2011 NBCA 44, 2011 NBCA 44

COURT OF APPEAL OF NEW BRUNSWICK 102-09-CA YVES DOUCET and PETER DAUPHINEE APPELLANTS YVES DOUCET et PETER DAUPHINEE APPELANTS - and - - et - SPIELO MANUFACTURING INCORPORATEDand JON MANSHIP RESPONDENTS SPIELO MANUFACTURING INCORPORATED etJON MANSHIP INTIMÉS Doucet and Dauphinee v. Spielo ManufacturingIncorporated and Manship, 2011 NBCA 44 Doucet et Dauphinee c.

Spielo ManufacturingIncorporated et Manship, 2011 NBCA 44 CORAM: The Honourable Justice Deschênes The Honourable Justice Robertson The Honourable Justice Green CORAM : L’honorable juge Deschênes L’honorable juge Robertson L’honorable juge Green Appeal from decisions of the Court of Queen’sBench: February 3, 2010 July 13, 2009 December 17, 2008 Appel de décisions de la Cour du Banc de la Reine : Le 3 février 2010 Le 13 juillet 2009 Le 17 décembre 2008 History of Case: Historique de la cause : Decisions under appeal: 2010 NBBR 39 , 2010 NBQB 39 2009 NBBR 196 , 2009 NBQB 196 2008 NBBR 413 , 2008 NBQB 413 Décisions frappées d’appel : 2010 NBBR 39 2009 NBBR 196 2008 NBBR 413

Preliminary or incidental proceedings: Court of Appeal: [2010] N.B.J. No. 125 [2009] N.B.J. No. 352 2007 NBCA 85 , [2007] N.B.J. No. 510 [2007] N.B.J. No. 312 [2007] N.B.J.

No. 432 Court of Queen’s Bench 2008 NBBR 422 , 2008 NBQB 422 2008 NBQB 37 2008 NBQB 27 2007 NBQB 245 2006 NBQB 249 2006 NBQB 268 Procédures préliminaires ou accessoires : Cour d’appel : [2010] A.N.-B. no 125 [2009] A.N.-B. no 352 2007 NBCA 85 , [2007] A.N.-B. no 510 [2007] A.N.-B. no 312 [2007] A.N.-B. no 432 Cour du Banc de la Reine 2008 NBBR 422 2008 NBBR 37 2008 NBBR 27 2007 NBQB 245 , 2007 NBBR 245 2006 NBQB 249 , 2006 NBBR 249 2006 NBQB 268 , 2006 NBBR 268Appeal heard: September 16, 2010 Appel entendu : Le 16 septembre 2010 Judgment rendered: May 12, 2011 Jugement rendu : Le 12 mai 2011 Reasons for judgment by: The Honourable Justice Robertson Motifs de jugement : L’honorable juge Robertson Concurred in by: The Honourable Justice Deschênes The Honourable Justice Green Souscrivent aux motifs : L’honorable juge Deschênes L’honorable juge Green Counsel at hearing: For the appellants: George W.

MacDonald, Q.C., Richard J. Scott, Q.C. and Crystal Gamble For the respondents: J. Gordon Petrie, Q.C., Catherine A. Lahey and Clarence L. Bennett Avocats à l’audience : Pour les appellants : George W. MacDonald, c.r., Richard J. Scott, c.r., et Crystal Gamble Pour les intimés : J. Gordon Petrie, c.r., Catherine A. Lahey et Clarence L. Bennett

THE COURT The appeal is allowed in part. The appeal on the main action is dismissed. The appeal with respect to the counterclaim and related costs order is allowed and the matter remitted to the Court of Queen’s Bench for a new trial before a different judge. The costs order at trial is varied from $838,490.62 to $745,325. The respondents being largely successful on the appeal are entitled to costs of $7,500. This award embraces two ancillary motions heard in the Court of Appeal prior to the appeal hearing. LA COUR Accueille l’appel en partie. L’appel relatif à l’action principale est rejeté.

L’appel relatif à la demande reconventionnelle et à l’ordonnance connexe concernant les dépens est accueilli et l’affaire est renvoyée à la Cour du Banc de la Reine afin qu’un nouveau procès soit tenu devant un juge différent. Les dépens accordés au procès sont modifiés et ramenés de 838 490,62 $ à 745 325 $. Puisqu’ils ont eu, en grande partie, gain de cause en appel, les intimés ont droit à des dépens de 7 500 $, dépens qui s’appliquent aussi à deux motions accessoires entendues devant la Cour d’appel avant l’audition de l’appel. INDEX Paragraph I. Synopsis 1 II. The Overview – Non-Issues A.

Background Facts 20 B. The Claims for Negligent Misrepresentation 24 C. The Alleged Pre-Contractual Duty to Bargain in Good Faith 29 D. Final Note –

Summary Judgment 39 III. The Oppression Issue 40 IV. Wrongful Dismissal – Employment/Severance Package Issues 64 V. The Counterclaim – After Acquired Cause – Mr. Doucet A. The Legal Framework 74 B. The Dovico Allegations 92 C. The Kickback Allegation 101 VI. Awards of Costs– The New Brunswick Framework A. Introduction – Deference 115 B. The Purpose(

s) of Awards of Costs 117 C. The Basic Framework – Rules 49 & 59 – Tariff “A” 124

D. Tariff “A” or Lump Sum – The Westinghouse Decision 135 E. Partial or Substantial Indemnification? The Beaverbrook 148 Art Gallery Decision F. The Relevance of Affidavit Evidence Regarding Legal Fees 155 VII. The Costs Issue Addressed A. The Trial Judge’s Cost Decision 161 B. Application of Tariff “A” to Present Case 167 C. The Impact of the $1 Million Offer to Settle 189 VIII. Disposition 192 The judgment of the Court was delivered by ROBERTSON, J.A. I. Synopsis [ 1 ] The pathway to this appeal left behind 14 reported decisions. Three are before this Court today.

The underlying legal and factual issues were diverse as were the claims for compensation which exceeded $30 million. All were rejected and the successful party was awarded party-and-party costs of $838,490.62.

The following synopsis circumscribes the essential facts, the trial judge’s findings, the issues raised on appeal and my conclusions, all of which are arterially tied to the trial judge’s three decisions spanning some 200 pages. [ 2 ] In 2002, the appellants, Yves Doucet and Peter Dauphinee entered into formal negotiations with the respondent, Jon Manship, for the purchase of the “on-line division” of the respondent Spielo Manufacturing Corporation. Spielo is involved in the development and manufacture of gaming equipment, with annual sales of over $500 million. It is located in Moncton, New Brunswick.

In 2002, Mr. Manship was the president and majority shareholder (90%) of Spielo. Mr. Doucet and Mr. Dauphinee were employees. Collectively, they owned less than 2% of the corporation’s outstanding shares, acquired pursuant to a stock option plan and share subscription agreements. Mr. Doucet was the Vice-President in charge of the on-line division. Mr. Dauphinee, a solicitor, worked under the supervision of Mr. Doucet. Although a sale price for the on-line division had been agreed to, negotiations ended abruptly on August 29, 2002. On September 3, 2002, both men were dismissed without cause.

