| NEMI Northern Energy & Mining Inc., this dispute turns principally on an interpretation of the relevant terms of the employment contract. Patrick Devlin |
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Reasons for Judgment
INTRODUCTION [1] This is an action arising out of the employment of the plaintiff (“Devlin”) by the defendant, Northern Energy & Mining Inc. (“NEMI”) and the termination of Devlin’s employment by NEMI without notice. [2] The employment, and termination, were governed by contract. There is no issue with respect to just cause, or with respect to a common law determination of reasonable notice, or severance pay. Rather, this dispute turns principally on an interpretation of the relevant terms of the employment contract. [3] Devlin, relying on the contract, seeks a lump sum termination payment in accordance with the terms of the contract, a bonus in accordance with the terms of the contract, punitive damages, and special costs. [4] Devlin testified for the plaintiff. Michael Cooney (“Cooney”), the current Chief Executive Officer (“CEO”) and President of NEMI, testified for NEMI. One other current director also testified for NEMI. [5] I am satisfied that all three of the witnesses told me the truth to the best of their abilities. This case does not turn on findings of credibility. Rather, it turns on inferences to be drawn from the evidence, and contract interpretation. ISSUES [6] The following issues are in dispute: 1. Liability (a) Was Devlin dismissed? If yes, when? In the alternative; (b) Was Devlin constructively dismissed? If yes, when? or, (c) Did Devlin, by his actions, repudiate the contract? 2. Damages (a) What is the amount, if any, of the contractual termination payment? (b) What is the amount, if any, of the contractual bonus due? (c) Punitive damages. BACKGROUND [7] Chronology
Narrative [8] Devlin commenced employment with NEMI as its President and CEO on August 3, 2004. He had previously been a lawyer; NEMI had been one of his clients. [9] Between August 3, 2004 and March 2008, Devlin and NEMI entered into two written employment agreements, both of which were drafted under the direction of Devlin. The first was dated April 8, 2005. The second was dated August 20, 2006. [10] On April 1, 2008, the EEA came into being. It is the agreement which was operative at all material times that concern this trial. [11] The substantive terms of what subsequently developed into the EEA were initially negotiated between Devlin and NEMI’s Compensation Committee. That Committee recommended that those terms be adopted by NEMI’s Board. [12] The full Board approved the recommendations of the Compensation Committee and authorized NEMI to enter into an agreement based on them. This was effected by a Consent Resolution in April 2008 (the “Consent Resolution”). Devlin abstained from this vote. The precise date in April is not noted on the agreement; no contentious issue arises as a result. [13] A law firm was retained to draft the EEA based on the foregoing. Devlin had recommended that NEMI receive independent advice in this regard and recommended the law firm that NEMI hired. This was the first time that NEMI had received independent legal advice regarding its employment relationship with Devlin. [14] The law firm sent a draft of the EEA to Devlin for his review. The draft EEA was entirely the work of NEMI’s law firm. This draft had certain variations from the terms which had been negotiated between Devlin and NEMI, and which had been authorized by the full Board in the Consent Resolution. [15] Devlin understood that the law firm was acting for NEMI and acknowledged the law firm’s suggestion that he obtain independent legal advice before signing the EEA. [16] Devlin satisfied himself as to the terms of the EEA and chose not to obtain independent legal advice. At trial, he testified that he noted the variations that had been proposed by the law firm but did not understand them to be of significance until a much later time - when he learned the details of NEMI’s defence to this action. [17] Devlin and NEMI executed the EEA as drafted by the law firm, dated and agreed to be effective as of April 1, 2008. He began to receive a salary in accordance with its terms. [18] In late 2008 and early 2009, Cooney spearheaded a challenge to the existing Board for the control of NEMI; this included communications to NEMI’s shareholders, which were available to the public, indicating the belief of the dissident shareholders that Devlin was incompetent, dishonest, overpaid, and had not properly fulfilled his fiduciary duties. [19] On March 30, 2009, at NEMI’s AGM, the shareholders elected a new slate of directors (which included Cooney, but did not include Devlin). [20] After the AGM, the new Board held its first meeting. Cooney acted as Chairman. The Board did not make any decision about Devlin’s future employment. It did decide, with advice from NEMI’s advisors, to secure NEMI’s offices and assets, and it proceeded to do so. [21] After that meeting, Cooney and Devlin had a brief meeting at which I find the following occurred: 1. The meeting was conducted courteously and professionally, by both participants, and as amiably as could be expected in the circumstances. 2. Cooney asked for and received Devlin’s keys to NEMI’s offices. Devlin was not surprised by this request; in fact, he had expected it. 3. Cooney suggested that Devlin take some time off. 4. Cooney did not expressly say that Devlin was fired. 5. Devlin told Cooney that he wanted the termination provisions of the EEA honoured and dealt with expeditiously. 6. Devlin believed that, in view of the proxy contest and its result, there was no realistic possibility that NEMI would ask or permit him to continue as an employee of NEMI. [22] Devlin continued to make it known that he wanted his termination settled in accordance with the contract. [23] Devlin’s counsel issued a demand letter to NEMI on April 3, 2009, seeking to complete all termination issues including that a release be granted by NEMI in favour of Devlin. [24] Cooney, on behalf of NEMI, repeatedly advised Devlin that he was not in a position to address the issues of termination and severance and that he and the other new Board members needed more time to familiarize themselves with a variety of NEMI issues. He testified that some of these issues would impact the question of Devlin’s continued employment, or termination, including the question of Devlin’s demand for a release. [25] NEMI continued to pay Devlin’s salary for three pay periods after March 30, 2009 (six weeks). As had been the case in the past, these payments were made by automatic deposit to Devlin’s personal account. He did not return the payments. [26] Devlin commenced this action against NEMI on May 12, 2009. The Consent Resolution [27] In early April 2008, the Board, by Consent Resolution, authorized NEMI to “agree to be bound by an agreement reflecting” the agreement which had been negotiated between Devlin and NEMI. That Consent Resolution also stated that the agreement between Devlin and NEMI “is hereby approved”. After this Consent Resolution was passed, the agreement was sent to a law firm, where various terms were drafted, resulting in the ultimate EEA which was later executed. [28] Relevant sections of the Consent Resolution are as follows: ... WHEREAS the Compensation Committee of the Corporation has approved and recommended to the Corporation that the Corporation enter into an agreement of employment with P.C. Devlin, the President of the Corporation, on the terms set out in the Schedule “A” attached. ... 