Sumner v. PCL Constructors Inc. et al.,

• Judge: The Honourable Mr. Justice Jack Watson,The Honourable Madam Justice Myra Bielby,The Honourable Mr. Justice Frans Slatter
• Neutral Citation: 2011 ABCA 326
• Docket Number: 1103-0032-AC
• Date: 01 November 2011
• Citation: 2011 ABCA 326,(2011), 515 A.R. 231,515 AR 231,(2011), 515 AR 231,515 A.R. 231
• Court: Court of Appeal (Alberta)

Sumner v. PCL Constructors Inc. (2011), 515 A.R. 231; 532 W.A.C. 231 (CA)

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. NO.102

Melvin Sumner (respondent/plaintiff) v. PCL Constructors Inc. and PCL Employees Holdings Ltd. (appellants/defendants)

(1103-0032-AC; 2011 ABCA 326)

Indexed As: Sumner v. PCL Constructors Inc. et al.

Alberta Court of Appeal

Watson, Slatter and Bielby, JJ.A.

November 22, 2011.

Summary:

The appellant PCL Employees Holdings Ltd. (PCLEH) owned the other appellant PCL Constructors Inc. PCLEH was itself owned by a number of employees of the PCL group of companies. Sumner's employment with one of the PCL group of companies was terminated. After the termination, PCLEH repurchased Sumner's shares in PCLEH pursuant to a unanimous shareholders agreement. Sumner brought an action for wrongful dismissal. He also advanced a claim regarding the repurchase of his shares by PCLEH.

The Alberta Court of Queen's Bench, in a decision reported at [2010] A.R. Uned. 609, held that Sumner was entitled to damages in lieu of a 22 months' notice. The court awarded Sumner judgment for $168,388.73, that amount being comprised of the pay in lieu of notice, less Sumner's employment earnings during the 22-month notice period. The court also held that the repurchase of Sumner's PCLEH shares did not comply with the terms in the unanimous shareholders agreement and Sumner could apply for a remedy under s. 248 of the Business Corporations Act (BCA).

The Alberta Court of Queen's Bench, in a decision reported at [2011] A.R. Uned. 50, allowed an amendment by Sumner to plead relief under s. 248 of the BCA. The court awarded Sumner $1,493,100 in damages for breach of the unanimous shareholders agreement. The appellants appealed.

The Alberta Court of Appeal allowed the appeal with respect to the share repurchase and set aside the damage award made under s. 248 of the BCA. The appeal from the award of damages for wrongful dismissal was allowed in part. The parties were unable to reconstruct the mathematical calculations in the trial judgement and they agreed that the base amount of damages for wrongful dismissal was $80,657.25. From that amount, the court deducted $16,834.33 to reflect the income tax that was incorrectly deducted from the mitigation amount. That left a net award of $63,822.92.

Company Law - Topic 2173

Shareholders - Shareholders' rights - Repurchase of shares by company - [See second, third and fourth Company Law - Topic 2422 ].

Company Law - Topic 2422

Shareholders - Agreements - Unanimous shareholders agreement - The trial judge held that a unanimous shareholders agreement was not a contract and that ordinary contractual remedies were not available for its breach - On appeal, the Alberta Court of Appeal held that the observations in Duha Printers (Western) Ltd. v. Canada (S.C.C.), that a unanimous shareholders agreement was a form of contract, applied in Alberta - The court stated that "The unanimous shareholders agreement in issue in this case is a contract, and the primary source of remedies for its breach is the law of contract. ... It was an error of law for the trial judge to search for appropriate remedies in the oppressive shareholder provisions of the Business Corporations Act, especially when such relief had not been pleaded" - See paragraphs 39 to 43.

Company Law - Topic 2422

Shareholders - Agreements - Unanimous shareholders agreement - After the respondent's employment with one of the PCL group of companies was terminated, PCL Employees Holdings Ltd. (PCLEH) repurchased the respondent's shares in PCLEH pursuant to a unanimous shareholders agreement - The directors of PCLEH passed a "withdrawing shareholder" resolution after the Notice to Sell had been served on the respondent, as opposed to before, as contemplated by the unanimous shareholders agreement - The Alberta Court of Appeal stated that even if there were breaches in the procedural provisions of the unanimous shareholders agreement, that did not automatically undermine the validity of any actions taken - Breaches of procedural provisions in private contracts did not render subsequent actions null and void - The directors of PCLEH should have passed the "withdrawing shareholder" resolution first, but their failure to do so did not mean that the subsequent purported exercise of the option to purchase the shares was a nullity - The fact that the declaration was made in the wrong order did not cause any damage to the respondent - Further, assuming the respondent had made a timely objection to the sequence of the directors' resolution and the Notice to Sell, the basis for calculating damages should be that PCLEH would have adopted the least onerous method of performing its obligations - That would have been to restart the repurchase procedure - See paragraphs 60 to 61.