Their letters of immediate termination placed the reason for dismissal on Spielo’s “desire to reorganize” the on-line division. [ 3 ] Mr. Doucet received a severance package of $250,000 based on 12 months’ notice for 10 years service. Mr. Dauphinee received $69,000 premised on six months’ notice for seven years service. Pursuant to the employee stock plan and the share purchase agreements, the former employees were contractually bound to reconvey their shares to Spielo at “net book value”. The obligation arose irrespective of whether their employment was terminated with or without cause. Mr.

Doucet received $250,000 for shares costing $44,117. Mr. Dauphinee received $83,000 for shares costing $6,500. [ 4 ] On September 15, 2003, twelve months after Messrs. Doucet and Dauphinee were fired, Mr. Manship announced that Spielo was about to be sold to a third party (GTECH) for up to $185 million (US) or $225 million (CDN). A formal contract was signed on November 7, 2003. The transfer of shares occurred on April 30, 2004.

Had the two men remained employees of Spielo, they would have collectively received another $5 million (CDN) for their shares. [ 5 ] Three months after the announcement of the pending sale of Spielo to GTECH, Messrs Doucet and Dauphinee sued Spielo and Mr. Manship alleging breaches of various and sometimes overlapping legal obligations. The allegations were tied to four claims worth between $30 and $40 million:

(1) The largest claim was for “negligent misrepresentation” with respect to Mr. Manship providing Mr. Doucet with 12.5% of Spielo’sissued shares. Based on an alleged share value of $100 (CDN) this claim alone was worth $31.9 million. Both plaintiffs also allegedmisrepresentations that they would receive fair market value for their shares. A corollary plea of unjust enrichment was advanced.

(2) The next largest claim was tied to the abrupt termination of sale negotiations for the on-line division. The two plaintiffs alleged thatthe unilateral decision to walk away from the sale was in breach of the pre-contractual duty to bargain in good faith. Damages between$10.2 and $12.5 million were sought (difference between purchase price and fair market value of the on-line division).

(3) The third largest claim was tied to the oppression remedy provided for under s. 241(1) of the

Canada Business Corporations Act,R.S.C. 1985, c. C-44. The plaintiffs argued that the means chosen by Mr. Manship to reacquire their shares at less than fair market value,and his reliance on the strict terms of the share subscription agreements, qualified as oppressive conduct under that legislation. Theyclaimed the right to compensation of over $5 million (the difference between what they received for their shares and what they wereactually worth in the marketplace). The two plaintiffs also alleged that the forced disposition of their shares led to Spielo’s (Mr.Manship’

s) unjust enrichment. This claim overlaps with the first claim in so far as the 12.5% included the shares already held by Mr.Doucet.

(4) The smallest claim was in relation to the wrongful dismissal component of the action. The severance packages were alleged to bematerially deficient because of the inadequacy of the “reasonable notice”. The plaintiffs also claimed certain bonuses paid prior to theirdismissal were materially deficient. Together, these sub-claims totaled $1.4 million. [6] Four years after Spielo filed its defence to the action, and four months prior to trial, Spielo obtained the rightto amend its defence and to add a counterclaim against Mr. Doucet.

The counterclaim alleges “after acquired cause” for dismissal and ademand for repayment of his severance benefits together with interest. Having recently retrieved emails from Mr. Doucet’s workcomputer, and gaining access to his electronic calendar, the respondents alleged that, while in the full-time employ of Spielo, Mr. Doucettook an active role in the management of his own company (Dovico) and used other Spielo employees and resources in furtherance ofDovico’s interests (the “Dovico allegations”).

The second ground of after-acquired cause for dismissal was raised for the first time onthe cross-examination of Mr. Doucet at trial. Nine days into the trial, Mr. Doucet was confronted with the allegation that in May of 2000,he had demanded a “payback” from a supplier to the on-line division (Nanoptix) and in fact obtained a “kickback” of $64,584. [7] The litigation consumed the parties and their lawyers for nearly seven years. Of the 14 reported decisionsarising out of the lawsuit, three of the reported interlocutory rulings deal with the thorny issue of document production. One wasappealed to this Court.

Indeed, the production of over 498 banker’s boxes, containing over 15,000 documents, together with the contentsof 427 computer back-up tapes, was overwhelming and costly to both sides. The document search was driven largely by the plaintiffs’need to prove that Mr. Manship had terminated the employment contracts and contract negotiations because he had found, or wasactively pursuing, a buyer for Spielo at a greatly enhanced share price. In short, Messrs. Doucet and Dauphinee saw plenty of smoke butthey needed desperately to isolate the source of the fire. [8] The examinations for discovery were extensive.

The trial itself lasted 26 days. The trial judge rejected all ofMessrs. Doucet’s and Dauphinee’s claims for compensation (see 2009 NBBR 196 , 2009 NBQB 196, 352 N.B.R. (2d) 1). Therewas no fire, no misrepresentations, no pre-contractual duty to bargain in good faith, no oppressive conduct and, therefore, no unjustenrichment. However, the counterclaim against Mr. Doucet was allowed on both grounds. Consequently, he was ordered to repay$252,000 in severance benefits, plus interest at 7% per year from September 2002 to July 2009, together with party-and-party costs of$17,000.

As to the costs on the main action, the trial judge applied Tariff “A” under Rule 59 of the Rules of Court and determined the“amount involved” to be $14.8 million. He then allowed for the maximum available under the Tariff (Scale 5: $10,325 for the first$100,000 and 5% on the excess amount). Finally, the trial judge increased the award by $93,165.62, either to reflect the plaintiffs’ failureto accept the defendants’ $1 million offer to settle or for having made the case more complex than was necessary, or for both reasons.

Intotal, the defendants were awarded costs of $838,490.62, plus reasonable disbursements (see 2010 NBBR 39 , 2010 NBQB 39,355 N.B.R. (2d) 316). This is the largest costs award to have issued out of the Court of Queen’s Bench of New Brunswick. The lawyersfor the plaintiffs, now appellants, had billed their clients $1.92 million (excluding HST). The lawyers for the defendants, nowrespondents, had billed $1.97 million (including HST). [9] The trial judge’s findings with respect to the claims of bad faith bargaining, negligent misrepresentation andunjust enrichment were not appealed.

Nonetheless, the first two issues remain relevant as they provide an insight into the “complexity”of the litigation, a factor vitally relevant to the issue of costs. The claim based on unjust enrichment is of no moment. As to the remainingclaims for compensation, the appellants’ have indentified over 30 errors of both fact and law on the part of the trial judge. I have whittledthe list down by grouping the errors under four umbrellas:

(1) Did the trial judge err in failing to find the respondents’ acquisition of the appellants’ shares amounted to oppressive conduct within the meaning of s. 241(1) of the

Canada Business Corporations Act ?

(2) Did the trial judge err in failing to fully compensate the appellants with respect to their loss of employment?

(3) Did the trial judge err in finding the respondents had established after-acquired cause for Mr. Doucet’s dismissal and in ordering repayment of the severance package together with interest and costs? In short, did the trial judge err in accepting the respondents’ counterclaim?