1. The Corporation be and it is hereby authorized to agree to be bound by an agreement reflecting the substantive terms and conditions as are set forth in Schedule “A” attached to this agreement, together with such other reasonable terms and conditions as may be agreed to and are customary in such executive contracts. 2. The Employment Agreement between the Corporation and P.C. Devlin be and it is hereby approved. 3. The Chairman of the Compensation Committee of the Corporation be and is hereby authorized to settle the definitive terms of the Employment Agreement and any Director is hereby authorized to execute and deliver such Employment Agreement for, on behalf of, and in the name of the Corporation, and the Employment Agreement so executed shall conclusively be deemed to be the Employment Agreement authorized and approved by these resolutions. 4. P.C. Devlin has disclosed to the Board his conflict with respect to voting on this matter involving his employment and has abstained from voting on this matter and signs this consent resolution solely for the purpose of meeting the requirements for a consent resolution of the Directors of the Corporation. .... SCHEDULE “A’ ... BONUS P.C. Devlin will receive an annual bonus equal to 50% of Annual Salary payable upon achieving objectives set and agreed to with the Chairman of the Compensation Committee. .... TERM The Employment Agreement will be for a term of 3 years commencing and effective as of January 1, 2008. ... SEVERANCE If the Employment Agreement is terminated for any reason other than cause justifying dismissal of the President, P.C. Devlin will receive a payout for severance in the amount of salary and bonus (in full) for the period of time equal to the greater of i) the remaining term of the Employment Agreement and ii) 18 months. [My underlining.] The EEA [29] After the Consent Resolution was passed, the agreement was sent to NEMI’s lawyers for drafting. That draft was later sent to Devlin with various changes, and it was ultimately executed. The executed document is the EEA. [30] Relevant sections of the executed EEA are as follows: Section 2: The term of the Executive’s employment with the Company under this Agreement (the “Term”) will be for a term of three (3) years commencing and effective as of January 1, 2008 and ending on December 31, 2010 unless terminated earlier in accordance with this Agreement. ... Section 5.2: 5.2 Termination by Company – The Company may terminate the employment of the Executive by providing the Executive the greater of the Executive's entitlement pursuant to the British Columbia Employment Standards Act or, at the Company's sole discretion, a severance payment in the amount of salary and bonus payable in the period of time equal to the greater of: (a) the remaining term of the Agreement; or (b) 18 months. The Executive agrees that the notice required or amount payable pursuant to this Subsection 5.2 will be the maximum notice or compensation to which the Executive is entitled in lieu of reasonable notice, and the Company will have no further obligations to the Executive with respect to the termination of this Agreement or his employment, including without limitation further severance pay or damages. ... Section 10.5: 10.5 Legal Advice - The Executive acknowledges that it was recommended to him by the Company that he obtain independent legal advice before executing this Agreement, and that by executing this Agreement he represents that he has had the opportunity to do so. ... Section 10.7: 10.7 Entire Agreement - This Agreement (including referenced schedules and the Company's policies and procedures as amended from time to time) constitutes the entire agreement between the Executive and the Company regarding the Executive's employment with the Company, and supersedes all prior understandings and agreements regarding the Executive's employment with the Company. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Executive and the Company other than as expressly set forth in this Agreement. Schedule "A" re: "bonus": The Company shall pay to the executive $300,000 per year less applicable deductions required by law (the "Base Salary"). The Base Salary may be reviewed and adjusted by the Company. The Executive shall be eligible to receive an annual bonus equal to 50% of the Base Salary to be paid by the Company in its sole discretion based on the Executive achieving objectives set and agreed to with the Chairman of the Compensation Committee. [My underlining.] THE TERMINATION [31] No one suggests that Devlin quit. It is agreed that he either: 1. was dismissed; or, 2. was constructively dismissed; or, 3. repudiated the contract. Was He Dismissed? [32] Devlin argues as follows: 1. He was dismissed on March 30, 2009 (after the proxy vote), although he acknowledges that he was not expressly told that this was so. 2. The evidence material to the issue of whether an actual dismissal occurred includes the following: (a) Cooney and the proposed slate of dissident shareholders communicated their belief that Devlin had acted incompetently and without integrity. This was essentially the platform upon which the new slate was elected at the AGM. (b) Because of what had been said of him in the proxy material, Devlin believed that if the shareholders elected the new slate, he would cease to be a director and would also be removed from his role as President and CEO. (c) A few days before the AGM, when events foreshadowed that the result of the proxy vote was inevitable, Devlin phoned Cooney and offered to cooperate in a smooth transition. Cooney did not indicate that Devlin might carry on. (d) Before the AGM, the dissidents' Vancouver lawyer asked for a copy of Devlin's contract. (e) At the AGM, the new slate was elected. 3. NEMI’s shareholders, by electing the new slate, chose to approve and adopt the statements by Cooney’s slate regarding Devlin’s competence and integrity. The election of the new slate was an act of NEMI. The members chose Cooney’s slate to direct NEMI. Therefore, NEMI had approved and adopted the pre-vote statements. 4. NEMI’s Board, appointing Cooney as the person with effective CEO power, chose to approve and adopt the statements by Cooney regarding Devlin's competence and integrity. 5. NEMI’s conduct from March 30th to May 12th was such that he could not trust it to continue to treat him fairly (if he did return to work), and could reasonably conclude only that NEMI had repudiated the entire relationship. 