Dumbrell v. Regional Group of Companies Inc. et al., (2007) 220 O.A.C. 64 (CA)

• Judge: Doherty, Moldaver and Sharpe, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: October 23, 2006
• Jurisdiction: Ontario
• Citations: (2007), 220 O.A.C. 64 (CA);2007 ONCA 59;85 OR (3d) 616;279 DLR (4th) 201;25 BLR (4th) 171;[2007] CarswellOnt 407;[2007] OJ No 298 (QL);154 ACWS (3d) 1097;220 OAC 64;55 CCEL (3d) 155

Dumbrell v. Regional Group (2007), 220 O.A.C. 64 (CA)

MLB headnote and full text

Temp. Cite: [2007] O.A.C. TBEd. FE.007

J. Michael B. Dumbrell (plaintiff/respondent) v. The Regional Group of Companies Inc. and Steven H. Gordon (defendants/appellants)

(C43885)

Indexed As: Dumbrell v. Regional Group of Companies Inc. et al.

Ontario Court of Appeal

Doherty, Moldaver and Sharpe, JJ.A.

January 31, 2007.

Summary:

Dumbrell was employed by Regional as a real estate developer on a contract under which Dumbrell received 50% of profits on projects he developed. Dumbrell unsuccessfully attempted to arrange a commercial property purchase. After Dumbrell left Regional, Regional formed a syndicate to purchase the property with third party investors and realized a profit. Dumbrell sued Regional and its principal, Gordon, claiming 50% of the profit.

The Ontario Superior Court, in a decision reported at [2005] O.T.C. 525, allowed Dumbrell's action on the basis of breach of contract. Dumbrell was entitled to 50% of the profits earned by the syndicate. Regional and Gordon were both held liable. Regional and Gordon appealed.

The Ontario Court of Appeal allowed Gordon's appeal, setting aside the trial judge's finding regarding Gordon's personal liability and dismissing the action against Gordon. The Court allowed Regional's appeal in part, varying the trial order to provide that Dumbrel was entitled to 50% of the profits realized by a 73.33% interest in the syndicate, excluding the portion of the syndicate owned by third party investors.

Company Law - Topic 251

Nature of corporations - General - Distinct legal personality - Dumbrell was employed by Regional as a real estate developer on a contract under which Dumbrell received 50% of profits on projects he developed - Dumbrell unsuccessfully attempted to arrange a commercial property purchase - After Dumbrell left Regional, Regional purchased the property and realized a profit - Dumbrell sued Regional and its principal, Gordon, claiming 50% of the profit - Dumbrell was successful at trial on a breach of contract claim for which the trial judge found both Regional and Gordon liable - In supplemental reasons regarding Gordon's personal liability, the trial judge spoke of "piercing the corporate veil" and described Regional as Gordon's agent for the contract's purposes - Gordon appealed the finding regarding his personal liability - The Ontario Court of Appeal allowed the appeal - There was no basis for describing Regional as Gordon's agent nor was any case made out for ignoring Regional's separate legal persona - The employment contract clearly described Dumbrell as Regional's employee - Gordon's total ownership and control of Regional and the fact that he made all decisions on behalf of Regional did not detract from Regional's standing as a separate and distinct legal entity - Further, there was no evidence that Regional had been inserted into the transaction for a fraudulent purpose - See paragraphs 77 to 83.

Company Law - Topic 310

Nature of corporations - Lifting the corporate veil - General - [See Company Law - Topic 251 ].

