Tok Transit Alberta Limited v Wood Buffalo (Municipality), 2017 ABQB 352

Court of Queen’s Bench of Alberta Citation: Tok Transit Alberta Limited v Wood Buffalo (Municipality), 2017 ABQB 352 Date: 20170526 Docket: 1601 05790 Registry: Calgary Between: Tok Transit Alberta Limited Plaintiff - and - Regional Municipality of Wood Buffalo Defendant _______________________________________________________ Memorandum of Decision of J.L.

Mason, Master in Chambers _______________________________________________________ Overview [ 1 ] Effective April 24, 2013, Tok Transit Alberta Limited contracted to provide a full service bus transit system for the Regional Municipality of Wood Buffalo (the “Municipality”).

The term of the contract was for 15 years. [ 2 ] Tok Transit incurred significant start-up costs, involving: acquisition of equipment, parts and maintenance inventory; hiring and training of drivers; re-locating approximately 40 families from out of province so as to provide experienced staff; purchase of staff houses; construction of a bus barn; and purchase of service trucks and specialty equipment to maintain the bus service, heated bus shelters, and bus stops. [ 3 ] By letter dated February 19, 2015, less than two years into the term, the Municipality terminated for convenience under

section 25.1 of the contract, and took over the transit services itself. [ 4 ] Tok Transit alleges that the Municipality’s termination was capricious and arbitrary, and was issued for improper and

extraneous purposes. It seeks judgment for its start-up costs, $67,000,000 in damages for breach of the contract and general and punitive damages in excess of $1,000,000. [ 5 ]

Section 25.1.1 of the contract provides that the Municipality is responsible for all reasonable costs incurred by Tok Transit as a result of the termination for convenience, including any reasonable employee severance costs. [ 6 ] Tok Transit provided severance payments of $710,154.25 to 26 employees not retained by the Municipality. The Municipality refused to reimburse these costs. [ 7 ] Tok Transit applies for partial

summary judgment in the amount of the severance paid, plus solicitor and client costs. The balance of its very significant claim will be proceeding to trial. [ 8 ] The Municipality resists judgment on several grounds, including that Tok Transit did not make all commercially reasonable efforts to minimize the severance costs, as required under

section 25.1.1 of the contract. [ 9 ] For the reasons that follow, the application is dismissed. The evidence raises questions as to whether Tok Transit made all commercially reasonable efforts to minimize the severance paid. Tok Transit’s choice to provide severance payments and the quantum of those payments should be assessed along with the balance of its claim for damages, with the benefit of the totality of the evidence. Test for

summary judgment [ 10 ] Tok Transit applies for partial

summary judgment on the ground that there is no defence to its claim for reimbursement of its severance costs, pursuant to Rule 7.3(1)(a). [ 11 ]

Summary judgment is no longer denied solely on the basis that the evidence discloses a triable issue. The court now asks whether there is any issue of merit that genuinely requires a trial or, conversely, whether the claim or defence is so compelling that the likelihood it will succeed is very high such that it should be determined summarily.

The court will also consider whether examination of the existing record can lead to an adjudication and disposition that is fair and just to both parties: Whitecourt Power Limited Partnership v Elliott Turbomachinery Canada Inc ., 2015 ABCA 252 at paragraph 9 , citing Hryniak v Mauldin 2014 SCC 7 and other authorities from the Court of Appeal. [ 12 ] The standard for fairness is not whether the process is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles: Hryniak v Mauldin at paragraph 50 . [ 13 ] The court is to presume that the best evidence from both sides is before it: 1214777 Alberta Ltd v 480955 Alberta Ltd, 2014 ABQB 301 at paragraph 17 . [ 14 ] A party faced with an application for

summary judgment must put its best foot forward, and present evidence to show sufficient “merit” to establish a genuine issue requiring a trial with respect to the outstanding issues: Windsor v Canadian Pacific Railway Ltd , 2014 ABCA 108 at paragraph 21 , citing Canada v Lameman , 2008 SCC 14 at paragraph 19 . The mere assertion of a position by the non-moving party in a pleading or otherwise, or the mere hope of the non-moving party that something will turn up at a trial, does not suffice.

