RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al., (2007) 235 B.C.A.C. 126 (CA)

• Judge: Finch, C.J.B.C., Southin and Rowles, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: January 12, 2007
• Jurisdiction: British Columbia
• Citations: (2007), 235 B.C.A.C. 126 (CA);2007 BCCA 22

RBC Dominion v. Merrill Lynch (2007), 235 B.C.A.C. 126 (CA);

    388 W.A.C. 126

MLB headnote and full text

Temp. Cite: [2007] B.C.A.C. TBEd. JA.036

RBC Dominion Securities Inc. (respondent/appellant on cross-appeal/plaintiff) v. Merrill Lynch Canada Inc., James Michaud, Don Delamont, Reginald Bellomo, James Swift, John Evin, Dave Neilson, Victor Kravski, Christine Clarke, Alan Duffy, Connie Dodgson, Norma Juozaitis, Alison Van Nest Klein, Barbara Daniel and Holly Hale (appellants/respondents on cross-appeal/defendants)

(CA032462; 2007 BCCA 22)

Indexed As: RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al.

British Columbia Court of Appeal

Finch, C.J.B.C., Southin and Rowles, JJ.A.

January 12, 2007.

Summary:

The manager and majority of investment advisors and assistants employed at an RBC branch office left as a group, without giving notice, and took copied client records with them to their new employment with an RBC competitor (Merrill Lynch). No employee was bound by any non-competition or non-solicitation clause, nor was there any contractual provision for notice. Merrill Lynch had induced the RBC employees to leave RBC without notice and the client records were used to secure clients for Merrill Lynch. The former employees immediately communicated with their RBC clients to persuade them to move their business with them to Merrill Lynch. RBC, left with only two junior advisors and two support staff, was unable within a short time period to similarly communicate to retain those clients. RBC sued its former employees, Merrill Lynch and Merrill Lynch's regional manager for damages.

The British Columbia Supreme Court, in a judgment reported [2003] B.C.T.C. 1773, held that the manager's encouragement and facilitation of the coordinated mass exodus breached his implied contractual duty of good faith. None of the former employees owed RBC a fiduciary duty, but each was liable for breach of contract for failing to give reasonable notice of their departure (2.5 weeks). Each advisor and assistant breached an implied contractual duty not to compete unfairly with RBC after their departure (particularly the aggressive courting of former clients before RBC was in a position to protect itself). Merrill Lynch and its regional manager were liable for inducing this breach of duty to compete fairly. The removal of confidential client records constituted actionable conversion. The court rejected any actionable conspiracy.

The British Columbia Supreme Court, in a judgment reported [2004] B.C.T.C. 1464, subsequently assessed damages. The branch manager and investment advisors were liable for RBC's lost profits for five years (less an increasing contingency discount each year). Each investment advisor (including the manager) was liable for RBC's lost profits for the 2.5 week notice period. The branch manager's liability was almost $1.5 Million.The amount awarded against each advisor was their proportionate share of the total of assets under management, the highest being approximately $65,000. Each assistant was liable for nominal damages ($1,000) for failing to give reasonable notice. RBC was awarded punitive damages against each former investment advisor ($5,000), the manager and Merrill Lynch's regional manager ($10,000) and Merrill Lynch ($250,000). Merrill Lynch and the former employees appealed. RBC cross-appealed, seeking, inter alia, increased punitive damages.

The British Columbia Court of Appeal, Rowles, J.A., dissenting in part, allowed the appeal in part and dismissed the cross-appeal. To the extent that the trial judge found an implied obligation on an employee "not to compete unfairly" with his former employer, the judgment could not be sustained. There was no such implied duty. Although there was a minimal breach of confidence in taking and using the client records, there was no evidence that any client switched to Merrill Lynch because of the misuse of confidential information. Accordingly, there was no causal connection between the loss of clients and the breach. The court affirmed that the former employees were liable for RBC's lost profits for the 2.5 week reasonable notice period (breach of contract), but there was no liability for any lost profits beyond that. Accordingly, the awards of $1.5 Million against the branch manager and the lesser awards against the investment advisors ($65,000 and lower) were set aside. The court stated that clients had a right to switch brokerage houses and employees, alone or all together, had a right to leave RBC's employment upon giving reasonable notice. Finally, the court affirmed the punitive damage award.

