Evans v. The Sports Corporation, 2011 ABQB 478

Court of Queen ’ s Bench of Alberta Citation: Evans v. The Sports Corporation, 2011 ABQB 478 Date: 20110722 Docket: 0603 07734 Registry: Edmonton Between: Richard Evans Respondent (Plaintiff / Defendant by Counterclaim) - and - The Sports Corporation Applicant (Defendant / Plaintiff by Counterclaim) _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ 1. Introduction

[ 1 ] This decision follows an application to settle the terms of the judgment arising from my decision in Evans v. The Sports Corporation , 2011 ABQB 244 [the Trial Judgment]. At para. 353 of the Trial Judgment I stated: [353] I reserve the right to correct any mathematical or calculation error, in the damage assessment. Counsel should address any matters they consider to be in that category within 30 days from the date of this decision. [ 2 ] When counsel appeared before me to settle the judgment, counsel for The Sports Corporation [“TSC”] pointed out that when assessing damages against Mr. Evans I had made an error with respect to the

interpretation of the Standard Players Association Contract. I had noted at para. 328 that when a player left an agent and went to another one, the first agent was entitled to receive 10% of the fees remaining to be paid under any contract that continued on past the change in agency. [ 3 ] It is not in dispute that statement was incorrect. In fact, the previous agent is entitled to receive 90% of the fees for the balance of any contract.

That works as a disincentive to ‘poach’ clients under contract, as the new agent has to service the player, but receives only 10% of the fee. [ 4 ] In assessing damages against Mr. Evans, I reversed the percentages, and awarded TSC damages based on 10% of the ‘post- poaching’ income from a pre-existing agency contract. TSC correctly pointed out that in such circumstances it would have been entitled to receive 90% of the fees, and not 10% . [ 5 ] This error affected those damages incurred after the two year restrictive covenant non-competition period imposed on Mr. Evans by his contract with TSC.

I awarded TSC $7,082.63 US: 10% of $141,652.65 US (discounted by 50% relating to mitigation) for the latter two seasons during which some of the contracts negotiated by Mr. Evans in the first two seasons continued. [ 6 ] Had I based my award on 90% of the fees, the damage award for this period would have been $63,703.19 US. [ 7 ] TSC asks me to correct the error and in award them $63,703.19 US instead of the 7,082.63 US set in the Trial Judgment, para. 328. [ 8 ] The error in contract language was fairly conceded by Mr. Livingstone on behalf of Mr.

Evans, but he pointed out that in my decision, in assessing damages, at paras. 327 and 328, I applied the principle that damages for breach of contract should restore the injured party to where it would be, had the contract been followed. I structured my damages award to deny TSC a ‘windfall’ award beyond that amount: [327] I have difficulty with TSC’s damage claim as it relates to Mr. Evans’ revenues during the 2008-2009 and 2009-2010 seasons totaling $141,652.65 . Those payments resulted from player contracts negotiated by Mr.

Evans during the prohibition period, but related to a period beyond the expiry of the prohibition period. I am not satisfied that there is a valid claim for full payment beyond the end of the 2007-2008 season . Mr. Evans should not have been negotiating for those players at all. But TSC should not have a windfall . [328] In my view, the payments for those latter two seasons should be treated as if they had been made for contracts negotiated by TSC, but where TSC had been fired and another agent retained to service the client. As with Mr. Fleischmann and Mr.

Mozsis for carry-over contracts, TSC is entitled to 10% of those amounts. [Emphasis added.] [ 9 ] Mr. Livingstone argued that I should not now increase the damage award sought by TSC, noting that I had expressed difficulty awarding TSC the level of damages it initially sought in this area. 2. Jurisdiction to Vary the Trial Judgment

[ 10 ] When the matter was argued before me, I enquired of counsel as to my jurisdiction to correct the judgment. I reserved on the point, and provided counsel with my conclusions on jurisdiction. [ 11 ] The formal judgment had not been finalized and entered, and as a consequence I retain a broad jurisdiction over the matter. My jurisdiction includes the correction of errors, and extends beyond just typographical or calculation errors. [ 12 ] My authority to revise the reasons for judgment flows from the Alberta Rules Of Court , Alta.