6. The result of the foregoing is that by the meeting of March 30th both Devlin and Cooney (who represented the Board and NEMI) believed that Devlin would not be coming back to work no matter what. 7. This is entirely consistent with NEMI’s subsequent actions, where its inquiries were focused on finding a reason not to pay Devlin. 8. NEMI carried on a “sham” investigation and falsely expressed a possibility of his return to work. There was no clear statement of issues of concern. Rather, there was a fishing expedition regarding many unimportant issues, and a failure to proceed expeditiously. 9. There was no reasonable doubt in Devlin’s mind that his employment had come to an end. [33] NEMI argues as follows: 1. Devlin was not dismissed on March 30, nor at any time after that. 2. He was never told he was dismissed by Cooney or by anybody on behalf of NEMI. 3. The Board had never made a decision to terminate Devlin. In fact, they were still investigating the issue (together with all other NEMI related issues) and it was reasonable and necessary that they do so before they could make any decisions about Devlin’s future, if any, with the company. This process was still ongoing when Devlin repudiated the contract. 4. Not only did Cooney never dismiss Devlin, he never had the authority to dismiss him. Only the Board had such authority. 5. While it is true that Cooney personally favoured Devlin’s dismissal, he did not have the authority to make that decision on behalf of the Board. 6. NEMI was not accountable for Cooney’s pre-proxy vote comments about Devlin’s honesty and competence. Cooney had no power to bind the company in that regard by making any such comments, and he had no intention to do so. 7. Although it is true that Cooney told Devlin to cease active work, and asked for and received Devlin’s keys, he also told Devlin that he (and NEMI) might need Devlin’s help in the transition after the proxy vote. In fact, he did ask Devlin for assistance of that sort from time to time, and Devlin provided it. 8. Both Cooney and Devlin testified that the meeting of March 30, at which Cooney asked for the keys, was conducted professionally, and in as amiable a fashion as might be expected, in the circumstances. Neither party showed any animosity towards the other at that meeting, and each testified in a positive manner about the demeanour of the other at that meeting. 9. He continued to receive his pay cheque for six weeks, that is, until he repudiated the contract on May 12 by commencing action against NEMI. He kept the pay cheques. Was He Constructively Dismissed? [34] Devlin argues as follows: 1. If he was not actually dismissed, he was constructively dismissed due to NEMI’s actions from March 30, 2009 to May 12, 2009. 2. NEMI’s conduct from March 30 to May 12 (if not an actual dismissal) clearly constituted a constructive dismissal in that its acts and conduct clearly demonstrate an intention to no longer be bound by the employment contract. 3. It is not sufficient for NEMI to argue that Devlin was merely suspended. At most, the law permits an employer to suspend in the following circumstances: (a) where there is good reason; (b) where it expresses, at the time of suspension, to be a suspension “with pay” and that it will be for a short period of time; (c) where the employee is not replaced by another person; (d) where the suspension is required to protect the employer’s legitimate interests. 4. If Devlin was suspended, then NEMI breached the employment contract when it suspended him. NEMI’s conduct in that regard was: (a) NEMI did not even consider if there was a need to remove Devlin from active duty; (b) There was no bona fide reason for suspension. Cooney’s explanation that he was following advice of lawyers (or other advisors) to “secure the office” is not a valid reason to suspend. There is no evidence at all to suggest that Devlin was a security concern; (c) NEMI did not tell Devlin he would be paid while away; (d) NEMI did not tell Devlin he might be brought back; (e) NEMI did not undertake any investigation which might possibly have led to a return to active duty. The only investigation was to find cause not to pay. (f) NEMI replaced Devlin with Cooney, as CEO, President, and with respect to all the functions that Devlin had previously performed. 5. On the most favourable version of events for NEMI (suspension, not dismissal), NEMI fundamentally breached Devlin’s employment contract by telling him to go home and do nothing, and by taking steps to replace him. The “suspension” in itself would have been a constructive dismissal. 6. Cooney advanced his proxy campaign on the basis he would change management for the better. One of the first steps taken by the new Board was to do precisely that. Even if Devlin had not been suspended, once Cooney was in place as Chairman with executive powers, Devlin had been demoted from his role as CEO, and that alone would have been a constructive dismissal. [35] While Devlin argues that the date of dismissal was either March 30 or May 12, or some time in between, his pleadings suggest March 30. [36] NEMI argues as follows: 1. The best conclusion to draw from the evidence is that Devlin was asked to take a leave of absence; alternatively, that he was suspended. However, he was not constructively dismissed. 2. NEMI is not accountable for Cooney’s pre-proxy vote comments about Devlin’s honesty and competence. Cooney had no ability to bind NEMI in this regard. 3. Devlin was never demoted. Asking for his keys was reasonable, normal, and usual, in the circumstances. 4. It was reasonable and necessary for NEMI to gather and assess information before any decision could be made about Devlin’s future. A suspension with pay was the most reasonable way to accomplish this. Repudiation [37] NEMI does not argue that Devlin resigned. [38] Rather, it argues that Devlin’s employment ended when he repudiated the contract on May 12, by commencing this action. [39] Devlin concedes that, if he was not dismissed (actually or constructively), then the commencement of the law suit on May 12, was indeed a repudiation by him of the contract. [40] NEMI argues as follows: 1. The commencement of this action by Devlin while he was on a paid leave of absence was premature and amounted to repudiation by him of the EEA. As a consequence of Devlin's repudiation of the EEA, NEMI was relieved of any future obligations of performance under the EEA, including any termination payment. 2. After the proxy contest concluded, it was apparent that Devlin had no intention of continuing his employment with NEMI. Devlin acted as if the Defendant had terminated his employment, when in reality, NEMI had not done so. 3. The new Board had not intended or decided to terminate Devlin's employment as President and CEO at any time prior to the commencement of the action. 4. NEMI relied on the advice of its advisors that the normal procedure after a proxy contest resulting in a change of the board of directors was to secure the company's offices, bank accounts and the like, including asking for keys. Devlin testified that he expected this to take place. 