(4) Did the trial judge err in awarding costs of $838,490.62 on the main action? [ 10 ] While I have not been persuaded the trial judge committed reversible error in rejecting the claim of “oppression” within the meaning of s. 241(1) of the

Canada Business Corporations Act , I respectfully disagree with his reasoning. I do not accept the bald proposition that the oppression remedy is not available if the impugned conduct is sanctioned under the express terms of a contract (the employment and share purchase agreements). That pronouncement leaves no room for the understanding that neither party to a contract is entitled to engage in opportunistic or vindictive behaviour. Even the gestational tenets of the good faith doctrine in contract law support that proposition. The test for oppression under the

Canada Business Corporation Act requires the decision-maker to identify a “reasonable expectation” and to decide whether the expectation was negated by the acts of the corporation or its directing force. In narrow terms, the appellants, in their capacity as minority shareholders, held the reasonable expectation they would not be forced to redeem their shares through the insidious exercise of the employer’s right to terminate employment with or without cause, for the singular purpose of reaping the capital gain that would otherwise have accrued to them.

Hence, an employer who uses accounting scales to weigh the realizable profit from the forced redemption of an employee’s shares against the damages payable for wrongful dismissal, and decides it is financially advantageous to dismiss the employee, should be caught by a plea of oppression or bad faith.

Greed as a motive has yet to be formally recognized as an acceptable component of corporate law. [ 11 ] Accepting the above framework to be true, the trial judge’s comprehensive factual findings lay to rest any allegation of oppression based on Spielo’s decision to terminate the appellants’ employment and to rely on its contractual right to reacquire their shares at less than fair market value. The trial judge found the appellants’ dismissals were not carried out in order to deprive them of their substantial and realizable capital gain.

At the time of dismissals, there were no pending negotiations for the sale of Spielo. In fact, GTECH did not enter into the picture until after the termination of the appellants’ employment and after Spielo had won key contracts in New York unrelated to the work of the on-line division (June, 2003). Also, the appellants’ dismissals were found to be motivated by proper business considerations: job performance and the profitability of the on-line division. Sale negotiations with respect to the on-line division were terminated because of Mr.

Doucet’s refusal to provide a personal guarantee with respect to certain continuing obligations under the proposed sale, not because Mr. Manship had found a buyer for Spielo. Not one of the trial judge’s findings was shown to be infected with palpable and overriding error. [ 12 ] As to the contention the severance packages failed to include amounts legally owing, I find no reversible error. The trial judge’s decision to decline the invitation to increase the period of reasonable notice to 24 months is not infected with error, nor is his finding the appellants failed to mitigate their loss of employment.

The same holds true with respect to alleged deficiencies in bonuses paid prior to their dismissals. [ 13 ] I find merit in the appellants’ arguments directed at the counterclaim. While the concept of “after acquired cause” for dismissal provides employers with a valid defence to an action for wrongful dismissal, the defence is circumscribed by s. 30(2) of the Employment Standards Act , S.N.B. 1982, c. E-7.2. This provision overrides the common law by requiring employers to provide employees with written reasons if the dismissal is for cause.

Despite the changes to the common law, there is still room for the employer in New Brunswick to invoke the concept of “after discovered cause” if two requirements are met: (1) at the time of the dismissal the employer did not know of the earlier misconduct; and (2) the misconduct, had it been known, would have warranted

summary dismissal. In keeping with this framework, I hold there is a substantive difference between cause for dismissal based on discrete acts of misconduct hidden from the employer, or incapable of discovery in the normal course of the employment relationship, and acts which relate to job performance and which, with due diligence, should have been known to anyone who took the time to observe what was happening in the workplace.

Above all else, the law should not encourage employers to take on the role of employment archaeologists, looking through the remnants of an employee’s work history in the hope of unearthing grounds for dismissal where none was thought to exist. The employer’s cry of “eureka” should fall outside the audible range of those judges who are tuned into the channel of righteous suspicion. [ 14 ] With great respect, the trial judge’s finding with respect to the Dovico allegations is non-compliant with the

Supreme Court of Canada’s decision in McKinley V. B.C. Tel, 2001 SCC 38, 2001 S.C.J. No. 40 (QL). Moreover, the finding is tooclosely tied or influenced by the finding regarding the kickback allegation. What we do know is that the Dovico allegations were basedon 48 emails sent or received by Mr. Doucet, over the 19 months leading up to his dismissal, together with a copy of his electroniccalendar. This information was retrieved four years after the commencement of the action.

Obviously, this is scary stuff for thoseemployees who use their employer’s computers, during working hours, to attend to matters that do not fall within the employer’scorporate agenda. We also know that Dovico is not a competitor of Spielo and, indeed, Mr. Manship once sat on Dovico’s Board, albeitbriefly. Mr. Doucet’s involvement in Dovico as its President was well known to Spielo management and the business community as awhole.

Hence, there appears to be no element of deceit or a conflict of interest based on involvement in a competitive business, and yetthe trial judge inexplicably relied on jurisprudence in which the dismissed employee had been involved in a competing business. Theevidence of Mr. Doucet using Spielo employees for Dovico work appears to be threadbare (three emails). But even if Mr. Manship couldnot reasonably have known of the full extent of Mr.

Doucet’s involvement in Dovico, and even if he had crossed a line from passive toactive management of Dovico, no one bothered to consider whether that breach warranted immediate dismissal. Inevitably, the lawrequires the employer to pursue more benign and effective measures to address employee failure before invoking the ultimate sanction ofdismissal. All of those issues should have been pursued. The failure to do so constitutes reversible error.

As this court is in no position tomake the necessary findings of fact, the matter must be remitted for re-hearing unless the trial judge’s ruling on the kickback allegationcan be sustained. [15] With respect to the finding of after acquired cause for dismissal based on the kickback allegation, this groundwas neither pled nor alluded to in the amended pleadings. It was raised for the first time, at trial, during the cross-examination of Mr.Doucet. Yet the trial judge refused to permit Mr.

Doucet to give “rebuttal evidence”, after the defendants/respondents had called theirwitnesses and closed their case (see 2008 NBBR 422 , 2008 NBQB 422, 340 N.B.R. (2d) 145). The trial judge so ruled on thebasis of their compliance with the rule in Browne v. Dunn (1894), 1893 CanLII 65 (FOREP), 6 R. 67 (H.L.). In my respectful view, adefendant cannot establish a counterclaim through the application of that rule. While the refusal to allow rebuttal evidence was fatal tothis half of the counterclaim, the trial judge’s refusal to allow Mr.

Doucet to question the very person who made the kickback allegationwith respect to a document that purportedly countered that allegation also qualifies as reversible error, even though that document wasnot mentioned in the appellants’ Affidavit of Documents. The trial judge’s justification of “trial by ambush” rings hollow at the stagewhen the hunter unexpectedly becomes the hunted. The instinct to fire back should not be interrupted by references to the manual forsafe hunting.

The proper remedy is to order a new trial with respect to the entire counterclaim. [16] A costs award predicated on an “amount involved” under a Tariff system is inherently problematic. There is noimmediate or obvious relationship between the amount claimed and the costs incurred in either pursuing or defending the lawsuit. Thiscase adds another layer of difficulty because it involves multiple and overlapping claims embracing a dollar amount that the drafters ofthe 1982 Tariff could not reasonably have envisaged.

Of course, the cost of legal services has increased dramatically over the last threedecades, thereby rendering the assumptions, on which the Tariff was first predicated, dated. The Tariff remains relevant today because ofthe residual discretion which Rule 59 of the Rules of Court vests in trial judges to make needed adjustments.

Standing by itself, the Tariffcontinues to serve as a guidepost for those concerned about the financial ramifications of being declared an unsuccessful litigant, and as aprotection against lump sum awards which are the product of “scratchpad justice”. [17] This case retraces the analytical framework laid down in Rule 59 for determining the “amount involved” and toexplain the approach the drafters of the 1982 Tariff had anticipated would be followed when moving away from the “basic” scale (Scale3).