Reg. 124/2010, ss. 9.12-9.14 [the “ Rules ”, or individually a “ Rule ”]: Correcting mistakes or errors 9.12 On application, the Court may correct a mistake or error in a judgment or order arising from an accident, slip or omission. Re-opening case 9.13 At any time before a judgment or order is entered, the Court may (

a) vary the judgment or order, or (

b) on application, and if the Court is satisfied there is good reason to do so, hear more evidence and change or modify its judgment or order or reasons for it. Further or other order after judgment or order entered 9.14 On application, the Court may, after a judgment or order has been entered, make any further or other order that is required, if (

a) doing so does not require the original judgment or order to be varied, and (

b) the further or other order is needed to provide a remedy to which a party is entitled in connection with the judgment or order. [ 13 ] These provisions replace and appear to significantly expand the authority provided under the previous Alberta Rules of Court , Alta. Reg. 390/1968: 339 Clerical mistakes in judgments or orders, or errors therein arising from any accident, slip or omission may at any time be corrected by the court on motion. [ 14 ] I have not identified any case that has applied the new Rules 9.12 to 9.14. [ 15 ] Reading the plain language of Rule 9.13, I believe that I have extremely broad authority to do what I think is correct in these circumstances.

3. The Parties’ Arguments [ 16 ] TSC argues that it should receive the full $63,703.19, which is simply enforcing the bargain between the parties: 1. the revenue for the latter two years does not flow from any activity of Mr. Evans during the latter two years but flows from wrongful activities that transpired during the prohibited period; 2. there is no windfall to TSC as Mr. Evans would still retain 55% of the revenues for this period; 3. TSC’s damages were already reduced for mitigation for Mr. Kopecky, who returned to TSC. Mr.

Evans continued to receive 90% of his fees for the balance of his contract, although TSC serviced Mr. Kopecky. As a result of my ruling, Mr. Evans was entitled to retain 50% of the 90% of Mr. Kopecky's fees, even though he had been wrongly taken as a client by Mr. Evans; 4 in any event, Mr. Kopecky’s fees for 2009 should not be subject to mitigation issues; and 5. the fee payable for Mr. Meszaros should not be subject to mitigation as submitted by Mr. Evans as he was a returned client. [ 17 ] Mr.

Evans argues that TSC made no real efforts to mitigate its damages, and that while my calculation of the amounts retained by the contracting agent was in error, the use of a 10% factor in determining TSC’s damages was not. 4. Analysis [ 18 ] Although not argued, it appears that my error affected Trial Judgment, para. 309 as well. There, I held: [309] There is no issue that TSC was entitled to receive 10% of any fees paid to Mr.

Evans where the revenues on which the fees were based came from contracts negotiated on the client’s behalf by TSC, such as for the second year of a two year contract. [ 19 ] In fact, TSC should have received 90% of any fees paid to Mr. Evans where the revenues to Mr. Evans resulted from contracts negotiated on the clients’ behalf by TSC and the contract period extended after the clients signed with Mr. Evans.

I do not know if anything turns on that. [ 20 ] I heard limited evidence on the calculation of damages, as the values identified in para. 308 came from an exhibit and was essentially agreed to represent the total amount of fees paid to Mr. Evans from the relevant players over the two periods. [ 21 ] I also heard limited evidence as to TSC’s loss of profits on the revenues. Their evidence was that they could have maintained the Eastern European pipeline without increasing expenses, so the lost revenue from clients taken by Mr. Evans was essentially pure profit.

I rejected that notion at Trial Judgment para. 304, holding that there would still have been considerable expenses involved with those clients, such that the gross revenues would not have been purely profit. [ 22 ] The only evidence as to the actual “profitability” of Mr. Evans’ clients while he was at TSC was the memo prepared by Mr. Winter in connection with salary negotiations that demonstrated that, taking Mr. Evans’ salary and expenses into account, as well as the costs of Messrs. Henys and Kadlecek, there was little profit to TSC.

This calculation was, of course, used by TSC to oppose any higher salary demands by Mr. Evans. In the context of this trial it could be a basis to deny TSC any award of damages - arguably TSC lost nothing when Mr. Evans left. TSC could have simply shut the pipeline down.