5. The new Board attempted to ensure a smooth transition from the old Board to the new Board. Ensuring a smooth transition required the new Board to get up to speed on the affairs of the Company. This took quite a bit of time, given the immediate demands of the business and delays in obtaining the legal files from NEMI's former solicitors. 6. NEMI continued to pay Devlin's salary while he was on leave. He was aware that his salary was being continued. He did not object to or question why his salary was being continued, nor did he return to NEMI the six weeks of salary paid to him. Conclusion [41] I am satisfied in the circumstances of this case that Devlin was actually dismissed on March 30, although those words were not expressly spoken to him. [42] Dismissal is a matter of substance, not form. It is effective when it leaves no reasonable doubt in the mind of the employee that his or her employment has already come to an end or will end on a set date. [43] The actual act of termination may take many forms, other than a direct firing. What constitutes dismissal is a question of fact. It consists of such act or acts on the part of the employer as amount to a repudiation of the essential obligations imposed on the employer by the contract. This may amount to a dismissal in law, although there has never actually been a formal discharge: Lewis v. Terrace Tourism Society, 2010 BCCA 346. [44] I am satisfied that the foregoing principles apply to the circumstances of this case. [45] I accept NEMI’s argument that the Board, and therefore NEMI itself, cannot be considered to have adopted Cooney’s negative pre-proxy vote comments about Devlin. I also accept that by March 30, the Board had not yet formally made a decision to terminate Devlin. [46] Nevertheless, I am satisfied on the evidence of the following: 1. It is inconceivable that the Board, with Cooney as CEO, would have let Devlin continue as President when as a dissident slate, it had sought election and been elected on a platform revealing to NEMI’s shareholders that Devlin was incompetent, lacking in integrity, a failure at fulfilling his fiduciary duties, and arguably dishonest. 2. It is impossible to imagine that Devlin, in those circumstances, could have continued, or would have been permitted to continue, as President of NEMI. 3. Devlin knew this to be the case. Cooney knew this to be the case. And I find that, objectively, they were correct. [47] I find that, based on the evidence, Devlin was terminated on March 30. [48] If I am wrong about that, then, in the alternative, I conclude, on the basis of the evidence, that Devlin was constructively dismissed on March 30. [49] The Supreme Court of Canada has noted that there is a general principle that where one party to a contract demonstrates an intention no longer to be bound by it, that party is committing a fundamental breach of the contract that results in its termination: Farber v. Royal Trust Co., [1997[ 1 S.C.R. 846. [50] I have also considered various decisions which have been referred to me where a variety of factors have been considered in determining whether a suspension of an employee amounts to a constructive dismissal or a repudiation of an employment contract. Those factors include: 1. the duration of the suspension; 2. whether someone was appointed to replace the suspended employee; 3. whether the employee was asked for his or her keys; 4. whether the employee continued to be paid and receive benefits; 5. whether there is evidence that the employer intended to terminate the employee at that time; and 6. whether the employer suspended the employee in good faith, for example, for bona fide business reasons. Pierce v. Canada Trust Realtor, [1986] O.J. No. 215 (H.C.J.) MacKay v. Avco Financial Services Ltd., [1996] P.E.I.J. No. 115 (S.C.) [51] Where a suspension is made with pay, it is more likely that a court will not find that a constructive dismissal has occurred: Carscallen v. FRI Corp, [2005] O.J. No. 2400 (Ont. S.C.J.) at para. 34, aff’d [2006] O.J. No. 3653 (C.A.). [52] Considering all of the foregoing, I am satisfied that Devlin did not repudiate the contract on May 12 when he commenced this action, because he had already been dismissed by NEMI. THE TERMINATION CLAUSE [53] The amount of payment to which Devlin is entitled to depends upon a consideration of the termination clause (“Clause 5.2”) of the EEA. [54] The parties do not agree upon precisely what Clause 5.2 means, or what it was intended to mean. [55] NEMI argues that Clause 5.2 gives it a discretion to pay Devlin only what he is entitled to pursuant to the Employment Standards Act, R.S.B.C. 1996, c. 113 (“ESA”), that it has exercised its discretion in that manner, and Devlin is therefore entitled only to five weeks’ pay (the minimum required according to the ESA). [56] Devlin argues that Clause 5.2 does not give NEMI that discretion; rather, it gives it a much different discretion. [57] In order to determine the true contract between the parties, the court should first look at the language of the EEA and try to ascertain the intention from the words used, as understood in the material surrounding circumstances. [58] The difference in how the parties interpret Clause 5.2 lies in the meaning of the words “at the company’s sole discretion”, and the significance of the words “the greater of”. [59] The difference is best explained by breaking Clause 5.2 into component parts. [60] NEMI argues that it should be interpreted in a way that it is consistent with the following breakdown of its parts: The Company may terminate the employment of the Executive by providing the Executive the greater of: A. the Executive's entitlement pursuant to the ESA or, at the Company’s sole discretion, B. a severance payment in the amount of salary and bonus payable in the period of time equal to the greater of: (a) the remaining term of the Agreement or (b) 18 months. [My emphasis with respect to underlining, and with respect to the adding of the upper case and lower case letters.] [61] Devlin argues that it should be interpreted in a way that is consistent with the following breakdown of its parts: The Company may terminate the employment of the Executive by providing the Executive the greater of A. the Executive's entitlement pursuant to the ESA or, B. at the Company’s sole discretion, a severance payment in the amount of salary and bonus payable in the period of time equal to the greater of: (a) the remaining term of the Agreement or (b) 18 months. [My emphasis with respect to underlining, and with respect to the adding of the upper case and lower case letters.] [62] In NEMI’s interpretation/breakdown, “at the Company’s sole discretion” suggests a choice between A and B, and it has exercised that discretion by choosing A. [63] In Devlin’s interpretation/breakdown, “at the Company’s sole discretion” suggests only a choice between the alternatives (a) and (b) of part B, but no discretion