Company Law - Topic 2422

Shareholders - Agreements - Unanimous shareholders agreement - After the respondent's employment with one of the PCL group of companies was terminated, PCL Employees Holdings Ltd. (PCLEH) repurchased the respondent's shares in PCLEH pursuant to a unanimous shareholders agreement - The trial judge found that there was a breach of the unanimous shareholders agreement where a resolution of the PCLEH directors that designated the respondent a special withdrawing employee had stated that the resolution was to be served on the respondent - The Alberta Court of Appeal stated that "[t]he instructions from the Directors of PCL Employees Holdings to its staff to do certain things do not create rights in the respondent, even if those things are not done. ... Unless there was a positive obligation in the unanimous shareholders agreement to serve the respondent with the resolution, there was no actionable breach. ... There is no ambiguity in the unanimous shareholders agreement that would require the court to imply a term that the directors' resolution had to be served on the respondent. In any event, the respondent cannot demonstrate any incremental damage that arose as a result" - See paragraphs 64 to 65.

Company Law - Topic 2422

Shareholders - Agreements - Unanimous shareholders agreement - The respondent's employment with one of the PCL group of companies was terminated after he had been off work for 3.5 years due to a medical condition - After the termination, PCL Employees Holdings Ltd. (PCLEH) repurchased the respondent's shares in PCLEH pursuant to a unanimous shareholders agreement - The trial judge found that PCLEH had an obligation to advise the respondent that he could challenge the finding that he was disabled under the unanimous shareholders agreement and that he was entitled to an independent medical examination - The Alberta Court of Appeal stated that there was no indication in the unanimous shareholders agreement that PCLEH had such an obligation - The right to an independent medical examination was set out in the unanimous shareholders agreement for the respondent to see - Further, even if there was an implied obligation to advise the respondent of his right to an independent medical examination under the unanimous shareholders agreement, the failure to provide that advice did not automatically result in any remedy - Any remedy depended on the respondent demonstrating that he was not disabled at the relevant time - Any assertion that the respondent was not disabled within the meaning of the unanimous shareholders agreement lacked any air of reality - See paragraphs 67 to 72.

Company Law - Topic 4895

Contracts by companies - Indoor management rule - General (incl. when applicable) - After the respondent's employment with one of the PCL group of companies was terminated, PCL Employees Holdings Ltd. (PCLEH) repurchased the respondent's shares in PCLEH pursuant to a unanimous shareholders agreement - The unanimous shareholders agreement contemplated a particular order of proceeding - It was conceded that PCLEH did not follow the proper sequence - The respondent argued that the "indoor management rule" entitled him to rely on PCLEH having done all of the necessary things before repurchasing his shares - The common law indoor management rule was set out in s. 19 of the Business Corporations Act - The Alberta Court of Appeal stated that "Section 19 essentially estops a corporation from asserting against a third party that the corporation has not complied with its internal management requirements. That, however, is not what is occurring in this case; it is the respondent who is asserting that the indoor procedural requirements were not met. ... The indoor management rule prevents PCL Employees Holdings from relying on any such procedural flaws, but does not force it to allow third parties like the respondent to take advantage of those flaws" - See paragraph 57.

Contracts - Topic 2282

Terms - Conditions precedent - Failure to perform - Remedies - The Alberta Court of Appeal stated that "a contracting party has a limited ability to challenge a contract based on the non-existence of a condition precedent (not amounting to a continuing covenant in the agreement) once the contract has been fully executed ... After the contract is fully executed, there is no basis upon which it can be rescinded by either party because of the failure to meet a condition of this nature, nor can there be any claim for damages because there is no breach of any continuing covenant" - See paragraph 58.

Damages - Topic 6301

Contracts - Sale of shares - General - [See second Company Law - Topic 2422 ].

