen in July 2011. Evergreen and its Chairman, Simon Liang indirectly own and control MagIndustries.

[9] After several meetings, Chen agreed to join MagIndustries. In May 2011, he resigned from his position with China National. He was involved in the negotiations which led to the purchase of MagIndustries in July 2011. On July 28, 2011, the parties entered into an employment agreement. The employment agreement was slightly modified by letter dated September 7, 2011. The contract was restated on November 25, 2011. The key terms of the agreement are as follows:

(a) Chen was paid a base salary of $275,000 per annum which was increased to $350,000 per annum on April 26, 2012;

(b) He was entitled to 20 working days paid vacation a year and if the vacation days were not all used, he was allowed to carry over unused vacation days into the next year;

(c) He was entitled to an annual bonus which was subject to the discretion of the Compensation Committee of the Board of Directors; and

(d) If he was terminated from his employment after his first year, MagIndustries was required to pay to Chen a severance of four months base salary per year of service of partial year of service to a maximum of 24 months.

[10] Chen’s responsibilities included overseeing the development of the potash salt mine in the Republic of Congo. This project had a total investment cost of $1.5B. The construction was scheduled to take six years to complete. At the time he was terminated from his employment, the project was halfway through its development. Chen testified that the project was on schedule and proceeding smoothly.

[11] In each of 2012 and 2013, Chen received a bonus of $116,666.67, which was equal to four months salary. In 2014, he did not receive a bonus. Also, no bonus was paid in his final year in 2015. Qiang Jiang advised Chen that the 2014 bonus would be deferred as a result of cash flow issues. Chen was told that same amount in bonus that he received in 2012 and 2013 would be paid once the company had sufficient funds.

[12] On September 1, 2015, Chen was terminated from his employment with MagIndustries. The termination was without cause. Chen testified that in the weeks leading up to his termination there was an internal dispute at the Board level. When MagIndustries was purchased by Evergreen, it terminated an agreement between MagIndustries and Ameropa. Chen believed they should negotiate a resolution with Ameropa. Ms. Liang favoured litigation. According to Chen, his employment was terminated soon after he stated his disagreement with Mr. Liang.

[13] On October 9, 2015, Rich Morrow, the COO of MagIndustries, wrote to Chen to confirm the terms of his final compensation. Mr. Morrow stated that the termination payment would be based on four months per year for 4.08 years of service. The amount was $476,000. He also stated that there were 23 unpaid vacation days and that Chen would be paid $30,962 for the vacation days. He stated that the full amounts would be paid once Chen executed the release.

[14] Chen testified that after he received the letter, he sent an e-mail to Mr. Morrow in which he took issue with the calculation of the severance payment. It is Chen’s position that the severance should be 20 months because he worked a portion of the fifth year before he was terminated. The e-mail was sent on his work computer and he does not have a copy. Although he continued to follow-up with Mr. Morrow, Chen did not receive any payments following his termination. He did not receive the minimum amounts to which he is entitled pursuant to the Employment Standards Act.

THE ISSUES

[15] The following issues are to be determined:

(a) Is Chen entitled to a bonus of 2014 and 2015?

(b) Is Chen entitled to unpaid vacation days?

(c) What is the amount of severance to which Chen is entitled to?

(d) Is Chen under a duty to mitigate?

(e) Is Chen entitled to aggravated or punitive damages? and

(f) Is Chen entitled to his full indemnity costs?

ANALYSIS

Is Chen entitled to a bonus for 2014 and 2015?

[16] The employment agreement is restated in the letter dated November 25, 2011. The agreement provides that Chen is entitled to an annual bonus which is subject to the discretion of the Compensation Committee of the Board of Directors. The agreement does not set out any criteria for the payment of a bonus. Chen received a bonus equivalent to four months of his base salary in 2012 and 2013. The amount of the bonus was $116,666.67 for each year. He argues that he is entitled to be paid the same bonus for 2014 and on a pro-rata basis for the portion of the year he worked in 2015. For the 2014 year, Mr. Jiang advised Chen that he was entitled to a bonus which would be paid once the company had sufficient funds.

[17] I am satisfied that the bonus formed an integral part of Chen’s remuneration. He received a bonus in the amount of $116,666.67 for each full year worked in 2012 and 2013. With respect to 2014, Mr. Jiang confirmed Chen’s entitlement to a bonus in the same amount as in past years but stated that the bonus would be paid once the company had sufficient funds. Chen testified that his work performance was consistent throughout the time he was employed with MagIndustries. He was supervising the construction of the project in the Republic of Congo. He testified that there was no change in his work performance in 2014 or 2015 which would justify a decision to not pay him a bonus. Chen also testified that the bonus was related to the performance of the company. The company was in the construction phase of the project. The mine had not started producing and therefore there was no income being earned. The only performance of the company that could be measured was the progress of the construction. According to Chen, the construction was proceeding smoothly and in a satisfactory manner from 2012 to 2015.