But it is not so much the scale which is of critical significance to a costs award as it is the percentage rate to be applied to the amountexceeding the first $100,000. Obviously, the difference between 1% and 5% is immense when the amount involved stretches into themillions. The jurisprudence cited to the Court forces us to reflect on the purposes underscoring a costs award, the difference betweenpartial and substantial indemnification, and how our Tariff is able to provide the successful party with meaningful compensation withoutundermining the primary goal of ensuring “access to justice”.

Affidavit evidence of actual legal fees (billed hours or time spent andhourly rate) in cases involving large scale litigation is unavoidable. [18] I conclude the trial judge’s decision to fix the “amount involved” at $14.8 million is justifiable even thoughthe amount fails to include two of the monetary claims pursued at trial. I also agree with his decision to award costs based on Scale 5 andto apply 5% to the excess amount. In my view, there are valid reasons for moving from Scale 3 to Scale 5 and to apply the maximumpercentage.

Two of the claims which the appellants pursued were erected on legal foundations of straw. One of those claimsunnecessarily complicated the case by unduly lengthening the proceedings (pre-contractual duty to bargain in good faith). Theappellants’ persistence in obtaining documentation supporting their legal thesis, that the decisions to terminate their employment and thenegotiations for the purchase of the on-line division were motivated by an impending sale to a third party such as GTECH, was evenmore costly to both sides.

Seven years of persistence resulted in the production of over 15,000 documents, plus the contents of 427 back-up computer tapes, yet the appellants’ continued to hurl accusations the respondents were hiding relevant and crucial documents. On therecord presented to this Court, the accusations were premised on conjecture and ultimately proved to be unfounded. [19] I am prepared to confirm the trial judge’s decision to award party-and-party costs of $745,325, plus reasonabledisbursements.

However, I do not agree with his decision to augment the costs award by $93,165.62, because of the appellants’ rejectionof the respondents’ offer to settle or because the appellants made the case unnecessarily complex. Despite first appearances, the offerwas not “substantial” and the matter of complexity has already been examined. Hence, the trial judge’s cost order should be variedaccordingly. The fact the varied award approaches 40% of the lawyer’s bill is in conformity with the understanding that, in NewBrunswick, such awards are not intended to provide the successful litigant with substantial indemnification.

Access to justice remains theoverarching objective.

II. The Overview and Non-Issues A. Background Facts [ 20 ] Spielo and Mr. Manship represent the quintessential example of a commercial success story. A service technician of coin operated machines for nearly 10 years, Mr. Manship transformed a potential business opportunity into a development and manufacturing concern that would ultimately sell for $185 million (US), all within a period of 12 years and with an initial investment of $200,000 supplied by a group of local investors, that included Mr. Doucet. [ 21 ] The story begins with Mr.

Manship working in the coin-operated machine business, in Moncton, as a service technician from 1977 until 1986. In 1986, he started a proprietorship and contacted CADMI Microelectronics Inc., a research and development engineering firm associated with the University of Moncton, to have them work on a coin conversion board and a technical feasibility study on building a gaming machine. In time, Mr. Doucet would rise to the position of “President” of CADMI. In 1988, Mr. Manship attended a trade show in Las Vegas and learned about the South Dakota Video Lottery Program.

Upon return home, he met with a group of local coin operators to discuss the possibility of setting up such a program in New Brunswick. In 1989, the New Brunswick Coin Operators Association was formed and a proposal submitted to the New Brunswick Lottery Commission. Mr. Manship was the technology officer of the Association. When it became clear that the lottery system would be accepted, Mr. Manship left the Association and began working full-time on building a video lottery terminal (VLT). In June of 1990, Mr. Manship incorporated Spielo for the purpose of manufacturing and marketing VLT’s.

At that time, he owned 100% of Spielo’s issued shares. [ 22 ] To pursue its corporate objectives, Spielo needed an infusion of capital. In November of 1990, Spielo and Mr. Manship entered into an investment agreement with a numbered company, pursuant to which the numbered company acquired 50% of Spielo’s shares for $250.00, while providing a shareholder’s loan for $200,000. With an injection of $50,000, Mr. Doucet acquired a one quarter interest in the numbered company (equal to 12.5% of Spielo’s shares). Through the numbered company, the parties also entered into a shareholder’s agreement which enabled Mr.

Manship to repurchase the Spielo shares at fair market value. In 1993, Mr. Doucet commenced employment with Spielo. In July of 1994, a year earlier than expected, Mr. Manship exercised his option to repurchase all of the Spielo shares with the consent of the investors. They received, in total, $3.5 million together with the $200,000 advanced as a shareholder’s loan. By “resignation and release” dated October 28, 1994, Mr. Doucet waived any claims against Mr. Manship and Spielo which he may have had as an investor, creditor or shareholder of Spielo.

That release was subsequently amended to provide that the document would not serve as a release for “any entitlement” Mr. Doucet would have as an employee of Spielo. Later on, Mr. Doucet would argue this amendment was agreed to for the purpose of preserving his right to claim 12.5% of the Spielo shares. Mr. Manship said the amendment was inserted to make it clear that Mr. Doucet’s rights as an employee were not affected (e.g., rights under the share purchase agreement). The trial judge accepted Mr. Manship’s explanation, which accords with business realities and common sense.

This explanation accords with the fact that Mr. Doucet received approximately $850,000 in compensation, plus the return of his initial $50,000 investment. [ 23 ] In late 1994, Mr. Manship decided to set aside 15% of the shares of Spielo for purchase by employees. Mr. Doucet was one of the employees given the opportunity to subscribe for Spielo shares. Pursuant to the share subscription agreement dated January 31, 1995, Mr. Doucet paid $4,411.70 for 44,117 shares ($0.10 per share). During the sale negotiations for the on-line division conducted in 2002, Mr.

Doucet iterated in correspondence that his entitlement to the Spielo shares was governed by the share subscription agreement ( i.e., he would receive net book value for his shares). In June of 1995, Mr. Dauphinee commenced employment with Spielo as corporate counsel responsible for information technology and eventually worked under the supervision of Mr. Doucet. Mr. Dauphinee was likewise offered the opportunity to purchase shares in Spielo, and he did so pursuant to a share subscription agreement. Mr. Dauphinee acquired 14,706 shares at a price of $0.44 per share for a total of $6,470.64.

It is important to realize that both Mr. Doucet and Mr. Dauphinee signed a share subscription agreement which included a clause stating that Spielo “has made no representations, promises or agreements whether verbal or written”. Once their employment was terminated, Mr. Doucet received $250,584.56 for his shares ($5.68 per share as per net book value) while Mr. Dauphinee received $83,530.08. Eventually, the trial judge would find that GTECH paid $80 (CDN) for each of the Spielo shares. B. The Claims for Negligent Misrepresentation [ 24 ] At trial, Mr. Doucet argued that Mr.

