RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al., (2008) 260 B.C.A.C. 198 (SCC)

• Judge: McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Charron and Rothstein, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 09, 2008
• Jurisdiction: Canada (Federal)
• Citations: (2008), 260 B.C.A.C. 198 (SCC);2008 SCC 54

RBC Dominion v. Merrill Lynch (2008), 260 B.C.A.C. 198 (SCC);

    439 W.A.C. 198

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2008] B.C.A.C. TBEd. OC.038

RBC Dominion Securities Inc. (appellant) 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 (respondents)

(31904; 2008 SCC 54; 2008 CSC 54)

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

Supreme Court of Canada

McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Charron and Rothstein, JJ.

October 9, 2008.

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, in a judgment reported (2007), 235 B.C.A.C. 126; 388 W.A.C. 126, 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. RBC appealed.

The Supreme Court of Canada, Abella, J., dissenting in part, allowed the appeal in part. The court restored the trial judge's damage award, with the exception of the unfair competition awards against the investment advisors arising out of their conduct during the 2.5 week notice period.

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 ].

Master and Servant - Topic 4302

Duties of servant - On termination - Confidentiality - [See Master and Servant - Topic 4305 ].

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 to be implied and was not imposed by law outside of the contract - The Supreme Court of Canada agreed, finding that "this appears to be consistent with the current law, which restricts post-employment duties to the duty not to misuse confidential information, as well as duties arising out of a fiduciary duty or restrictive covenant" - See paragraphs 17 to 19.

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Master and Servant - Topic 4305 ].

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 a majority of investment advisors employed at an RBC branch office left as a group, without giving notice - They took copied client records with them to their new employment with an RBC competitor (Merrill Lynch) - No employee was bound by a non-competition or non-solicitation clause, nor was there any contractual provision for notice - The employees immediately solicited their RBC clients - 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 the employees on the ground that the lack of reasonable notice constituted a breach of contract - The trial judge awarded $40,000 damages against the manager and the advisors for failure to give reasonable notice of termination of employment (2.5 weeks) and $225,000 for unfair competition that resulted in a reduction of RBC profits over a five year period - The trial judge awarded $1,483,239 damages against the manager for the loss of profits RBC suffered as a result of his failure to perform his employment duties in good faith - He had a duty to try to retain employees, which he breached by orchestrating the departure of the employees - The British Columbia Court of Appeal affirmed the $40,000 award, agreeing 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 notice period - However, the Court of Appeal set aside the $225,000 and $1,483,239 awards, as RBC was not entitled to damages for lost profits beyond the notice period (no general duty not to compete and manager did not breach any implied contractual duty of good faith in the manner of his departure) - RBC appealed, seeking reinstatement of the two damage awards - The Supreme Court of Canada allowed the appeal in part - The court declined to reinstate the $225,000 award for unfair competition beyond the 2.5 week notice period, as the court agreed with the Court of Appeal that employees had no general duty not to compete with their former employer - Further, having made a global loss of profits award against the manager, the trial judge erred in awarding additional damages against the advisors for loss of profits based on improper use of confidential information - The court reinstated the $1,483,239 award against the manager for breach of his contractual duty of good faith, agreeing with the trial judge that it was an implied term of his employment contract that he try to retain the advisors under his supervision - The award represented the loss it caused to RBC, which was within the reasonable contemplation of the parties at the time of the employment contract - See paragraphs 1 to 24.

Cases Noticed:

Hadley v. Baxendale (1854), 9 Exch. 341; 156 E.R. 145 (Ex. Ct.), refd to. [para. 8].

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 39].

CRC-Evans Canada Ltd. v. Pettifer et al. (1997), 197 A.R. 24; 26 C.C.E.L.(2d) 294 (Q.B.), refd to. [para. 39].

Alnor Services Ltd. v. Sawyer (1990), 31 C.C.E.L. 34 (B.C.S.C.), refd to. [para. 39].

Faccenda Chicken Ltd. v. Fowler, [1986] 1 All E.R. 617 (C.A.), refd to. [para. 39].