[18] Although Chen’s entitlement to a bonus is discretionary, MagIndustries must exercise that discretion in a fair and reasonable manner. As noted by D. Wilson, J., in Bain v. UBS, 2016 ONSC 5362:

[90] Simply because a bonus is awarded in the sole discretion of an employer does not mean that it can be done in an arbitrary or unfair fashion or that the employer can decide that an employee should not get a bonus without following a fair, identifiable process. The employer may adjust the weight given to various factors, given the market conditions and other changeable criteria, but that does not obviate the requirement that the exercise must be done in a fair manner. The court must analyze the evidence in a particular case and decide whether the process that was followed was fair and reasonable.

[19] Chen carried out his duties in the same manner as he had in 2012 and 2013. He stated that his work performance was consistent throughout. The construction of the project was proceeding smoothly. If the same criteria to determine entitlement to a bonus was used in 2014 and 2015, Chen would be entitled to a bonus – nothing had changed. If MagIndustries wished to change the criteria for entitlement to a bonus, fairness required MagIndustries to advise Chen of the change. No change was communicated to Chen.

[20] The bonus in 2012 and 2013 was the same amount; $116,666.67. It was based on 1/3 of the annual base salary and was not based on any specific performance criteria. I am satisfied that a reasonable way to determine what the likely bonus would have been in 2014 and 2015 is to have regard to the historical earnings: Sager v. TFI International Inc., 2020 ONSC 6608, at para. 64. The amount of the bonus for 2014 is $116,6667.67. The bonus for the eight months worked in 2015 would be 2/3rds of this amount or $77,778.17. The total bonus for 2014 and 2015 is $194,444.67. I find that Chen is entitled to payment of this amount.

Is Chen entitled to his unpaid vacation days?

[21] The employment letter provides at paragraph 5 that Chen is entitled to 20 working days paid vacation per year. Vacation days are accrued at 1.67 days per month of employment. Vacation time can be accrued up to ten business days and taken up to six months after the end of the year.

[22] There is no dispute as to the amount of vacation days deferred and accrued by Chen at the time his employment was terminated. In the letter dated October 9, 2015, Mr. Morrow confirmed that Chen was entitled to payment for 23 vacation days. Chen agrees with the calculation of the accrued and deferred vacation days. The value of the vacation days is $30,962. I find Chen is entitled to payment for the vacation days as calculated by Mr. Morrow.

What is the amount of severance to which Chen is entitled?

[23] The employment agreement provides at paragraph 7 that if MagIndustries chooses to terminate the employment relationship after one year of service, it will pay to Chen a severance of “four months of your base salary per year of service or portion thereof, to a maximum of 24 months.”

[24] There is no dispute that Chen was employed with MagIndustries for four years and one month. In his letter dated October 9, 2015, Mr. Morrow states that the term of service for the purpose of calculating the severance amount is 4.08 years. Mr. Morrow calculated the severance to be $476,000. This is 16.33 months. He based the calculation on four months per year of service, plus .33 months to take into account the fact that Chen worked one month into the fifth year.

[25] It is my view that the calculation by Mr. Morrow is not consistent with the wording of the employment letter. The letter provides that the severance is four months per year of service or portion of year of service. The words, “or portion of year of service” must mean that once a portion of a year is worked, the employee is entitled to an additional four months of notice. Because Chen worked into his fifth year of employment, I find that he is entitled to 20 months severance.

[26] I am satisfied that the wording of the employment letter is unambiguous. If I had found the wording to be ambiguous, I would have resolved the ambiguity in favour of Chen. The employment letter was drafted by MagIndustries, and therefore any ambiguity is to be construed against the interest of the person who drafted the provision: Davenport v. Hudson’s Bay Company, 2006 CanLII 31299 (ONSC), at para. 33.

[27] At the time of his termination, Chen was earning a base salary of $350,000, or $29,166.67 a month. For 20 months, the severance is $583,333.33. I find that Chen is entitled to payment in this amount.

Is Chen under a duty to mitigate?

[28] The employment letter provides that if MagIndustries terminates Chen’s employment, he is entitled to a fixed amount. The letter does not set out any duty on the part of Chen to mitigate his damages.

[29] As noted in Bowes v. Gross Power Products Ltd. (2012) 99 C.C.E.L. 93d) 152:

An employment agreement that stipulates a fixed term or notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.

When parties contract for a specified period of notice or pay in lieu they are choosing to opt out of the common law approach in Bardal. In doing so, the parties should not be taken as simply attempting to replicate common law reasonable notice […]: at paras. 34, 37.

[30] Here, the parties agreed on a fixed amount to be paid in lieu of notice. I am satisfied that there is no obligation on Chen to mitigate his damages.

Is Chen entitled to aggravated or punitive damages?

[31] Chen is claiming punitive or aggravated damages for the manner in which he was terminated. The following three criteria must be established before an award of punitive damages will be made:

(a) the plaintiff must show the defendant’s conduct was reprehensible;

(b) the plaintiff must show that a punitive damage award, when added to any compensatory award, is rationally required to punish the defendant and meet the objectives of retribution, deterrence and denunciation; and

(c) the plaintiff must show that the defendant committed an independent actionable wrong: Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419, at para. 79-80.