Manship “negligently misrepresented” that he would provide Mr. Doucet with 12.5% of Spielo’s shares, and that Mr. Manship had negligently misrepresented to both Mr. Doucet and Mr. Dauphinee that they would eventually receive fair market value for all of their Spielo shares. The two former employees maintained that Mr. Manship’s representations were untrue, inaccurate and/or misleading. Mr. Doucet did not receive 12.5% of Spielo’s shares, and neither Mr. Doucet nor Mr. Dauphinee received fair market value. With respect to Mr. Doucet’s claim to 12.5% of Spielo’s issued shares, Mr. Doucet argued

that Mr. Manship had represented to Mr. Doucet that the latter would receive that percentage of Spielo shares in return for persuading theinitial investors in the numbered company to sell their shares in Spielo back to Mr. Manship. The percentage rate of 12.5% was based onthe understanding that, as Mr. Doucet had held a one quarter interest in the numbered company, this one quarter interest translated into12.5% of Spielo’s shares at the time of the investment. Mr. Doucet agreed that the shares he had acquired under the share subscriptionagreements were to be included as part of the 12.5%. Mr.

Doucet also argued detrimental reliance based on the fact that: he failed topursue ownership of other companies; he convinced the investors to sell their shares and sold his own; he worked diligently to increasethe value of Spielo; he incurred significant expense for the purchase of the on-line division and did not obtain full value for his Spieloshares. Mr.

Dauphinee argued detrimental reliance on the basis that he accepted employment with Spielo, moved his family to Monctonand, having participated in the negotiations for the purchase of the on-line division, turned down a lucrative employment opportunity inVancouver with an offer of early partnership before moving to Moncton from Ottawa (Mr. Dauphinee had 10 years experience as alawyer before joining Spielo). [25] The two former employees argued they were not bound by the share subscription agreements. Correlatively,Mr.

Doucet argued he was not bound by the Release signed in 1994 in regard to the $200,000 loan investment effected through thenumbered company, as they did not intend the Release or Subscriptions Agreements to limit their right to sue for negligentmisrepresentation (nor do those contracts expressly limit or exclude liability in tort). In short, the two men were suing in tort rather thanin contract in order to avoid the clear wording of the release and share subscription agreements.

I will say more of this understanding ofthe law shortly. [26] The trial judge’s disposition of the “negligent misrepresentation” issues is complete and not challenged onappeal. This is what he had to say: The Plaintiff Doucet has stated that there was a commitment by Mr. Manship to the effect that he would be a 12.5% owner of shares inSpielo. Again, I find no evidence to support such allegation and as such I find that no agreement existed. One would think that as timewent along, Mr. Doucet would have written a letter or e-mail or something that would have referenced this agreement.

The Plaintiff didnot point me to any such document. That being said, it was clear to me that there were discussions which indicate that Mr. Doucet wouldhave liked to see the terms of the share subscription agreement changed from net book value to something else, but nothing concretearose from those discussions and the subscription agreement remained in effect throughout all material times. The evidence also satisfied me that Mr. Doucet and Mr. Dauphinee were both aware of the terms of the share subscription agreementwhich caused the shares to be re-purchased at net book value.

There is written evidence which shows Mr. Doucet's concern that shouldhe die while a shareholder/employee, his widow would only get net book value. However, in the finalization of a letter of intent topurchase OLD, Mr. Doucet, and by reasonable inference Mr. Dauphinee, as a member of the negotiating team, clearly indicated that theshare subscription agreement was to be maintained and thus net book value would be given for their shares. I have already commented on Mr. Doucet’s allegation that he received a commitment from Mr. Manship that he would own 12.5% ofSpielo.

I have great difficulty in accepting that position given the lack of evidence and issues as to the credibility of Mr. Doucet. Itherefore do not accept there was negligent or any misrepresentation with respect to the number of shares Mr. Doucet would receive. Thecontract, the share subscription agreement, speaks for itself and establishes the number of shares owned by Mr. Doucet. [paras. 174, 175,235] [27] In

summary, the trial judge weighed the unambiguous documentary evidence against the viva voce evidence ofMr. Doucet and Mr. Dauphinee to conclude that Mr. Manship had made no representations either that Mr. Doucet would receive 12.5%of the Spielo shares, or that both former employees would receive fair market value for their shares instead of net book value. However,the negligent misrepresentation arguments were doomed to failure from the outset. Let me explain. [28] This is not a case of actionable negligent misrepresentation as there is no element of negligence involved in theallegations. Either Mr.

Manship promised Mr. Doucet 12.5% of the Spielo shares or he did not. Either Mr. Manship promised the twoemployees that they would receive fair market value for their shares or he did not. The enforcement of promises lies within the bailiwickof contract and not tort law. Of course, it is obvious why the two employees did not want to base their claim in contract law. They wouldhave to directly confront the reality that the alleged promises are effectively negated by contractual provisions found in the releasesigned by Mr. Doucet and the share subscription agreements signed by both former employees.

In light of these legal obstacles, both menmistakenly believed they could convert the alleged promises into negligent misrepresentations, thereby seizing upon a line ofjurisprudence governing the issue of concurrent liability in tort and contract. What the employees failed to appreciate is that one cannotsue successfully in tort for negligent misrepresentation when the contract effectively precludes the making of the very representationsthat are alleged to have been made. To argue that neither Spielo nor Mr.

Manship could rely on the provisions of the release contract orthe share subscription agreements was, to say the least, pure folly. Counsel to Spielo and Mr. Manship pointed out these legal realities totheir opponents. With respect to the law of concurrent liability in contract and tort see generally Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87, [1993] S.C.J. No. 3 (QL), and BG Checo International Ltd. v. British Columbia Hydro and Power Authority, (SCC), [1993] S.C.R. 12, [1993] S.C.J. No. 1 (QL).

C. The Alleged Pre-Contractual Duty to Bargain in Good Faith [29] The two former employees also alleged that Spielo and Mr. Manship were under a pre-contractual duty tobargain in good faith with respect to the sale of the on-line division and that this duty was breached upon termination of the salenegotiations. The trial judge properly rejected this claim for compensation. The relevant and uncontested facts are as follows. In 2002,the parties entered into formal negotiations for the sale of the on-line division. In April a draft “Letter of Intent” was exchanged. On July22, 2002, Mr. Manship sent a letter to Mr.

Doucet which confirmed the general intent of the proposal at a purchase price of $3.47 million(subsequently reduced to $3.25 million). Ultimately, the parties signed a letter of intent which contained the following provision: “…thisLetter is an expression of general intent only and is not binding on the parties”. However, the letter said nothing of personal guaranteesbeing given by Mr. Doucet or Mr. Dauphinee, nor did it have to, as the letter was not a binding commitment. [30] The employees alleged that Mr.

Manship was under a duty to advise them of concurrent negotiations withpotential purchasers, including GTECH, for the sale of Spielo. This allegation has no foundation in law. There is no legal impediment toany seller negotiating simultaneously with two or more interested purchasers and there is no corresponding obligation to inform anypotential purchaser of other potential purchasers. Just as the claims for negligent misrepresentation were doomed to failure, so too wasthe claim based on the alleged duty to bargain in good faith for two additional reasons.

First, the law does not recognize the existence of apre-contractual duty to bargain in good faith and, second, if the law were to do so, the duty would arise under tort principles and thecalculation of damages would be based on principles that differ from contract law. Both reasons require consideration. [31] If a duty to bargain in good faith did exist, it would be tied to those cases in which the parties actually enteredinto a binding contract notwithstanding the breach of the duty.