The key is whether the circumstances require viva voce evidence in order to properly resolve the case: 776826 Alberta Ltd. v Ostrowercha, 2015 ABCA 49 at paragraph 11 . [ 15 ] The onus remains on the applicant to present uncontroverted facts and law which entitle it to judgment: see for example, Access Mortgage Corporation

(2004) Limited v Arres Capital Inc ., 2014 ABCA 280 at paragraph 45 . Relevant provisions of the contract [ 16 ]

Section 25 of the parties’ contract provides that: 25.1 The Municipality may, upon no less than ... (90) days’ written notice to the Contractor, terminate this Contract for convenience. On the Termination Date stipulated in such notice, the Contractor shall discontinue the Services and shall be reimbursed for that portion of the Services performed to the Termination Date, subject to the Contractor’s compliance with its obligations pursuant to

section 31. 25.1.1 If the Municipality terminates this Contract under

Section 25.1, the Municipality shall be responsible for all reasonable costs incurred by the Contractor as a result of the termination, including, without limitation, any reasonable employee severance costs... The Contractor shall make all commercially reasonable efforts to minimize the costs incurred as a result of such termination pursuant to

section 25.1. [ 17 ]

Section 31 provides that: 31 The Contractor recognizes that the Services are vital to the Municipality and must be continued without interruption and that, upon termination or expiration of this Contract, the Municipality or another contractor, may continue them. In recognition of this, the Contractor agrees to exercise its best efforts and cooperation to effect an orderly and efficient transition to the new operator...

Did Tok Transit make all commercially reasonable efforts to minimize the severance costs? [ 18 ] Whether or not Tok Transit’s choice to pay severance rather than provide working notice, and the quantum of those payments were commercially reasonable must be determined in context. [ 19 ] Shortly after the termination notice was issued, the Municipality advised Tok Transit that it intended to hire the majority of the unionized bus drivers at the end of the termination period. It further advised that it was considering whether to make offers to any of Tok Transit’s other, non-unionized employees.

The list of employees that would not be receiving offers was not finalized until May 8, 2015, two weeks prior to the expiry of the termination period on May 22, 2015. Tok Transit’s evidence is that this created an atmosphere

of uncertainty and caused concern among the employees. [ 20 ] Tok Transit’s position is that it needed to address its employees’ concerns while maintaining the transit service during the termination period as required under

section 31 of the contract. Tok Transit Chief Operating Officer Ajay Mehra deposes in his affidavit in support of the application that in order to facilitate an orderly and efficient transition and to ensure that vital services continued without interruption, Tok Transit assured its employees that they would be treated fairly if they stayed on, notwithstanding the uncertainty of employment at the end of the termination period.

He deposes at paragraphs 22-25 of his affidavit sworn October 20, 2015: It was not practical for Tok Transit to pay the Severance Costs in any manner other than through lump sum payments in exchange for written releases from each employee given that Tok Transit was required to continue the transit services without interruption, complete transition, wind up its operations in Fort McMurray, and hand over the transit services to the Municipality within a very short period of time as of the Termination Date.

Following receipt of the Notice of Termination for Convenience, Tok Transit required its employees to work diligently to continue the transit series without interruption and to facilitate the transition of the bus transit services to the Municipality. Those efforts were time consuming and were necessary.

In face of the Termination Notice for Convenience, in order to maintain employee morale and in order to secure the continued engagement and efforts of all the Dismissed Employees up to the Termination Date, Tok Transit assured the Dismissed Employees that they would be dealt with fairly and reasonably having [regard] to the very difficult employment market then and now facing job-seekers in Fort McMurray and the surrounding areas.