[32] In his letter dated October 9, 2015, Mr. Morrow acknowledged that Chen was entitled to a payment of more than $500,000. No payment was made to Chen. MagIndustries failed to pay the minimum amounts to which Mr. Chen was entitled to pursuant to the Employment Standards Act, 2000, S. O. 2000, c. 41, of the Canada Labour Code, R.S.C. 1985, c. L.-2. I am of the view that to dismiss Mr. Chen without cause and to not pay even the minimum amounts of severance is reprehensible conduct. It is my view that the failure to pay the minimum amounts owing pursuant to employment standards legislation is an independent actionable wrong which is separate from the breach of the employment contract: Altman v. Steve’s Music, 2011 ONSC 1480, at para. 137.

[33] The employment letter set out the fixed amount to be paid to Chen upon termination. I am of the view that it is necessary to award an additional amount in punitive damages to deter this type of conduct and to promote the immediate payment of at least the minimum amounts set out in the employment standards legislation. In Altman v. Steve’s Music, the employer failed to pay the minimum amounts required pursuant to the employment standards legislation. The court awarded $20,000 in punitive damages. I am satisfied that this is an appropriate amount to serve as a deterrent and to express the court’s denunciation of MagIndustries’ conduct.

Is Chen entitled to his full indemnity costs?

[34] Chen is successful in this action and is entitled to his costs. He seeks payment of this costs on a full indemnity basis. Chen argues that on the plain wording of the Indemnity Agreement, MagIndustries is required to reimburse him for his fees and disbursements incurred in prosecuting this wrongful dismissal action, on a full indemnity basis.

[35] On August 8, 2015, the parties entered into an Indemnity Agreement. The Agreement provides that MagIndustries is required to indemnify Chen from and against any losses which he “may reasonably suffer, sustain, incur or be required to pay in respect of any Claim”. “Claim” is defined in the Agreement as a civil or “other proceeding of any nature or kind in which the Indemnified Party is involved because of the Indemnified Party’s association with the Corporation.” The Agreement defines “losses” as “all costs, charges, expenses, losses, damages, fees (including any legal, professional or advisory fees or disbursements reasonably incurred), liabilities, amounts paid to settle or dispose of any Claim”. The definition goes on to state that losses includes the amounts which may be required for the “investigation, defence, settlement or appeal of or preparation for any Claim.”

[36] On reading the Indemnity Agreement as a whole, it is my view that the agreement applies to protect Mr. Chen from expenses incurred to defend himself against claims brought against him, and not for the cost to prosecute an action. Losses are defined in the agreement as the expenses incurred to settle or dispose of a claim and include the amounts incurred to pay for the investigation or defence of any claim. The definition does not provide that losses include the expenses incurred to advance or prosecute a claim. I am not satisfied that the costs to bring the action against MagIndustries are expenses for which MagIndustries agreed to fully indemnify Chen.

[37] Although I am of the view that the Indemnity Agreement does not apply to the costs incurred by Chen in this matter, I find that he is entitled to costs on a substantial indemnity basis. In exercising my discretion to award costs, I may consider the conduct of any party that tended to shorten or lengthen unnecessarily the proceedings, or a party’s denial of or refusal to admit anything that should have been admitted: R. 57.01(e) and (g). MagIndustries made no payment to Mr. Chen, not even the minimum payments required under the employment standards legislation. I am satisfied that the failure on the part of MagIndustries to concede any issue or to at least make a payment of those amounts which were not in dispute, justifies an award of costs on a substantial indemnity basis.

[38] Chen filed a Bill of Costs that provides that the value of the billed time on a substantial indemnity basis is $49,539.90 inclusive of the attendance at trial. In addition, the Bill of Costs refers to a claim for unbilled time in the amount of $14,782.50. The unbilled time includes work that was docketed on the file but was not billed to Chen. The purpose of a cost award is to indemnity the successful party. A party is not to recover costs in excess of what the party was actually being charged by the lawyer: LPIC v. Geto Investments Ltd. [2002] O.J. No. 921 (ONSC). I am of the view that Chen cannot make a claim for costs which were not billed to him.

[39] I award costs to Chen fixed in the amount of $50,000, inclusive of counsel fee, disbursements and HST.

DISPOSITION

[40] I grant judgment in favour of Chen and order MagIndustries to pay the following amounts:

(a) Bonus for 2014 and 2015 in the amount of $194,444.67;

(b) Deferred and accrued vacation days in the amount of $30,962;

(c) Severance payment of $583,333.33;

(d) Punitive Damages in the amount of $20,000; and

(e) Pre-judgment interest on the amounts set out in (a) –(d) at the rate of 0.80% per annum from July 27, 2017 to the date of this judgment.

[41] I award costs payable to Chen fixed in the amount of $50,000, inclusive of counsel fee, disbursements and HST.

Released: March 25, 2021

COURT FILE NO.: CV-17-579766

DATE: 20210325

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LONGBO CHEN

Plaintiff

– and –

MAGINDUSTRIES CORP.

Defendant

REASONS FOR JUDGMENT

Chalmers, J.

Released: March 25, 2021