In this way, the duty to bargain in good faith (e.g., failure to disclosecertain information) would arise as an implied term of the contract. But as the law stands, there is no recognized pre-contractual duty tobargain in good faith. The Supreme Court of Canada’s decision in Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860,confirmed that understanding. In that case, the Supreme Court was being asked to decide whether Canadian tort law should be extendedto cover negligence for pure economic loss arising out of contract negotiations.

On the facts the Court replied in the negative and went onto observe: “Whether or not negotiations are to be governed by a duty of good faith is a question for another time” (para.73). Theplaintiffs/appellants in our case built upon that sentence and other single sentence pronouncements to construct the argument thatCanadian law has developed to the point that a duty to bargain in good faith arises in cases where there is a “special relationship”. [32] The appellants cited 978011 Ontario Ltd v. Cornell Engineering Co., (ON CA), [2001] O.J.No. 1446 (C.A.) (QL), in support of their thesis.

In that case, the defendant unilaterally terminated its contract with the plaintiff who suedfor generous compensation based on a provision of the underlying contract. The defendant defended the claim on the basis that it wasunaware of the onerous provision and the plaintiff owed a duty to bring the provision to its attention. The defendant lost. There wasnothing unconscionable about the contract and the failure to read a contract is not a legally acceptable basis for refusing to abide by itsterms.

The Ontario Court of Appeal did, however, offer a sentence which our plaintiffs used as a building block to their pre-contractualduty to bargain in good faith argument.

The Court stated at para. 32: “Absent a special relationship, the common law in Canada has yet torecognize that in the negotiation of a contract, there is a duty to have regard to the other person’s interests, namely, to act in good faith…”. [33] The notion of the law recognizing a duty to bargain in good faith in cases where parties had been unable toreach a concluded contract and in circumstances where the parties had a “special relationship” can be traced to the Supreme Court ofCanada’s decision in Lac Minerals Ltd. v. International Corona Resources Ltd., (SCC), [1989] 2 S.C.R. 574, [1989]S.C.J. No. 83 (QL).

In that case, LaForest J. states: “The institution of bargaining in good faith is one that is worthy of legal protection inthose circumstances where that protection accords with the expectations of the parties” (para. 189). However, that statement was made inthe context of negotiations in which one party, the plaintiff, conveyed “confidential information” to the other party, the defendant, andthe latter turned around and used the information to acquire a property which was the subject matter of the negotiations.

This was done incircumstances where the plaintiff would have acquired the asset but for the defendant’s use of the confidential information. In short, theCourt in Lac Minerals found a special relationship existed between the parties that gave rise to an obligation to keep confidences. In myview, the defendant in that case was effectively guilty of opportunism. But the ruling has no application to the present case. [34] In the end, there is simply no support for the proposition that Canadian law has recognized a generalized dutyto bargain in good faith, and nothing said by this Court in Crawford v.

New Brunswick (Agricultural Development Board) (1997), (NB CA), 192 N.B.R. (2d) 68, [1997] N.B.J. No. 368 (C.A.) (QL), at para. 7, suggests otherwise. The same holds true inregard to Castle Bridge Real Estate v. G. Midwinter & Associates et al., 2002 NBQB 312, 253 N.B.R. (2d) 126, at paras. 107-108, orHomburg v. S-Marque Inc., [1999] N.S.J. No. 94 (C.A.) (QL), at para. 57, or Arton Holdings Ltd. et al. v. Gateway Realty Ltd., (NS SC), [1991] N.S.J. No. 362 (S.C.) (QL), at p. 191-197, aff’d for other reasons at 1992 NSCA 70 , [1992]N.S.J. No. 175 (C.A.) (QL), when the relevant passages are read in context.

See generally John D. McCamus, The Law of Contracts (Toronto: Irwin Law Inc., 2005), at pp. 137 et seq., S.M. Waddams, The Law of Contracts, 5th ed. (Toronto: Canada Law Book Inc., 2005), at. pp. 31 et seq., and Angela Swan, Canadian Contract Law, 2nd ed. (Markham, Ont: LexisNexis Canada Inc., 2009), at pp. 287et seq.

[35] In concluding the law does not recognize a pre-contractual duty to bargain in good faith, I do not want to leavethe impression that the law would or should remain impervious to cases where the defendant fails to disclose pertinent and materialinformation (see Shunjing Trading Inc. v. E.B. Engineered Panels and Controls Inc. and Edward Barnes, 2011 NBCA 29) and where thedefendant enters into negotiations with no intention of entering into a contract because of an ulterior motive.

With respect to the lattersituation, I am not confident that a defendant who has knowingly caused the plaintiff to waste time and money in pursuing negotiationsthe defendant knew would never lead to a concluded contract should be immune from the obligation to pay compensation. The lawshould not embrace the business morals of the opportunist. The intentional infliction of economic harm requires redress in the form ofcompensation tied to the innocent party’s reliance interests. But it is to tort law that the aggrieved party should turn: See Westcom TVGroup Ltd. v. CanWest Global Broadcasting Inc., [1996] B.C.J.

No. 1638 (S.C.) (QL), which holds otherwise, as discussed in McCamusat pp. 151 et seq., and compare with Cineplex Corp. v. Viking Rideau Corp., [1985] O.J. No. 304 (H.C.J.) (QL), cited and discussed inHomburg v. S-Marque Inc., at para. 57. [36] There was yet another fundamental flaw in the appellants’ duty to bargain in good faith argument. By the timeof trial, the appellants had abandoned their claim for damages based on out-of-pocket costs wasted in pursuing the negotiations andsought damages based on contractual principles.

It is trite to state that contract law protects the innocent party’s reliance and expectationinterests, so long as there is no double compensation. Had a contract been concluded between Spielo and the two employees for the saleof the on-line division and had that contract been repudiated the two employees would have been entitled to the difference between theagreed purchase price and the fair market value of the division. But on the facts of the present case, no contract was concluded and,therefore, damages based on contractual principles should not be available.

On the other hand, if the pre-contractual duty to bargain ingood faith fell within the domain of tort law, the damages recoverable would be tied to the plaintiff’s “reliance” as opposed to“expectation” interests. In short, the plaintiff should be entitled to recover the money equivalent for the out-of-pocket costs incurred inpursing the unproductive negotiations (detrimental reliance). The appellants effectively abandoned this limited claim for obviousreasons. At best, the damages recoverable would have been nominal. [37] In

summary, the law does not recognize a generalized pre-contractual duty to bargain in good faith. If such aduty were to be recognized, it would have to be under tort law principles and, accordingly, damages would be calculated in accordancewith tort and not contract principles. It follows that a claim for damages based on the difference between the agreed sale price and thefair market value of the on-line division would not be allowed. Since there is no completed bargain, the remedy should be measured byreliance and not by expectation interests.

All of this was explained to the plaintiffs by the defendants and yet the former persisted withthe dream of claiming damages based on contractual principles for breach of a non-existent duty to bargain in good faith. [38] It is evident from the trial judge’s reasons for decision that considerable time and expense was spent withrespect to determining the fair market value of the on-line division. His reasons discuss the issue in depth together with the competingvaluations presented by the expert witnesses. Their reports stretched into hundreds of pages.