to choose between A and B. Rather, whether A or B is operative is pre-determined by the phrase “the greater of”. [64] Both counsel agreed that Devlin’s entitlement under part A (“entitlement pursuant to the [ESA]”) would be five weeks’ pay. I note that it is arguable on a reading of the ESA, that the ESA is inapplicable due to the character of Devlin’s employment being for a “definite term”. Since neither counsel made this argument and were agreed that part A had the effect previously noted, I shall proceed on that basis. NEMI’s Argument [65] Clause 5.2 expressly states that, upon termination, Devlin will be entitled to a payment of one or two possible amounts to be determined “at the Company’s sole discretion.” The two possible amounts are: 1. Devlin’s entitlement to payment under the ESA, or 2. a severance payment to be determined in one of two specified ways. [66] Devlin had the opportunity to consult a lawyer. It was suggested to him that he do so. He declined. That he may have misunderstood the legal significance of the changes (drafted by Nemi’s lawyer) to Clause 5.2 cannot benefit him now, simply because NEMI chooses to enforce the agreement. [67] The only agreement that matters is the EEA. [68] Where there is a written contract, the court is required to first interpret the words of the contract according to their ordinary and natural sense in the context of the contract as a whole, and in light of the factual matrix existing at the time the contract was entered into. If the meaning of the words is unambiguous, the agreement of the parties is determined solely from the words used. It is only if the words of the contract can reasonably bear more than one interpretation that the court will consider extrinsic evidence to assist it in determining the intentions of the parties: Gilchrist v. Western Star Trucks Inc., 2000 BCCA 70, 73 B.C.L.R. (3d) 102 at paras. 17 and 18; Shangguan v. Allura International Inc., 2010 BCSC 992 at para. 13; Wernicke v. Altrom Canada Corp., 2009 BCSC 1533 and Prenn v. Simmonds, [1971] 3 All E.R. at 241. [69] The role of the court is to interpret what the parties set down in writing as to their agreement. It is not to change the terms to reflect what the Court may consider to be a more rational or fairer approach: Shangguan v. Allura International Inc., 2010 BCSC 992 [Shangguan]; and Black Swan Gold Mines Ltd. v. Goldbelt Resources Ltd., [1997] 1 W.W.R. 605 at para. 19. [70] The prior negotiations with the Compensation Committee, and the Consent Resolution, are totally replaced by the EEA and merit no consideration in interpreting the EEA. [71] The Consent Resolution does not fully adopt the terms of its Schedule “A”. To the contrary, it expressly authorizes certain types of changes to be made: “together with such other reasonable terms and conditions as may be agreed to and are customary in such executive contracts.” [72] The words in Clause. 5.2, in their ordinary and natural sense in the context of the EEA as a whole, and in light of the factual matrix existing at the time the EEA was entered into, are unambiguous and do not bear more than one reasonable interpretation. [73] It is clear that Devlin's severance was intended to be, and therefore is, limited to his entitlement pursuant to the ESA unless the Company exercised its sole discretion to pay Devlin the greater of the two possible amounts set forth in the latter part of Clause. 5.2. [74] In the circumstances, NEMI has exercised its discretion to limit Devlin’s severance to the amount prescribed by the ESA ? five weeks' pay. Devlin has been compensated for six weeks' pay from March 30, 2009, the date pled as the day the dismissal took place. Therefore, NEMI has discharged its obligations as required under the EEA and no further payments are owing to Devlin. Conclusion [75] Concerning the construction of terms and the common intention of contracting parties, H.G Beale, ed., Chitty on Contracts, 30th ed. vol. 1. (London, Sweet & Maxwell, 2008) [Chitty] states the following at para. 12-043: Intention of the Parties. The task of ascertaining the common intention of the parties must be approached objectively: the question is not what one or the other of the parties meant or understood by the words used, but: “... the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.” [Internal citations omitted.] [76] In my view, Nemi’s interpretation of Clause 5.2 has a fatal flaw: it renders the words “the greater of” (the first time they appear) meaningless and superfluous. It makes no sense and is a logical inconsistency for the clause to mandate that NEMI should pay “the greater of” the choices (A or B), and also provide NEMI with a discretion to not pay “the greater of” those two choices. [77] The better interpretation is to give meaning to the words “the greater of”. Devlin’s interpretation accomplishes that. It means that: 1. NEMI must pay “the greater of A or B”, and has no discretion in this regard; then, 2. if B is “greater”, NEMI has a discretion to choose between (a) or (b). [78] Since B is clearly “greater” than A, on the evidence in this case, NEMI has no discretion to pay the amount indicated by A. Rather, its only discretion is between (a) and (b) under B. [79] Any suggestion that the clause gives NEMI a discretion to choose to terminate Devlin with five weeks’ salary (pursuant to the ESA) fails to give effect to the phrase “the greater of”. If there was to be discretion for NEMI to choose between A and B, then the parties would not have included the phrase “the greater of”. [80] Devlin’s interpretation is objectively the more reasonable one, and I am satisfied reflects the intention of the parties, without reference to any extrinsic factors. However, the factual matrix also supports Devlin’s interpretation, for three reasons: 1. It is much more consistent with what Devlin would be entitled to if this matter were to be resolved on the basis of common law factors relating to employment termination. 2. It is much more consistent with what is expressed in the Consent Resolution. 3. Counsel are agreed that the ESA mandates a minimum legal requirement of five weeks’ pay. Consequently, its inclusion as part A of the lawyer-drafted EEA is explained by the simple need for the parties to recognize that there is such a minimum legal requirement. In all the circumstances, this provides a more logical and reasonable explanation for its inclusion than that it was intended by the parties to be available to the company as a matter of “sole discretion”. [81] The common law factors that would, in a non-contract case, affect Devlin’s compensation include: 1. Devlin was first employed as NEMI's President on August 3, 2004. At that time there was no written employment agreement. But there would have been an implied term of reasonable notice. 2. The character of Devlin’s employment as the most senior position in the company’s hierarchy. 3. In the first employment agreement dated April 8, 2005, the termination clause included one year's “fee”. 