Company Law - Topic 4185

Directors - Liability of directors - Inducing breach of contract by company - Dumbrell was employed by Regional as a real estate developer on a contract under which Dumbrell received 50% of profits on projects he developed - Dumbrell unsuccessfully attempted to arrange a commercial property purchase - After Dumbrell left Regional, Regional purchased the property and realized a profit - Dumbrell sued Regional and its principal, Gordon, claiming 50% of the profit - Dumbrell was successful at trial on a breach of contract claim for which the trial judge found both Regional and Gordon liable - In supplemental reasons regarding Gordon's personal liability, the trial judge referred to authorities that held a directing mind of a company liable for inducing a breach of contract by the company - Gordon appealed the finding regarding his personal liability - In allowing the appeal, the Ontario Court of Appeal indicated that Gordon could not be held liable for inducing a breach of contract as that cause of action had not been pleaded - Further, to establish the tort, it had to be shown that the director's conduct was not bona fides in the corporation's best interest - Nothing indicated that Gordon caused Regional to act to its detriment - See paragraphs 84 to 88.

Company Law - Topic 4186

Directors - Liability of directors - For employees' wages or debts for services performed for corporation - [See Company Law - Topic 251 ].

Contracts - Topic 7406

Interpretation - General principles - Interpretation by context - Dumbrell was employed as a real estate developer on a contract under which he received 50% of profits earned on projects he developed - Dumbrell unsuccessfully attempted to arrange the purchase of a commercial property - After Dumbrell left his employment, the employer purchased the property and realized a profit - Dumbrell claimed 50% of the profit - The trial judge found that Dumbrell was entitled to his share - The defendants appealed - In allowing the appeal in part, the Ontario Court of Appeal indicated that interpreting written contracts in commercial relationships in terms of the parties' subjective intentions was not helpful because (i) an emphasis on subjective intention denuded the arrangement of the certainty that writing was intended to achieve and (ii) many contractual disputes involved issues on which there was no common subjective intention - The written agreement had to be read as a whole and in the context of the circumstances as they existed when the agreement was created - Those circumstances included facts that were known or reasonably capable of being known by the parties - A consideration of the context was an integral part of the interpretation and not something that was resorted to only where words viewed in isolation suggested ambiguity - See paragraphs 47 to 56.

Contracts - Topic 7406

Interpretation - General principles - Interpretation by context - [See Master and Servant - Topic 1864 ].

Master and Servant - Topic 1816

Remuneration - Wages - Payment of - Based on profit generated by employee - Dumbrell was employed by Regional as a real estate developer on a contract under which Dumbrell received 50% of profits earned on projects he developed - Dumbrell unsuccessfully attempted to arrange the purchase of a commercial property - After Dumbrell left Regional, Regional formed a syndicate with third party investors to purchase the property - The syndicate realized a profit of $1 million - Dumbrell claimed 50% of the profit - The trial judge allowed Dumbrell's claim on the basis of breach of contract - Indicating that Regional's resort to third party investors could not affect Dumbrell's compensation, the trial judge held that Dumbrell was entitled to 50% of the entire profit, 26.67% of which had been paid to the third party investors - On Regional's appeal, the Ontario Court of Appeal disagreed with the trial judge's analysis - Profits payable to third party investors could not be considered profits of Regional for the purpose of calculating Dumbrell's compensation - Dumbrell should have received 50% of the profits realized by a 73.33% interest in the syndicate - See paragraphs 70 to 76.

Master and Servant - Topic 1864

Remuneration - Sales commissions - Sale completed after employment terminated - Dumbrell was employed by Regional as a real estate developer on a six-month renewable contract under which Dumbrell received 50% of profits earned on projects he developed - Dumbrell unsuccessfully attempted to arrange a commercial property purchase - After Dumbrell left Regional, Regional purchased the property and realized a profit - Dumbrell claimed 50% of the profit - The trial judge found that a principal/agent relationship existed - Even though the employment contract did not provide for commission on profits earned after termination, Dumbrell was entitled to his share because Regional had taken his work's benefit - Regional appealed - In allowing the appeal in part, the Ontario Court of Appeal disagreed with the trial judge's approach - The contract described Dumbrell as an "employee" - Dumbrell's entitlement to commission had to be found in the contract - Adopting a contextual approach, the court looked to the agreement's Schedule B which specified that Dumbrell was entitled to a 50% commission on projects he developed where they were completed and closed and Regional had earned and actually received monies and a profit - Reasonable people in the position of Dumbrell and Gordon would have appreciated that Regional's involvement in such projects might not be completed within the relatively short term of the employment contract - Therefore, the contract contemplated Dumbrell's entitlement to profits earned after the employment contract was terminated - See paragraphs 36 to 69.