While the parties had agreed to a sale priceof $3.5 million (later reduced to $3.25 million), the appellants’ expert valued the on-line division at $16.1 million. Subsequently, theappellants’ expert reduced his valuation to $10.2 million. The respondents’ expert valued the on-line division at between $2.7 and $3.7million. The trial judge preferred the evidence of the respondent’s expert and settled on a value of approximately $3.5 million. All ofthese facts are relevant to the costs issue. D. Final Note –

Summary Judgment [39] The legal foundation on which the negligent misrepresentation claim rested was as materially defective as theclaim resting on a perceived pre-contractual duty to negotiate in good faith. Both issues should have been disposed of in a motion forsummary judgment. In point of fact, the respondents brought a motion asking, inter alia, that the two claims be struck as disclosing nocause of action. Regrettably, the motion was denied without the benefit of fully-motivated reasons (see 2006 NBQB 268, [2006] N.B.J.No. 322 (QL)).

The void is indefensible and would have generated further appellate comment had the matter been appealed to this Court.Of course, there was no obligation on the respondents to seek leave of this Court to appeal the interlocutory ruling. At the same time, theprecedential significance of this Court’s decision in Lange v. Cannon (1998), (NB CA), 203 N.B.R. (2d) 121, [1998]N.B.J.

No. 313 (C.A.) (QL), encouraging the early resolution of lawsuits through the application of the Rules of Court relating tosummary judgment and preliminary rulings on questions of law, should not be lost on those who know the true cost of litigation,especially judges who are entrusted as keepers of the gateway to litigation. It is simply too expensive for parties to persist with litigationerected on foundations of straw, anchored in sand. III. The Oppression Issue [40] The appellants maintain the trial judge erred in rejecting their plea for relief based on the oppression remedyset out in s. 241(1) of the

Canada Business Corporations Act. Instead of the $334,000 they received for their Spielo shares in accordancewith the terms of the share subscription agreements, they claimed compensation based on the difference between what they received and

what they would have received, in their capacity as minority shareholders, but for the termination of their employment. The amountsought exceeded $5 million. I should point out that, at trial, the appellants included in their oppression claim further relief tied to Mr.Manship’s alleged promise to provide Mr. Doucet with 12.5% of Spielo’s shares. In my view, the question of whether an oral andenforceable contract was concluded falls to be decided on the principles of contract law. The proper remedy is found in the common law,not the

Canada Business Corporations Act. Let me explain. [41] Section 241(2) of the

Canada Business Corporations Act provides that a court may grant appropriate relief incircumstances where a shareholder or corporate officer can establish that the corporation engaged in conduct that was “oppressive”,“unfairly prejudicial” or that “unfairly disregarded” the interests of the applicant. The matter complained of must fall within one of threecategories:

(1) an act or omission of the corporation; (2) the business of the corporation; or (3) the exercise of power by the corporation’sdirectors. The lead decision is from the Supreme Court of Canada: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R.560. In that case, the Supreme Court outlined an analytical framework prefaced with the following observations: (1) oppression is anequitable remedy that seeks to ensure fairness and, therefore, courts should look at business realities, not merely narrow legalities; and(2) like many equitable remedies, oppression is fact-specific.

The Supreme Court goes on to explain that the conduct complained of isthe conduct of the corporation or its directors who may make decisions in a way that unfairly maximizes a particular group’s interest atthe expense of other stakeholders. However, the Supreme Court goes on to acknowledge that the conduct of other actors, such asshareholders, may support a claim for oppression. [42] The Supreme Court’s analytical framework is two-pronged. The court must first ascertain the reasonableexpectations of the stakeholders. The concept of reasonable expectations is objective and contextual.

The actual expectation of aparticular stakeholder is not conclusive. The question is whether the expectation is reasonable having regard to the facts, therelationships at issue, and the entire context of the case, in light of conflicting claims and expectations.

From the existing jurisprudence,the Supreme Court was able to identify several useful factors in determining whether a reasonable expectation exists: general commercialpractice, the nature of the corporation, the relationship between the parties; past practice; steps the claimant could have taken to protectitself; representations and agreements; and the fair resolution of conflicting interests between corporate shareholders.

The second prongof the analytical framework requires the court to decide whether the reasonable expectation was violated by conduct falling within themeaning of the terms oppression, unfair prejudice or unfair disregard of a relevant interest. In brief, the claimant must show that thefailure to meet a reasonable expectation involved unfair conduct and prejudicial consequences. [43] The present case does not fit neatly within the fact situation that arose in BCE Inc.

In that case, the applicationjudge was presented with a case in which the directors of BCE Inc. rendered a decision that favoured the financial interests of one groupof stakeholders over another (shareholders v. debentureholders). The present case pits two minority shareholders against the majorityshareholder who has de facto control of the corporation.

At trial, the appellants argued that they had a reasonable expectation that “theywould be able to continue their employment at Spielo and benefit from its growth as long as they performed, and that Spielo would onlyterminate their employment if it were in the company’s best interest.” The trial judge took this characterization of the reasonableexpectation as one in which the remedy being sought was the right to continuing employment and, therefore, he was being asked toeffectively rewrite both the employment contract and the share subscription agreements.

The trial judge went on to hold that he was notprepared to imply terms that would have the effect of amending the contracts in question. Ultimately, the trial judge concluded theexpectation of continued employment was neither reasonable nor well founded in law. He observed: “I believe the recent decisionsconclude there is no oppression according to the reasonable expectations test if the transaction is within or does not change theunderlying contract” (para. 202). [44] Regrettably, the trial judge misconstrued the appellants’ oppression argument.

True, the appellants framedtheir reasonable expectation in terms of an expectation of continued employment. However, they were not seeking reinstatement or aremedy for wrongful dismissal under the oppression provisions of the

Canada Business Corporations Act. The appellants knew theiremployment could be terminated with or without cause. They knew their employment could be terminated if, for instance, Spielo lackedsufficient grounds for immediate dismissal without notice, but decided to terminate their employment for reasons tied to their workperformance or for reasons that were in Spielo’s best corporate interests (e.g. corporate restructuring/redundancy). In such circumstances,the appellants knew that dismissal without cause would entitle them to severance pay in lieu of reasonable notice.

They also recognizedthey had an obligation to sell back their shares to Spielo at net book value; that is to say, at a price that could be less than fair marketvalue. What the appellants did not expect, in their capacity as minority shareholders, is that they would be forced to redeem their sharesin Spielo through what they saw as the majority shareholders’ insidious exercise of his de facto right to dismiss an employee with orwithout cause. Without expressly stating as much, the appellants were effectively arguing that the means chosen by Mr.

Manship toreacquire their shares at less than fair market value was oppressive, or what I label “opportunistic” behaviour. [45] I suspect the trial judge would not have mischaracterized the true nature of the appellants’ oppressionallegation had they formulated their “reasonable expectation” differently and not relied on Naneff v. Con-Crete Holdings Ltd., [1993]O.J. No. 1756 (Gen. Div.) (QL); varied in (ON SC), [1994] O.J. No. 1811 (Gen. Div.) (QL). In that case, the plaintiffwas a manager, director and 50-percent shareholder in a family group of companies founded and built by his father.

The plaintiff hadshared the management of the corporate group with his father and brother. Following his disclosure to the family of his intendedmarriage to a female employee of the group and the family’s expression of virulent opposition, the plaintiff was removed as an officer ofthe company and from his position as employee. The action was allowed on the basis of the defendant family members having engagedin oppressive conduct. Blair J. (as he then was) noted that in normal circumstances the wrongful dismissal of an employee would not

itself provide the basis or standing to grant an oppression remedy. But where the interests of the employee are integrally intertwined withhis interests as a shareholder, officer and director and where the dismissal is part of a pattern of conduct designed to exclude the plaintifffrom any active role in the companies, the dismissal was properly considered as

an act of oppression. Blair J. went on to order the sale ofthe business and compensation for the loss of employment. But the facts before us do not involve an employee whose interests wereintegrally intertwined with his interests as a shareholder, officer and director. The plaintiffs in the present case were employees who hadacquired shares from their employer by way of a stock option plan and in accordance with the contractual terms of a share subscriptionagreement.