Because the Municipality delayed, until May 8, 2015, in informing Tok Transit as to which of the Remaining Employees would not receive offers of employment from the Municipality, and given the realities of Tok Transit’s obligations to provide continued and uninterrupted bus transit services during the 90 day notice period, it was impractical for Tok Transit to give any earlier notice to the Dismissed Employees in advance of the termination of the Contract on May 22, 2015. [ 21 ] Shortly after receiving the list of employees that would not be receiving offers of employment from the Municipality, Tok Transit offered those employees pay in lieu in exchange for signed releases. [ 22 ] Tok Transit submits that the provision of severance was carefully considered with the benefit of legal advice, and that as such, it was commercially reasonable to do so and therefore reimbursable by the Municipality under clause 25.1.1.

Mr. Mehra deposes that: The Severance Costs were carefully determined by Tok Transit to be reasonable employee severance costs as contemplated in the Contract as aforesaid, having regard to legal advice Tok Transit obtained from Carscallen LLP regarding applicable employment law principles informing the appropriate length of notice in the case of each individual Dismissed Employee.

Such careful determination of the Severance Costs for each of the Dismissed Employees involved Tok Transit taking into account, in accordance with its legal advice aforesaid, various factors as applicable to each individual Dismissed Employee, including: age, employment position, responsibilities, duration of employment, number of other employees reporting to the Dismissed Employee and the overall job and labour market in the Fort McMurray region in May 2015. [ 23 ] Under cross-examination, Mr.

Mehra stated that Tok Transit also received legal advice as to severance from its labour lawyer, Ryan Anderson of Mathews Dinsdale & Clark LLP, a Vancouver firm. He said that Tok Transit followed the legal advice it received. An undertaking was requested to provide the legal advice provided on the topic of severance, which was refused. [ 24 ] Following the hearing, I directed Tok Transit to provide copies of records comprising the advice relied on in this regard.

I held that given Tok Transit’s express reliance on legal advice in support of its position that it acted in a commercially reasonable fashion, the issue fairly required provision of the specific legal advice received. [ 25 ] Tok Transit subsequently provided the Municipality and the court with a binder of documents comprising its communications with the two firms. These communications disclose that early in the termination period, Tok Transit received advice as to the provision of working notice to its employees. Mr.

Anderson advised Tok Transit on March 3, 2015: ...since all of these employees have less than 2 years’ service AND you are in a position to provide nearly 3 months working notice, such notice is likely to exhaust most (if not all) of your common law liability for notice/severance (and all liability for notice/severance under the Alberta Empl. Stds. Code as well). Giving employees sufficient working notice will eliminate any entitlement to severance pay.

Thus, at this stage, while some liability may exist for an employee to demand more than 3 months working notice, I recommend that you proceed on the basis that such notice is sufficient. ... I have attached a template notice letter that you can use in these circumstances. Once the necessary amendments have been made, I would be happy to review the final draft... [ 26 ] In response, Mr. Mehra instructed that if there were “even a 1% chance” that severance should be paid, it should be. Mr.

Anderson suggested that a modest severance of 2 weeks’ pay could be offered in addition to the working notice, and that he would revise the notice letters accordingly. Mr. Mehra suggested 1 week’s pay would suffice for those employees who had worked less than one year, and 2 weeks would be appropriate for those who had worked more than a year. On March 4, 2015, Mr. Anderson forwarded revised template letters to Mr. Mehra. [ 27 ] Tok Transit did not issue these letters that Mr. Anderson prepared for its use.

Tok Transit argues that this was due to its concern that providing working notice would be detrimental to its ability to meet its obligations to provide uninterrupted transit service pursuant to

section 31of the contract (Mr. Mehra described this as “the biggest concern all around”). However, the records supplied do

not indicate that Mr. Mehra or anyone from Tok Transit raised any such concerns upon receipt of the advice from Mr. Anderson to issue working notice, although Mr. Mehra raised other concerns, as noted above. [ 28 ] Tok Transit argues that it is misleading for the Municipality to suggest that it was not following legal advice it received, as Mr. Anderson was conveying general advice on broad concepts only. However, Mr. Anderson’s statements above were in response to a series of specific questions from Tok Transit’s General Manager, Rob Peluso as to what it was obliged to do vis-à-vis its employees.