4. In the second employment agreement dated August 20, 2006, the termination clause was a lump sum equal to salary and bonus for the greater of 12 months or balance of term. [82] The Consent Resolution approved the negotiated agreement which included a termination clause which calls for a severance payout of salary and bonus (in full) for the greater of 18 months or balance of term. [83] There is no evidence, other than Devlin’s, as to why he might agree to a contract that might pay him far less than the amount he had negotiated for, and which the Consent Resolution appears to have approved. There is no evidence, other than Devlin’s, as to what caused him to apparently agree to five weeks’ pay as mandated under the ESA, when he had negotiated a payment of at least 18 months’ pay. No member of NEMI’s current Board (including Cooney) gave evidence on this point. That is not surprising, since none of them were members of the Board at the time of the Consent Resolution, or of the execution of the EEA. No member of NEMI’s previous Board (except for Devlin) was called to give evidence on this point. The lawyer, or lawyers, who made the changes in the document which became the EEA also did not give evidence. The only evidence on this point was Devlin’s. He testified that he did not understand that he was agreeing to this; he did not consider the interpretation that NEMI now puts on Clause 5.2, until after he learned of its position with respect to this action. I accept Devlin’s evidence in this regard. [84] With respect to the Consent Resolution, it is important to note that Clause 5.2 of the EEA is not in the same form as Schedule A of the Consent Resolution. After it went to NEMI’s lawyers, and before Devlin signed it, it had added to it the words “the greater of” and the words “at the Company’s sole discretion”. The Consent Resolution authorized NEMI to make changes to the negotiated terms of settlement by using the following words: “together with such other reasonable terms and conditions as may be agreed to and are customary in such executive contracts.” There is no evidence from any witness that the changes made to Clause 5.2 “are customary in such executive contracts.” Once again, there is no evidence from any witness as to how or why these changes came about, except that Devlin testified that he noted them when he received the document from NEMI’s lawyer; he simply did not consider that those changes might create the possibility of an interpretation in the manner that NEMI now suggests. [85] To this point, the analysis of Clause 5.2 has not dealt with the phrase “the greater of” the second time it appears, that is, within part B of the Clause. I turn to that consideration now. [86] I have already indicated my acceptance of Devlin’s interpretation/breakdown of Clause 5.2, with the result that the phrase “at the company’s sole discretion” applies only to the two choices ((a) and (b)) within part B. That being the case, the phrase is once again logically inconsistent with the phrase “the greater of” the second time it appears. It makes no sense for the Clause to allow NEMI a discretion to choose between (a) and (b) and to also mandate that “the greater of” (a) or (b) shall prevail. [87] In my view, these two phrases “at the company’s sole discretion”, and “the greater of” are irreconcilable. For the Clause to have meaning, one of them must be rejected and ignored. [88] Analyzing Clause 5.2 objectively, it is clear that the parties intended NEMI to have a discretion. The objective analysis has already determined that that discretion is not to choose between A and B. It follows that it must be to choose between the options within part B, that is, between (a) and (b). Therefore, the phrase concerning discretion must be given meaning and the phrase “the greater of”, must be rejected and ignored. There is no way for that phrase to have meaning if there is to be meaning given to the phrase concerning discretion. [89] Does the law permit the court to reject and ignore a phrase in a contract in order to carry out the intention of the parties? In my view, it does. The most reasonable interpretation is that the sole discretion is intended to modify part B, and more specifically the selection between (a) and (b). To give effect to the second appearance of the phrase “the greater of” in part B is to vitiate the sole discretion of the company. The most reasonable explanation is that the parties could not have intended such a consequence by the presence of the second phrase “the greater of”. The parties intended there to be discretion. In step with this finding is an apt quote found in Chitty at para. 12-077: Rejecting. ... If there is in a contract a word or phrase to which no sensible meaning can be given or which is mere surplusage, it may be rejected to carry out the intention of the parties. Inconsistent or repugnant words or expressions, if they cannot be harmonised, must similarly be rejected. [Internal footnotes omitted.] To reject the second phrase “the greater of” under part B is to carry out the mutual intention of the contracting parties. [90] In order to carry out the intention of the parties, it is necessary to reject the phrase “the greater of” the second time it appears within Clause 5.2. I hereby do reject and ignore it. Once that is done, part B is clearly understandable and expresses the true intention of the parties. [91] It follows that the correct interpretation of Clause 5.2, which manifests the intention of the parties, and which is supported (although it is not necessary) by the extrinsic evidence, is as follows: 1. The phrase “at the company’s sole discretion” does not offer a choice between A and B, but does offer a choice within part B, between options (a) and (b). 2. The phrase “the greater of” within part B is rejected and ignored in interpreting the contract, and the intention of the parties. [92] I have considered the notion that one could achieve a grammatically and logically correct meaning to Clause 5.2 in two other ways: 1. By rejecting entirely the phrase “at the company’s sole discretion”, but retaining the phrase “the greater of” both times that it appears in the Clause. 