Barton Insurance Brokers Ltd. v. Irwin et al. (1999), 119 B.C.A.C. 109; 194 W.A.C. 109; 170 D.L.R.(4th) 69 (C.A.), refd to. [para. 40].

Imperial Sheet Metal Ltd. et al. v. Landry et al. (2007), 315 N.B.R.(2d) 328; 815 A.P.R. 328; 2007 NBCA 51, refd to. [para. 40].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 41].

Research Capital Corp. v. Yorkton Securities Inc. et al. (2002), 329 A.R. 190; 2002 ABQB 957, refd to. [para. 45].

Restauronics Services Ltd. et al. v. Forster et al. (2004), 195 B.C.A.C. 105; 319 W.A.C. 105; 239 D.L.R.(4th) 98; 2004 BCCA 130, refd to. [para. 46].

Kusy's Electric Ltd. v. Sullivan et al. (2007), 305 Sask.R. 210; 2007 SKQB 397, refd to. [para. 46].

Cinema Internet Networks Inc. v. Porter et al., [2006] B.C.T.C. Uned. A89; 2006 BCSC 1843, refd to. [para. 46].

Monarch Messenger Services Ltd. v. Houlding (1984), 56 A.R. 147 (Q.B.), refd to. [para. 46].

Golden Images Management Ltd. v. Champers Enterprises Ltd. et al., [2001] B.C.T.C. 924; 2001 BCSC 924, refd to. [para. 46].

Davidson v. Slaight Communications Inc., [1989] 1 S.C.R. 1038; 93 N.R. 183, refd to. [para. 52].

Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1, refd to. [para. 52].

Westcan Bulk Transport Ltd. v. Stewart et al. (2005), 373 A.R. 236; 2005 ABQB 97, refd to. [para. 57].

Leith v. Rosen Fuels Ltd. (1984), 5 C.C.E.L. 184 (Ont. H.C.J.), refd to. [para. 57].

Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3; 350 N.R. 40; 227 B.C.A.C. 1; 374 W.A.C. 1; 2006 SCC 30, refd to. [para. 63].

Matheson (D.W.) & Sons Contracting Ltd. v. Canada (Attorney General) (2000), 187 N.S.R.(2d) 62; 585 A.P.R. 62; 2000 NSCA 44, refd to. [para. 64].

Ernst & Young v. Stuart, [1993] 6 W.W.R. 245 (B.C.S.C.), refd to. [para. 65].

Authors and Works Noticed:

Ball, Stacey Reginald, Canadian Employment Law (2008 Looseleaf Update), vol. 1, p. 15-2, footnote 9 [para. 57].

Cassels, Jamie, and Adjin-Tettey, Elizabeth, Remedies: The Law of Damages (2nd Ed. 2008), p. 352 [para. 64].

Echlin, Randall Scott, and Thomlinson, Christine M., For Better or for Worse: A Practical Guide to Canadian Employment Law (2nd Ed. 2003), p. 254 [para. 47].

England, Geoffrey, Wood, Roderick, and Christie, Innis, Employment Law in Canada (4th Ed. 2005) (2007 Looseleaf Update), vol. 2, paras. 11-31, 11-37 [para. 65]; § 11-141 [paras. 18, 39].

Counsel:

Michael E. Royce, Risa M. Kirshblum and Catherine Powell, for the appellant;

Terrence J. O'Sullivan, M. Paul Michell and Stein K. Gudmundseth, for the respondents.

Solicitors of Record:

Lenczner Slaght Royce Smith Griffin, Toronto, Ontario, for the appellant;

Lax O'Sullivan, Toronto, Ontario, for the respondent.

This appeal was heard on April 25, 2008, before McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Charron and Rothstein, JJ., of the Supreme Court of Canada.

On October 9, 2008, the judgment of the Court was delivered in both official languages and the following opinions were filed:

McLachlin, C.J.C. (Binnie, Deschamps, Fish, Charron and Rothstein, JJ., concurring) - see paragraphs 1 to 25;

Abella, J., dissenting in part - see paragraphs 26 to 68.