Cases Noticed:

Rowen (Charles P.) & Associates Inc. v. CIBA-Geigy Canada Ltd. (1994), 72 O.A.C. 321; 19 O.R.(3d) 205 (C.A.), refd to. [para. 44].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 47].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 47].

Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), refd to. [para. 49].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, refd to. [para. 53].

Leading Investments Ltd. v. Liebig (H.W.) & Co., [1986] 1 S.C.R. 70; 65 N.R. 209; 14 O.A.C. 159, refd to. [para. 53].

Prenn v. Simmonds, [1971] 1 W.L.R. 1381 (H.L.), refd to. [para. 53].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357 (C.A.), refd to. [para. 55].

Pagnan SpA v. Tradax Ocean Transportation SA, [1987] 1 All E.R. 81 (Q.B.), affd. [1987] 3 All E.R. 565 (C.A.), refd to. [para. 56, footnote 2].

Toronto-Dominion Bank v. Leigh Instruments Ltd. (Bankrupt) et al. (1999), 124 O.A.C. 87; 178 D.L.R.(4th) 634 (C.A.), refd to. [para. 56, footnote 2].

Mount Joy Farms Ltd. v. Kiwi South Island Co-operative Dairies Ltd., [2001] NZCA 372, refd to. [para. 56, footnote 2].

ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. - see Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. et al.

Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. et al. (1995), 87 O.A.C. 129; 26 O.R.(3d) 481 (C.A.), refd to. [para. 82].

Said v. Butt, [1920] 3 K.B. 497 (H.L.), refd to. [para. 84].

Truckers Garage Inc. v. Krell (1993), 68 O.A.C. 106 (C.A.), refd to. [para. 84].

Kepic v. Tecumseh Road Builders et al. (1987), 23 O.A.C. 72 (C.A.), refd to. [para. 84].

Authors and Works Noticed:

Hall, Geoff R., A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords (2004), 40 Can. Bus. L.J. 20, generally [para. 55].

Lewison, Kim, The Interpretation of Contracts (3rd Ed. 2004), pp. 5 [para. 56, footnote 2]; 18 to 31 [para. 50]; 22, 23, 24 [para. 56, footnote 2].

McCamus, John D., The Law of Contracts (2005), pp. 710, 711 [para. 54].

Staughton, Christopher, How Do the Courts Interpret Commercial Contracts (1998), 58 Cambridge L.J. 303, generally [para. 47]; pp. 304, 305, 306 [para. 49]; 307, 308 [para. 53].

Steyn, Johan, The Intractable Problem of the Interpretation of Legal Texts (2003), 25 Sydney L. Rev. 5, generally [para. 47]; p. 8 [para. 56].

Sullivan, Ruth, Contract Interpretation in Practice and Theory (2000), 13 Sup. Ct. L. Rev.(2d) 369, pp. 375 to 386, 392 [para. 47].

Swan, John, Canadian Contract Law (2006), p. 493 [para. 52].

Welling, Bruce L., Corporate Law in Canada: The Governing Principles (2nd Ed. 1991), pp. 122 to 136 [para. 80].

Counsel:

Benjamin Zarnett and Alexa Abiscott, for the appellants;

R.G. Slaght, Q.C., for the respondent.

This appeal was heard on October 23, 2006, by Doherty, Moldaver and Sharpe, JJ.A., of the Ontario Court of Appeal. Doherty, J.A., released the following judgment for the Court on January 31, 2007.