2. By agreeing with NEMI’s interpretation/breakdown and accepting that the phrase “at the company’s sole discretion” provides a choice between A and B, while rejecting the phrase “the greater of” the first time that it appears in the Clause. [93] While I have considered the two foregoing possibilities, I reject them both on the basis that neither provides the most likely and reasonable meaning, when Clause 5.2 is viewed objectively. I also conclude that neither of those possibilities expresses what I consider to have been the true intention of the parties in this case. [94] I find the foregoing to be so, on a plain reading of Clause 5.2. I also find it to be so when the Clause is measured against the extrinsic evidence already referred to. [95] Since B is greater than A, in Clause 5.2, NEMI is left with a discretion to choose between sub-clause (a) and sub-clause (b). There is no dispute but that the “remaining term of the agreement” (that is, sub-clause (a)) is more than “18 months” (that is, sub-clause (b)). I am satisfied that NEMI would have chosen the lesser of those two options, that is, sub-clause (b). [96] It follows that the correct interpretation of Clause 5.2 is that Devlin is entitled to his salary for 18 months from the point of termination. [97] Since I have determined that he was dismissed on March 30, he is entitled to his salary for 18 months from that date. Therefore, the six weeks’ pay that he continued to receive from that date until those payments stopped, form a portion of that 18 months. BONUS [98] Schedule “A” of the Consent Resolution indicates the following: If the Employment Agreement is terminated for any reason other than cause justifying dismissal of the President, P.C. Devlin will receive a payout for severance in the amount of salary and bonus (in full) for the period ... [My underlining.] [99] Clause 5.2 indicates in its first paragraph that: ... at the Company’s sole discretion, a severance payment in the amount of salary and bonus payable .... [My underlining.] [100] Schedule “A” of the EEA indicates the following: The Executive shall be eligible to receive an annual bonus equal to 50% of the Base Salary to be paid by the Company in its sole discretion based on the Executive achieving objectives set and agreed to with the Chairman of the Compensation Committee. [My underlining.] Devlin’s Argument [101] Devlin is entitled to a pro-rated bonus for 2009, for his service from January 1 to May 12. [102] The starting point is the language of Clause 5.2 of the EEA which provides “a severance payment in the amount of salary and bonus payable ... [for 18+ months.]” [103] Schedule “A” of the EEA sets the Base Salary at $300,000 per year. It also states that Devlin shall be eligible for “an annual bonus equal to 50 percent of the Base Salary”, that is, $150,000. [104] The bonus in the formal agreement is measured against “objectives”. This means that the parties each year are to set reasonable objectives and the employee is to be assessed for achievement. NEMI’s wrongful dismissal of Devlin ended the process. Surely, it cannot avoid its contractual obligation by breaching the employment contract in this manner. NEMI should be required to make a payment at the time of termination. [105] When the surrounding circumstances are considered this becomes even more clear. Those surrounding circumstances include: 1. The Consent Resolution preceded the EEA. It required “a payout for severance in the amount of salary and bonus (in full) for the period”. The termination payment requires payment of bonus “in full” in the event of a non-cause termination. 2. Cooney took over from Devlin. He earned a $150,000 bonus for his service during the first year. 3. For the period August, 2004 to April, 2008, Devlin received bonuses of $300,000, averaging just over $75,000 per year. [106] Case law supports the proposition that where a bonus, though in some respect discretionary, is based on performance against objectives, and is an “integral part of the compensation”, an award is appropriate: Ivanore v. Bastion Development Corp. (1993) 47 C.C.E.L. 74 (B.C.S.C.) [Ivanore]; Marlowe v. Ashland Canada Inc., 2001 BCSC 954 at para. 115; Gillies v. Goldman Sachs Canada Inc., 2000 BCSC 355 at para. 80, rev’d on other grounds 2001 BCCA 683; and Wilson v. UBS Securities Canada, 2005 BCSC 563. [107] These cases support the proposition that where a bonus is dependent upon discretion of the employer, that discretion must be exercised reasonably: Ivanore. [108] The bonus is payable (even if Clause 5.2 is interpreted in the manner that NEMI suggests with respect to what amount of salary is payable), because of the wording in the first paragraph indicating “a severance payment in the amount of salary and bonus payable ...”. [109] The cases relied upon by NEMI are not applicable because in each of those cases the bonus was payable purely on the basis of discretion. In the instant case, there are objective factors upon which the discretion must be based, such as the achieving of objectives and an agreement with the Chairman of the Compensation Committee. [110] The amount of the bonus for the five and a half months from January 1 to the date of termination should be assessed as follows: 1. For the period August, 2004 to April, 2008, Mr. Devlin received bonuses of $300,000, or just over $75,000 per year. 2. The EEA entitles Devlin was to receive a bonus of $150,000 - 50% of his base salary on achievement of objectives. 3. Objectives were set by spring 2008 for the 2008 calendar year. No bonus was received for 2008, for reasons that Devlin explained, involving the economy, the failure to expand NEMI's asset base, and the reduction of certain of NEMI’s other interests. 4. Devlin testified that for calendar year 2009, objectives were to be set in with the Chairman of the Compensation Committee in the early part of the year, but they were not set due to the events that resulted in the March 30 termination of his employment. 5. The average bonus in prior 12 month periods was $75,000. That average bonus should be used to determine the bonus for 2009. If he was dismissed on May 12, he is entitled to 5/12ths of $75,000; if on March 30, he is entitled to 3/12ths of $75,000. Conclusion [111] I am satisfied in the circumstances of this case that no bonus is payable to Devlin. [112] The bonus provision in Schedule "A" of the EEA is clear that: (a) it is payable in the Company's sole discretion; (b) is based on the Executive achieving objectives; and, (c) those objectives must be set and agreed to with the Chairman of the Compensation Committee. None of these occurred. [113] There is no potential ambiguity about the use of the discretion referred to in the EEA of the sort complained of by Devlin with respect to the amount of salary payable. There is therefore no reason to look at the wording of what appears in the Consent Resolution. [114] Any bonus that Devlin may have become entitled to receive during the term of the EEA was payable at the sole discretion of NEMI; was payable annually and not periodically; and, was to be based on the subjective assessment by the Board of the performance of the Company and Devlin. [115] Further, Schedule “A” states that the employee “shall be eligible to receive”. This wording suggests the notion of discretion, rather than entitlement. If it were otherwise, it would read “entitled to receive”, rather than “eligible to receive”. [116] Devlin had never received a bonus for service rendered pursuant to the EEA. Upon signing the EEA, Devlin received a one-time only bonus in the amount of $150,000 for services prior to the EEA. He was granted a similar one-time bonus in the amount of $150,000.00 for past services by a Board Resolution made in 2006. He did not receive a bonus for 2008. It can hardly be said that two $150,000 bonuses payable in this manner, over a four and a half year period, entitles an employee to