The wording used by Mr. Anderson, and his provision of template letters suggests he was in fact providing specific advice as to how Tok Transit should manage its employee liabilities arising from the Municipality’s termination. [ 29 ] The records indicate that about a month later, on April 9, 2015, the topic of working notice came up again. Template letters were supplied by counsel that again provided working notice, and given the passage of time, increased some severance payments to up to four weeks. Again, at no point do the records indicate that Mr.

Mehra had a concern that issuing working notice would run afoul of Tok Transit’s obligations to provide uninterrupted service through the termination period. [ 30 ] On April 13, 2015, working notice letters were issued to all the unionized employees and 8 of the 26 non-union employees at issue. Tok Transit argues that it had to rescind these letters after counsel for the Municipality “scolded” them for sending them and put it on notice that it would not reimburse any payments made to employees who were kept on by the Municipality.

It also submits that this reaction from the Municipality stopped it from issuing further working notice letters, and that it was compelled to wait to receive the finalized list of employees who would be receiving offers from the Municipality. [ 31 ] The April 17, 2015 letter from counsel for the Municipality in this regard only refers to successorship obviating the need to provide notice to any of the union employees.

In any event, it cannot explain Tok Transit’s earlier choice not to provide working notice and small severance payments of up to two weeks, at the outset of the termination period as apparently recommended by its counsel. [ 32 ] The further template letters prepared by Tok Transit’s counsel on May 6, 2015, after this objection from the Municipality, provided working notice only and did not offer any severance payments, presumably to address the threat made by the Municipality in its April 17, 2015 letter.

The form of template letter to those non-union employees who had not yet received any working notice stated that “[a]s we get closer to the Termination Date, we will provide additional details concerning your entitlement to severance pay, if any, in accordance with the law of Alberta”. Counsel also prepared template letters to the 8 non-union hourly employees that did receive working notice offers, together with modest offers of severance. That template indicated that the severance offers would be rescinded if the employee received an offer of employment from the Municipality.

Such letters were sent to the 8 non-union hourly employees on May 7, 2015. It is not clear from the records why Tok Transit did not issue working notice to the other employees at that time. [ 33 ] Ultimately, Tok Transit provided severance payments ranging from 2-12 months to the 26 non-union employees who were not offered positions with the Municipality. The total payment exceeded $710,000. [ 34 ] The records contain some evidence that notwithstanding Mr.

Mehra’s evidence that Tok Transit followed the legal advice it received, Tok Transit did not base the severance payments on what was recommended by its counsel. The records disclose that on May 8, 2015, Mr. Mehra provided Carscallen LLP with a chart summarizing the severance payments that Tok Transit wished to make to the 26 employees. [ 35 ] Carscallen LLP responded later that day: Thanks [Mr. Mehra]. With regard to the severance figures you have provided us, are those the ones that Ryan Anderson has recommended? [ 36 ] Mr.

Mehra’s response was: No that’s what we feel is reasonable and I would ensure that every employee not hired by the municipality sign a release for us. [ 37 ] It also appears that Carscallen LLP queried the amounts Tok Transit wanted to pay some of the employees. For example, when counsel suggested that an employee’s severance should be reduced, Mr.

Mehra responded that: I would really like to reward [employee] with 5 months as she has been an excellent employee and [has] worked several additional hours without any compensation. [ 38 ] Thus, the available documentation concerning the legal advice obtained in the 90 day post-termination period arguably demonstrates that Tok Transit chose to provide pay in lieu of working notice, despite legal advice that this could be avoided or minimized, and that it offered a quantum of severance higher than what counsel suggested.

The chart summarizing the severance paid to each of the 26 employees was not based on what Mr. Anderson recommended, and the extent to which the length of notice contained in the chart provided by Mr. Mehra to Carscallen was based on the analysis by counsel of the legally relevant factors (known as the “ Bardal factors”) is not clear. [ 39 ] Further, several of the employees among the 26 had worked for Tok Transit and related companies in Ontario prior to moving to Fort McMurray.