Damage Awards - Topic 2018.1

Exemplary or punitive damages - Breach of contract - Merrill Lynch surreptitiously "raided" the bulk of a competitor's employees (RBC branch office) - The branch manager and majority of investment advisors and assistants employed at an RBC branch office left as a group, without giving notice, and took copied client records with them to their new employment with Merrill Lynch - No employee was bound by any non-competition or non-solicitation clause, nor was there any contractual provision for notice - The former employees immediately communicated with their RBC clients to persuade them to move their business to Merrill Lynch - RBC, left with only two junior advisors and two support staff, was unable within a short time period to similarly communicate to retain those clients - RBC claimed punitive damages against Merrill Lynch (and its regional manager) and its former employees - The trial judge awarded punitive damages against each former investment advisor ($5,000), the branch manager and Merrill Lynch's regional manager ($10,000) and Merrill Lynch ($250,000) - The British Columbia Court of Appeal affirmed the punitive damage award - See paragraph 107.

Damages - Topic 1305

Exemplary or punitive damages - Breach of contract - [See Damage Awards - Topic 2018.1 ].

Damages - Topic 5713

Contracts - Breach of contract - Loss of profits - [See Master and Servant - Topic 8155 ].

Damages - Topic 6705

Contracts - Employment relationship or contract - General principles - Recoverable damages - [See Master and Servant - Topic 8155 ].

Equity - Topic 3902

Fiduciary or confidential relationships - Breach of confidence - What constitutes - The manager and majority of investment advisors and assistants employed at an RBC branch office left as a group, without giving notice, and took copied client records with them to their new employment with an RBC competitor (Merrill Lynch) - No employee was bound by any non-competition or non-solicitation clause, nor was there any contractual provision for notice - The former employees immediately communicated with their RBC clients to persuade them to move their business to Merrill Lynch - RBC, left with only two junior advisors and two support staff, was unable within a short time period to similarly communicate to retain those clients - RBC claimed damages from its former employees for breach of confidence in taking away and using the client records - The British Columbia Court of Appeal held that absent a non-solicitation and non-competition covenant, the former employees were free to compete with their former employer and solicit their former clients - Although there was a minimal breach of confidence in taking the client records, there was no evidence presented that any client switched to Merrill Lynch because of the misuse of confidential information (i.e., no causal connection between loss of client and breach) - Given the client's right to switch to Merrill Lynch, the departing employees were entitled to prepare a list of their own book of clients from the records of RBC - It was unrealistic to limit the employees to taking only that information they could retain in their head - The employees were not entitled to take copies of account statements or other papers concerning the clients - See paragraphs 68 to 84.

Master and Servant - Topic 4302

Duties of servant - On termination - Confidentiality - [See Equity - Topic 3902 ].

Master and Servant - Topic 4305

Duties of servant - On termination - Competition in business - General - The manager and majority of investment advisors and assistants employed at an RBC branch office left as a group, without giving notice, and took copied client records with them to their new employment with an RBC competitor (Merrill Lynch) - No employee was bound by any non-competition or non-solicitation clause, nor was there any contractual provision for notice - The former employees immediately communicated with their RBC clients to persuade them to move their business to Merrill Lynch - RBC, left with only two junior advisors and two support staff, was unable within a short time period to similarly communicate to retain those clients - RBC claimed damages from its former employees on the basis of an implied duty not to compete unfairly (i.e., leaving without notice and soliciting clients before RBC had the capacity or an opportunity to communicate to retain those clients) - The British Columbia Court of Appeal held that there was no general duty on a departing employee "not to compete unfairly" with a former employer - Such a duty was not be implied and was not imposed by law outside of the contract - See paragraphs 59 to 67.

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Equity - Topic 3902 ].

Master and Servant - Topic 4525

Liabilities of servant - To master - Lost income or profits - [See Master and Servant - Topic 8155 ].

Master and Servant - Topic 4526

Liabilities of servant - To master - Breach of employment contract - [See Master and Servant - Topic 8155 ].