[23] TSC did not produce their financial statements to demonstrate their actual profit from the affected clients, nor was any expertevidence called to quantify their financial losses. TSC has essentially relied on the liquidated damages provision in the agreement, whoseapplication I have rejected. [24] In assessing damages, I referred at para. 307 to Germain J.’s decision in The Travel Company v.

Keeling, 2009 ABQB 399,473 A.R. 336: [307] As with Germain J. in The Travel Company (at paras. 36-41), I prefer the approach that looks at the loss actually sustained by theclaimant so the claimant is restored to the same position as it would have been in but for the breach by the defaulting party. [25] Similarly, in Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd., 1996 ABCA 169 atpara. 41, 184 A.R. 81 damages were awarded on the following basis: 41 ...

The proper remedy is to compensate the Appellant in damages for the profit it has lost as a consequence of Kelly's breach ofduty: Canadian Aero Service Ltd. v. O'Malley, supra. That measure should approximate the amount by which the Respondents have beenwrongfully enriched. At trial, the Appellant claimed damages based on loss of past and future profits it claimed it would have realizedhad the lost clients remained loyal.

The Trial Judge calculated the Appellant's damages premised on his finding that all twenty-one of theclients would soon have followed Kelly to World Wide even if he had not actively pursued them.

He would have awarded nominaldamages based on three months' lost profits, on the ground that "[t]he only possible side effect of Kelly's contacts with those clients wasto marginally escalate the process of their move from the Plaintiff by providing the necessary cancellation and new agency agreementform for signature" ... 42 ... the presumed inevitability of the loss of these clients is not a relevant consideration in determining if there was a breach of thefiduciary duty. Neither is such speculation a relevant factor in assessing the Appellant's claim for loss of profits.

The Respondents shouldnot have the benefit of any such conjecture. Having found that in these circumstances Kelly should have refrained from activelysoliciting the Appellant's clients for a period of at least one year following his departure, I would calculate the loss of profits on the basisof the same period. [Emphasis added.] [26] On reflection, my assessment of damages was overly simplistic. There should have been a greater analysis of TSC’s capacityto profit from the lost contracts and thus its actual losses.

That would have required detailed evidence as to the actual expenses ofproperly servicing the Czech and Slovak clients. There is a distinction between the expenses of servicing existing clients (includingnegotiating on their behalf) and the expenses of recruiting new clients (which was a joint effort among Messrs. Henys and Kadelcek andTSC). There was no detailed evidence before me to allow me to accurately evaluate these various factors; my calculations instead flowfrom gross revenues. [27] That does not mean damages cannot and should not be evaluated.

A fundamental principle of damage assessment is thatwhere an assessment is required, the court is to do the best it can with the information it has available. In Wood v.

Grand Valley RailwayCo. (1915), (SCC), 51 S.C.R. 283, 22 D.L.R. 614 Fitzpatrick C.J.C. endorsed the approach to damages in Chaplin v.Hicks, [1911] 2 K.B. 786 and concluded: It was clearly impossible under the facts of that case to estimate with anything approaching to mathematical accuracy the damagessustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned judges that such an impossibility cannot"relieve the wrongdoer of the necessity of paying damages for his breach of contract" and that on the other hand the tribunal to estimatethem whether jury or judge must under such circumstances do "the best it can" and its conclusion will not be set aside even if the amountof the verdict is a matter of guess work. [Emphasis added.] In short, to calculate damages the Court plays the evidentiary hand that it was dealt. [28] There is also policy basis to this approach; a party that fails to prove or challenge damages cannot argue against court exerciseof that discretion.

For example, in Brown v. Silvera, 2011 ABCA 109, 65 E.T.R. (3d) 169, a party who owned the corporations refused toprovide information that would allow accurate valuation (para. 106). Chief Justice Fraser concluded that party then had no right to

challenge the at-trial damage calculation as insufficiently accurate: The trial judge was entitled to determine the value of the corporate property based on that evidence, especially since Brown refused to provide relevant evidence for a more exact accounting of his gains. [ 29 ] Here, one way to approach damages is to observe that in the two year restriction period Mr. Evans generated approximately $450,000.00 in revenues from former TSC clients who followed him. Had he remained with TSC at his previous salary, he would have earned $150,000.00 per year, or $300,000.00.