Damages - Topic 6749

Contracts - Employment relationship or contract - Breach by employer - Loss of overtime - The respondent's employment with one of the PCL group of companies was terminated - The trial judge held that the respondent was entitled to damages in lieu of a 22 months' notice - With respect to the overtime that the respondent would likely have worked during the notice period, the trial judge awarded damages based on the average amount of overtime that the respondent had worked for his own consulting company during that period - The Alberta Court of Appeal declined to interfere with the award - The trial judge noted that by the time the respondent was dismissed he had been off work for 3.5 years due to a medical condition and the historical average based on the last time he worked overtime for PCL was 3.5 years out of date - Further, neither party provided evidence of what overtime a PCL employee in an equivalent position would likely have worked during the 22-month notice period - Absent that evidence, the trial judge made no palpable and overriding error in measuring damages for lost overtime - See paragraphs 27 to 31.

Equity - Topic 1482

Equitable principles respecting relief - Clean hands doctrine - Application of - The Alberta Court of Appeal stated that while the equitable "clean hands" doctrine might disentitle a party to equitable relief, it did not create actionable rights that did not otherwise exist in the other party - See paragraph 56.

Master and Servant - Topic 7704

Dismissal or discipline of employees - Damages for wrongful dismissal - Measure of damages for wrongful dismissal - [See Damages - Topic 6749 ].

Master and Servant - Topic 7709

Dismissal of employees - Damages for wrongful dismissal - Deduction for income tax - [See Master and Servant - Topic 7716 ].

Master and Servant - Topic 7716

Dismissal or discipline of employees - Damages for wrongful dismissal - Deductions - Earnings during notice period - The respondent sued for wrongful dismissal - The trial judge held that the respondent was entitled to damages in lieu of a 22 months' notice - In mitigation of his damages, the respondent had earned income from his own consulting company - That company paid tax on that income - The trial judge held that the income tax paid was properly deducted from the respondent's mitigated earnings - On appeal, the Alberta Court of Appeal stated that "When calculating damages for wrongful dismissal, the general rule should be that the corporation should be disregarded for purposes of mitigation, and that the income of the corporation should be treated as that of the employee. Any tax payable by the corporation is likely just tax that would otherwise have been paid by the employee. In order to provide consistency in the calculations, both the damage award and the mitigation amount should generally be calculated on a pretax basis ... the further sum of $16,834.33 should be deducted from the damage award, to represent further amounts of mitigation that were not recognized in the trial judgment" - See paragraphs 32 to 37.

Cases Noticed:

PCL Construction Management Inc. v. Holmes (1994), 157 A.R. 306; 77 W.A.C. 306; 26 Alta. L.R.(3d) 1 (C.A.), refd to. [para. 14].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 22].

H.L. v. Canada (Attorney General) et al., [2005] 1 S.C.R. 401; 333 N.R. 1; 262 Sask.R. 1; 347 W.A.C. 1; 2005 SCC 25, refd to. [para. 22].

R. v. Regan (G.A.), [2002] 1 S.C.R. 297; 282 N.R. 1; 201 N.S.R.(2d) 63; 629 A.P.R. 63; 2002 SCC 12, refd to. [para. 23].

Wilde et al. v. Archean Energy Ltd. et al. (2007), 422 A.R. 41; 415 W.A.C. 41; 82 Alta. L.R.(4th) 203; 2007 ABCA 385, refd to. [para. 23].

Spartacus Holdings Ltd. v. Building 400 Ltd. et al. (2011), 515 A.R. 1; 532 W.A.C. 1; 100 R.P.R.(4th) 1; 2011 ABCA 18, refd to. [para. 25].

Diegel v. Diegel, [2008] A.R. Uned. 304; 100 Alta. L.R.(4th) 1; 2008 ABCA 389, refd to. [para. 25].

Alberta Importers and Distributors (1993) Inc. et al. v. Phoenix Marble Ltd. et al. (2008), 432 A.R. 173; 424 W.A.C. 173; 88 Alta. L.R.(4th) 225; 2008 ABCA 177, refd to. [para. 25].

Fenrich v. Wawanesa Mutual Insurance Co. (2005), 371 A.R. 53; 354 W.A.C. 53; 46 Alta. L.R.(4th) 207; 2005 ABCA 199, refd to. [para. 25].