The evidence discloses that the employees were told that Tok Transit had a new contract coming up in Ontario following the termination period of the contract for the Municipality, and that there was a possibility of further employment there. These circumstances raise a question as to whether, had they been provided with working notice, Tok Transit’s employees would leave during the termination period to take jobs elsewhere, as argued by Tok Transit in support of its decision not to issue such notice.

In the months following their termination in Fort McMurray, several of the 26 employees at issue in fact secured positions with Tok Transit or related entities in Ontario. [ 40 ] In

summary, the evidence raises questions about Tok Transit’s compliance with its contractual obligation to make all commercially reasonable efforts to minimize severance paid, particularly in view of Tok Transit’s submissions that the payments were commercially reasonable in part because they were based on legal advice received, and Mr. Mehra’s evidence that the advice was

followed. [ 41 ] I appreciate that not all of the legal advice Tok Transit received is reflected in the documentation provided. Counsel confirmed that much of it was sought and provided verbally over the telephone, which is understandable given the compressed time frame in which Tok Transit had to make its decisions while maintaining uninterrupted transit service, winding up its operations and preparing for orderly transfer of the service back to the Municipality. Vive voce evidence will be necessary to round out these communications, and the role played by Mr. Mehra’s concerns over

section 31 of the contract, which has been relied upon by Tok Transit in its position that payment of severance, and the quantum paid were commercially reasonable in the circumstances. [ 42 ] It may be that commercial realities and the contractual obligations imposed on Tok Transit to provide uninterrupted service and an orderly transition of the service to the Municipality dictated these choices.

With the benefit of full evidence at trial as to the circumstances of the Municipality’s termination, the trial judge will be better placed to assess the reasonableness of Tok Transit’s decisions, and to determine whether, as argued by the Municipality, these were influenced by what Tok Transit has alleged to be a bad faith termination and its own desire to “reward” its loyal employees for their good service. [ 43 ] While Tok Transit has presented a good argument as to the commercial reasonableness of paying severance rather than providing working notice, I am not confident in issuing

summary judgment for the severance payments on the basis of this record. In the circumstances, it would be appropriate to consider all of the consequences of the Municipality’s early termination of this long term, very significant contract, including its obligation to reimburse the severance paid, with the benefit of the totality of evidence at trial.

The evidence of the manner of termination, which will be the central issue at trial, will assist the trial judge in understanding the context in which Tok Transit was making these decisions as to severance. [ 44 ] I need to address one further argument raised by Tok Transit. On May 11, 2015, counsel for Tok Transit began discussions with outside counsel for the Municipality as to its proposed severance payments to the 26 employees who were not being offered continued employment.

Some concerns were raised by counsel for the Municipality with respect to employees Tok Transit wanted to pay many months of severance, and Carscallen LLP provided its reasons in support of the payments. On May 22, 2015, counsel for Tok Transit provided its finalized proposal, and on May 25, 2015, indicated that the listed sums would be paid to the employees on May 29, 2015. In-house counsel for the Municipality objected to the payments on May 29, 2015, but the payments had been made earlier that day.

Tok Transit argues that the Municipality is now estopped from complaining about the quantum of the payments. [ 45 ] In all the circumstances, and in view of the questions raised by the available evidence, the timing of the Municipality’s response is not determinative of the issue of the commercial reasonableness of the payments. Conclusion [ 46 ] Tok Transit’s application for partial

summary judgment is accordingly dismissed. [ 47 ] I thank counsel for their excellent submissions. [ 48 ] If necessary, costs may be spoken to. Heard on the 6 th day of December, 2016 and the 2 nd day of May, 2017. Dated at the City of Calgary, Alberta this 26 th day of May, 2017 . J.L. Mason M.C.C.Q.B.A. Appearances: Suzanne M. Porteous Carscallen LLP for the Plaintiff

Robert P. James Parlee McLaws LLP for the Defendant