That would have left $150,000.00 to cover expenses and to contribute to TSC’s profits. Not all of Mr. Evans’ clients followed him. Arguably, TSC might well have been able to service the existing clients at a lesser cost than Mr. Evans’ salary. [ 30 ] As noted in Anderson, Smyth & Kelly , the innocent party’s damages may be evaluated from the approximate amount by which the wrongdoer has been unjustly enriched. Mr.

Evans’ corporation’s financial statements show that his initial activities were not hugely profitable, but his expenses were not tested at trial. [ 31 ] Having rejected the use of liquidated damages as a proper measure of assessment, and having also rejected TSC’s contention that virtually all of the lost revenue represented lost profit, the evidence on damages was essentially unsatisfactory. [ 32 ] If I ignored any revenues after the two year restriction period, my award would have been approximately $181,000.00 US and $1,750.00 Can. Mr.

Evans generated revenue of over US $363,000.00 US and $3,500.00 Can. over a two year period from clients with whom he had no right to contract. Stripping away 50% of that amount still leaves him with nearly $183,000.00. He also positioned himself to directly generate future revenues of US $140,000.00 as a result of his conduct during the prohibited period. [ 33 ] An objective in assessing damages in matters such as this it to ensure the wrongdoer is not enriched by allowing him to retain his unlawful profits. The corollary to that objective is also that the injured party should not receive a windfall.

Any damage award must balance both these objectives. [ 34 ] In the end of this analysis, I am led to the conclusion that TSC’s damages should have been generally calculated on the basis of their loss of profits over the two year period. I was incorrect to make an award of damages against Mr. Evans beyond that point. [ 35 ] I rejected calculating damages on the basis of para. 7(

j) of the Employment Agreement, so tying damages to Mr. Evans’ wrongful acts projected into the future, as opposed to TSC’s losses during the prohibited period, was inappropriate. [ 36 ] I had inadequate information before me to base damages on Mr. Evans’ profits. If I had that evidentiary foundation then the damage award may have extended to contract revenues negotiated beyond the prohibited period, but that award would have been counterbalanced by an evaluation of the expenses related to those revenues over the entire period and TSC’s lost profits that flowed from Mr.

Evans’ breach of contract - if I indeed had that evidence. [ 37 ] Mr. Livingstone, on behalf of Mr. Evans, did not weigh into the manner of assessment of damages. He did not specifically seek a reduction in the amount of the judgment. [ 38 ] Both parties provided little evidence to evaluate damages. Further, I concluded that TSC did not properly mitigate its injury. I do not think it is unreasonable to assess damages on the basis of 50% of the “prohibited revenues” over the two year prohibition period. Indeed, that amount may well be generous. However, when balanced with Mr.

Evans’ wrongful conduct and the amount of revenue he is still entitled to retain to pay his expenses and contribute to his profit, I do not resile from that assessment. [ 39 ] Any greater amount would, in my view, amount to a windfall to TSC. Any lesser amount would permit Mr. Evans to unfairly

keep more of the revenues he should not have had in the first place. Neither party should have any windfall in these circumstances. While my approach to damages can only be an approximate balancing exercise, it is a necessary approximation. 5. Conclusion and Costs [ 40 ] This conclusion reduces the damage award to $181,385.20 US and $1,771.87 Can. The amount of $7,082.63 US should not have been awarded and my decision is amended to delete that amount. [ 41 ] The fee payable by Mr. Meszaros should not be reduced for mitigation issues. [ 42 ] I am grateful to counsel for pointing out the error in reasoning.

I regret not spending more time on the damage assessment. Most of the trial was consumed with evidence and argument over liability. The trial ran longer than the originally scheduled time, and as a consequence there was undoubtedly some compression of the evidence to accommodate the extra time needed to finish. [ 43 ] In these circumstances, there will be no costs payable in relation to the appearance and arguments submitted to correct the judgment. Heard on the 11 th day of May, 2011. Dated at the City of Edmonton, Alberta this 20 th day of July, 2011. Robert A. Graesser J.C.Q.B.A.

Appearances: Stephen Livingstone McLennan Ross LLP for the Respondent (Plaintiff/Defendant by Counterclaim) P.D. Wilson, Q.C. Fraser Milner Casgrain LLP for the Applicant (Defendant/Plaintiff by Counterclaim)