Master and Servant - Topic 8155

Resignation - Notice of resignation - When required - The manager and majority of investment advisors and assistants employed at an RBC branch office left as a group, without giving notice, and took copied client records with them to their new employment with an RBC competitor (Merrill Lynch) - No employee was bound by any non-competition or non-solicitation clause, nor was there any contractual provision for notice - The former employees immediately communicated with their RBC clients to persuade them to move their business to Merrill Lynch - RBC, left with only two junior advisors and two support staff, was unable within a short time period to similarly communicate to retain those clients - RBC claimed damages from its former employees on the ground that the lack of reasonable notice constituted a breach of contract - The British Columbia Court of Appeal held that the lack of reasonable notice constituted breach of contract and entitled RBC to damages for the lost profits it would have earned during the period of reasonable notice (found to be 2.5 weeks by the trial judge) - The court affirmed an award of $40,000 - However, RBC was not entitled to damages for lost profits beyond the reasonable notice period - See paragraphs 85 to 106.

Cases Noticed:

Crofter Hand Woven Harris Tweed Co. v. Veitch, [1942] 1 All E.R. 142 (H.L.), refd to. [para. 30].

Canada 3000 Inc. (Bankrupt), Re (2006), 349 N.R. 1; 212 O.A.C. 338; 2006 SCC 24, refd to. [para. 56].

Barton Insurance Brokers Ltd. v. Irwin et al. (1999), 119 B.C.A.C. 109; 194 W.A.C. 109; 63 B.C.L.R.(3d) 215; 170 D.L.R.(4th) 69; 1999 BCCA 73, refd to. [para. 60].

R. v. Henry (D.B.) et al., [2005] 3 S.C.R. 609; 342 N.R. 259; 376 A.R. 1; 360 W.A.C. 1; 219 B.C.A.C. 1; 361 W.A.C. 1; 39 B.C.L.R.(4th) 1, refd to. [para. 61].

Cassell & Co. v. Broome, [1972] 1 All E.R. 801 (H.L.), refd to. [para. 62].

Morison v. Moat (1851), 9 Hare 241; 68 E.R. 492, refd to. [para. 69].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 70].

Cadbury Schweppes Inc. et al. v. FBI Foods Ltd. et al., [1999] 1 S.C.R. 142; 235 N.R. 30; 117 B.C.A.C. 161; 191 W.A.C. 161, refd to. [para. 71].

Universal Thermosensors Ltd. v. Hibben, [1992] 3 All E.R. 257 (Ch.), refd to. [para. 72].

Law v. London Chronicle (Indicator Newspapers) Ltd., [1959] 2 All E.R. 285 (C.A.), refd to. [para. 86].

Hadley v. Baxendale (1854), 9 Exch. 341; 156 E.R. 145, refd to. [para. 87].

Sheppard Publishing Co. v. Harkins (1905), 9 O.L.R. 504 (Div. Ct.), refd to. [para. 91].

57134 Manitoba Ltd. v. Palmer (1989), 37 B.C.L.R.(2d) 50 (C.A.), refd to. [para. 91].

Roe, McNeill & Co. v. McNeill, [1994] B.C.J. No. 1187 (S.C.), refd to. [para. 158].

Authors and Works Noticed:

Bullen, E., Leake, S.M., and Jacobs, Jack I.H., Precedents of Pleadings (10th Ed. 1950), p. 382 [para. 9].

D'Andrea, James Anthony, Employee Obligations in Canada (2003 Looseleaf), p. 2:110 [para. 133].

England, Geoffrey, Wood, Roderick, and Christie, Innis, Employment Law in Canada (4th Ed. 2005) (Looseleaf), vol. 2, c. 11, ྷྷ 11.2, 11.3 [para. 128]; 11.54 [para. 129]; 11.118, 11.142, 11.143 [para. 130]; 11.153 [para. 131]; 11.163, 11.165, 11.166 [para. 132].

Counsel:

S.K. Gudmundseth, Q.C., for the appellants;

M.E. Royce, for the respondent.

This appeal was heard on May 11-12, 2006, at Vancouver, B.C., before Finch, C.J.B.C., Southin and Rowles, JJ.A., of the British Columbia Court of Appeal.

On January 12, 2007, the judgment of the Court was delivered and the following opinions were filed:

Southin, J.A. (Finch, C.J.B.C., concurring) - see paragraphs 1 to 112;

Rowles, J.A., dissenting - see paragraphs 113 to 174.