McDonald Crawford v. Morrow (2004), 348 A.R. 118; 321 W.A.C. 118; 2004 ABCA 150, refd to. [para. 25].

Poulos v. Caravelle Homes Ltd. et al. (1997), 196 A.R. 138; 141 W.A.C. 138; 49 Alta. L.R.(3d) 385 (C.A.), refd to. [para. 26].

M.N.P. v. Whitecourt General Hospital et al. (2006), 397 A.R. 333; 384 W.A.C. 333; 64 Alta. L.R.(4th) 1; 2006 ABCA 245, refd to. [para. 26].

M.N.P. v. Bablitz - see M.N.P. v. Whitecourt General Hospital et al.

Magnan v. Brandt Tractor Ltd. (2008), 440 A.R. 35; 438 W.A.C. 35; 96 Alta. L.R.(4th) 247; 2008 ABCA 345, refd to. [para. 26].

Pond (Peter) Holdings Ltd. v. Shragge (2003), 346 A.R. 135; 320 W.A.C. 135; 22 Alta. L.R.(4th) 41; 2003 ABCA 290, refd to. [para. 26].

McDonald v. Fellows et al., [1979] 6 W.W.R. 544; 17 A.R. 330 (C.A.), refd to. [para. 26].

Rodaro et al. v. Royal Bank of Canada et al. (2002), 157 O.A.C. 203; 59 O.R.(3d) 74 (C.A.), refd to. [para. 26].

Kalkinis et al. v. Allstate Insurance Co. of Canada (1998), 117 O.A.C. 193; 41 O.R.(3d) 528 (C.A.), refd to. [para. 26].

Phillips v. Ford Motor Co. of Canada Ltd., [1971] 2 O.R. 637; 18 D.L.R.(3d) 641 (C.A.), refd to. [para. 26].

Carrick v. Cooper Canada Ltd. (1983), 2 C.C.E.L. 87 (Ont. H.C.), refd to. [para. 35].

Jorgenson v. Cewe (Jack) Ltd., [1980] 1 S.C.R. 812; 32 N.R. 1, refd to. [para. 35].

Minister of National Revenue v. Duha Printers (Western) Ltd., [1998] 1 S.C.R. 795; 225 N.R. 241, refd to. [para. 39].

Piikani Investment Corp. et al. v. Piikani First Nation et al., [2008] A.R. Uned. 743; 2008 ABQB 775, refd to. [para. 39].

St. Anne-Nackawic Pulp & Paper Co. v. Canadian Paper Workers Union, Local 219, [1986] 1 S.C.R. 704; 68 N.R. 112; 73 N.B.R.(2d) 236; 184 A.P.R. 236, refd to. [para. 41].

American Reserve Energy Corp. v. McDorman et al. (2002), 217 Nfld. & P.E.I.R. 7; 651 A.P.R. 7; 2002 NFCA 57, refd to. [para. 47].

Bell v. Lever Bros. Ltd., [1932] A.C. 161 (H.L.), refd to. [para. 53].

Perez v. Galambos et al., [2009] 3 S.C.R. 247; 394 N.R. 209; 276 B.C.A.C. 272; 468 W.A.C. 272; 2009 SCC 48, refd to. [para. 55].

New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190; 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1; 2008 SCC 9, refd to. [para. 60].

Alberta Health Services (Calgary Area) v. Health Sciences Association of Alberta (Paramedical Professional/Technical Unit) (2011), 515 A.R. 120; 532 W.A.C. 120; 2011 ABCA 306, refd to. [para. 60].

Hamilton v. Open Window Bakery Ltd. et al., [2004] 1 S.C.R. 303; 316 N.R. 265; 184 O.A.C. 209; 2004 SCC 9, refd to. [para. 61].

Agribrands Purina Canada Inc. v. Kasamekas et al. (2011), 278 O.A.C. 363; 106 O.R.(3d) 427; 2011 ONCA 460, refd to. [para. 61].

Leaf v. International Galleries, [1950] 2 K.B. 86 (C.A.), refd to. [para. 62].

Counsel:

F.S. Kozak, Q.C., and J.D. Taitinger, for the appellants;

D.G. Groh, Q.C., for the respondent.

This appeal was heard on November 1, 2011, before Watson, Slatter and Bielby, JJ.A., of the Alberta Court of Appeal. The following memorandum of judgment was filed by the Court of Appeal on November 22, 2011.