an annual bonus based on an average of those amounts. [117] Devlin testified that he and the Chairman of the Compensation Committee, discussed Devlin's and NEMI’s performance for the 2008 year and it was mutually agreed that it was not appropriate to grant Devlin a bonus for that year. [118] No objectives were set and agreed to for the 2009 year between Devlin and the Chairman. Therefore, it is impossible to determine if Devlin "earned" any bonus prior to his alleged dismissal. In any event, Devlin's bonus is payable at the Company's sole discretion, and only payable and determinable at the year's end (not on a periodic basis). [119] The provision providing for payment of a bonus to Devlin under Schedule “A” of the EEA was discretionary in the true and literal sense, and, as the contents of the foregoing paragraphs demonstrate, did not form a part of his overall compensation package. [120] Factors considered by courts in deciding whether a bonus is an integral part of a claimant's compensation include whether: 1. A bonus is received each year although in different amounts; 2. Bonuses are required to remain competitive with other employers; 3. Bonuses were historically awarded and the employer had never exercised his discretion against the employee; and 4. The bonus constituted a significant component of the employee's overall compensation. Zeidel v. Metro-Goldwyn May Studios Inc. d.b.a. MGM Home Entertainment Canada, 2004 BCSC 1415 at para. 32. [121] A consideration of the foregoing factors does not support Devlin’s claim for a bonus. PUNITIVE DAMAGES [122] Devlin argues as follows: 1. An award of punitive and/or what are referred to as Wallace damages, are appropriate according to the principles set out in: Nishina v. Azuma Foods (Canada) Co. Ltd., 2010 BCSC 502, and Honda Canada Inc. v. Keays, 2008 SCC 39 ,[2008] 2 S.C.R. 362 [Honda.] 2. If NEMI is required to pay the termination payment and bonus arrears, it will not have yet compensated Devlin for his losses. He is entitled to be placed in the position he would have been in had the contract been performed. If the contract had been performed, he would have been dismissed with a termination payment. He would not have had to deal with a lengthy and expensive process where the defendant maintained it had just cause by reason of alleged failure to cooperate in an investigation or that he had himself repudiated the agreement, when the truth is that NEMI dismissed him immediately after the Board meeting. Extra damages should be awarded in respect of this separate wrong. 3. He was defamed by Cooney during the pre-proxy vote period, and NEMI has subsequently done nothing to correct that wrongdoing. 4. In addition, NEMI pled in its statement of defence that Devlin had been dismissed for just cause. NEMI did not abandon that claim until it was in the course of final submissions during this trial. [123] Punitive damages in the context of a wrongful dismissal were recently at issue in Honda, where Bastarache J. emphasized at para. 68 that: ... punitive damages should “receive the most careful consideration and the discretion to award them should be most cautiously exercised” (Vorvis, at pp. 1104-5). Courts should only resort to punitive damages in exceptional cases (Whiten, at para. 69). The independent actionable wrong requirement is but one of many factors that merit careful consideration by the courts in allocating punitive damages. Another important thing to be considered is that conduct meriting punitive damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment” (Vorvis, at p. 1108). [124] The Honda decision notes that a confusion between damages for conduct in the manner of a wrongful dismissal and punitive damages is “unsurprising”, given that both claims concern conduct at the time of dismissal: at para. 60. A key distinction is that the former are compensatory in nature while the latter are not. Punitive damages ought to be “restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”: Honda at 62. Failure to draw this distinction may lead to duplication in damage awards. In light of the foregoing, a discussion of compensatory damages owing to the manner of dismissal in the wrongful dismissal context is warranted. [125] The normal distress and hurt feelings resulting from the termination itself are not compensable; rather, it is only those damages resulting from the manner of dismissal which are compensable: Honda at paras. 57 and 58. To this end, damages resulting from the manner of dismissal are available only if they result from the circumstances described in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 and noted in Honda at para. 57: ... namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” (para. 98). [126] I am satisfied that this is not an appropriate case for the awarding of either punitive damages or what are sometimes referred to as Wallace or, more recently, moral damages. My reasons are as follows: 1. Devlin spent a great deal of time at Trial going through Cooney's public statements made prior to the proxy contest. He alleges that the statements made by Cooney were defamatory, went to his integrity, and affected his reputation. Cooney's statements were just that – that is, Cooney's – and not NEMI’s. What was said or allegedly said by Cooney prior to or during the proxy contest does not give rise to damages payable by NEMI to Devlin. 2. NEMI ‘s actions post-proxy contest were not unfair or in bad faith. The new Board acted on the advice of its advisors to ensure a smooth transition. 3. Punitive damages should only be resorted to in exceptional cases. This is not such a case. Devlin was not surprised by the events that transpired, and even expected them. He continued to be paid. It was not in bad faith or malicious for NEMI to take the time to conduct appropriate inquiries before it would agree to grant Devlin a release. 4. The actions of NEMI was not conduct which was “harsh, vindictive, reprehensible and malicious.” 5. The actions of NEMI were not in bad faith, untruthful, misleading or unduly sensitive. DECISION [127] A summary of my conclusions: 1. Devlin was wrongfully and actually dismissed; in the alternative, he was constructively dismissed. 2. The date of his dismissal was March 30, 2009. 3. He did not repudiate the employment contract. 4. He is entitled to 18 months’ salary from the date of dismissal. 5. His claim for a bonus is dismissed. 6. His claim for punitive damages, and/or damages for the manner of termination, is dismissed. 7. He is entitled to pre-judgment interest. [128] If the parties are unable to resolve the question of costs, they may arrange to set the matter down for a convenient date. “Silverman J.” Devlin v. NEMI Northern Energy & Mining Inc.,
2010 BCSC 1822 Date: 20101217 Docket: S093523 Registry: Vancouver Between: Patrick Devlin Plaintiff And NEMI Northern Energy & Mining Inc. Defendant Corrected Judgment: The text of the judgment was corrected at Paragraphs 89 and 96 on December 22, 2010
Before: The Honourable Mr. Justice Silverman |