Parenthetically, the Naneff case is not about opportunistic conduct on the part of majority shareholders, but rather aboutvindictiveness and retribution tied to floundering interpersonal relationships that lead to the implosion of family businesses. [46] The trial judge should have been alerted to the appellants’ true oppression argument as reflected in theirreliance on Deluce Holdings Inc. v. Air Canada. , (ON SC), [1992] O.J. No. 2382 (Gen. Div.) (QL). In that case, Mr.Deluce owned 100% of the shares in Deluce Holdings Inc., which was the minority shareholder in Air Ontario. Mr. Deluce worked forAir Ontario.

The majority shareholder in Air Ontario was Air Canada. The minority and majority shareholders were parties to ashareholder agreement that gave the majority the option of acquiring the minority’s interest on the termination of Mr. Deluce’semployment. The agreement did not require cause for termination. The court found that these facts did not warrant

summary judgmentdismissing the oppression claim brought under s. 241(1) of the

Canada Business Corporations Act. The motion judge concluded that theallegation that Mr. Deluce’s employment had been terminated for the purpose of enabling Air Canada to buy out Mr. Deluce’s minorityinterest in Air Ontario, and not because of concerns about his management of Air Ontario, warranted adjudication. Mr. Deluce hadpresented a “strong prima facie” case of oppression. [47] The respondents countered the Deluce Holdings case with cases such as Brock v. Matthews Group Ltd., [1988]O.J. No. 370 (H.C.J.) (QL), reversed in part on other grounds at [1991] O.J. No. 83 (C.A.) (QL).

The Brock case also involved a sharepurchase agreement which obligated the plaintiff employee to reconvey his shares to the corporate defendant within three months aftertermination of the plaintiff’s employment. The respondents in the present case rely on Brock in support of the proposition that theemployer’s right to strict enforcement of the share purchase agreement cannot qualify as oppression within the meaning of s. 247 of theOntario Business Corporations Act, S.O. 1982, c. 4, which is now s. 248 of R.S.O. 1990, c. B.16. With great respect, I disagree with thatinterpretation of Brock.

The oppression remedy was being argued in circumstances where the plaintiff’s employment was terminated inNovember of 1984, which had the effect of limiting the shares he could purchase under an options agreement. The termination also hadthe effect of requiring the plaintiff to reconvey his shares to the defendant corporation, pursuant to the share subscription agreement, at avalue determined as of December 31, 1984.

The plaintiff argued that these consequences were oppressive because in the year 1985 thedefendant corporation’s financial results were much better than the previous year, and had the termination arisen at a later date he wouldhave received more than he did. The argument was rejected out of hand and understandably so. In the circumstances, Brock does notsupport the respondents’ argument. [48] If one steps back for a moment from the concept of oppression under s. 241(1) of the

Canada BusinessCorporations Act and turns to the principles of contract law that attempt to regulate unacceptable commercial behaviour, the goal of thelegislation becomes evident. It seeks to bypass the largely ineffective solutions offered by the common law for placing restrictions orlimits on the ability of a contractual party to pursue their self-interests without regard to the legitimate expectations of the other. Theinitial response of the common law was to address the problem through principles of contractual

interpretation and to examine theexercise of contractual power in terms of isolating the intention of the parties. The next development in the law was the modern doctrineof good faith performance, which focuses on the expectations of the parties. The attractiveness of the oppression remedy is that theanalysis circumvents the issues typically raised in regard to the

interpretation of contract and the good faith performance doctrine, whichremains in a state of legal gestation under Canadian law. Yet we know that both the oppression remedy and the good faith doctrine focuson the reasonable expectations of the parties, a concept classically articulated in the principles of contract

interpretation as the exercise ofidentifying the intention of the parties. The trial judge’s analytical framework makes no room for these realities. His framework makesno room for the understanding that neither party to a contract should be entitled to engage in what I term “opportunistic behaviour”. It isworthwhile looking at the common law approach to the appellants’ plea of “foul”, if only to assist in the task of identifying the allegedreasonable expectation, which the appellants insist was destroyed by conduct that was oppressive or unfairly prejudicial. [49] It could have been argued that, as a matter of contract

interpretation, the right to demand a reconveyance of theSpielo shares under the share subscription agreements does not arise in cases where the employment was being terminated for reasonsunrelated to the ongoing employment relationship. Arguably, the application of the expression “termination with or without cause”,which triggers the obligation to reconvey Spielo shares, should be restricted to terminations of employment which occur in the ordinarycourse of business.

It is one matter for a prospective employee to accept that he or she is obligated to reconvey shares acquired under thesubscription agreement if the employment relationship ends and quite another to learn that the employer may decide to terminate therelationship in order to reacquire the shares for the purpose of realizing a profit that would have otherwise accrued to the employee.Admittedly, there is nothing the law can do about the right of the employer to terminate the employment contract without cause otherthan to provide proper compensation.

But why would a court want to interpret a contract in a manner which provides employers with afurther incentive for terminating an employment contract; an

interpretation that would deprive the employee of a benefit for which validconsideration has been paid? [50] Simply put, many a judge would be reluctant to interpret a contract that rewards one party for engaging in whatI regard as opportunistic behaviour (realizing the very profit that the employee expected to receive). The idea that an employer could

weigh the financial cost of being sued for wrongful dismissal against the profit to be made upon a resale of the employee’s shares to athird party at fair market value, and then decide to dismiss the employee, could not have been within the reasonable contemplation orintention of the parties at the time the contracts were exchanged. [51] The interpretive argument advanced above will be unconvincing to the strict constructionist who insists thenotion of fairness in contract law is measured by the written word and not by elusive standards of acceptable and unacceptablecommercial behaviour.

In response to the strict constructionist, the interpretative approach would counter that every contract contains animplied term that both parties must act in good faith during the currency of the agreement. This leads one to ask whether the good faithduty is a generalized principle of contract law predicated on the presumed intention of the parties. After all, what contracting party wouldobject to a contractual term that states that neither party may act in “bad faith” during the currency of the contract?

Admittedly, theprospect of having the parties agree to a term which is framed as a positive legal obligation (both parties will act in good faith) continuesto be resisted if only because the parties have little faith in the law’s ability to demarcate “good faith” conduct. It was Kerans J.A. inMesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd., 1994 ABCA 94 , [1994] A.J. No. 201 (C.A.) (QL), whoexpressed concern that good faith may be too vague a term, and may encourage "judges to wander unnecessarily far into the thicket ofextra-contractual rules of conduct" (para. 18).

In that case the majority used the good faith doctrine as an interpretative guide in order toconstrue the contract in accordance with the parties’ so-called settled intentions. [52] The approach adopted in Mesa Operating Ltd. contrasts sharply with the case most frequently cited in supportof a good faith duty of performance in contract law: the trial decision of Kelly J. in Gateway Realty Ltd. v Arton Holdings Ltd. (NS SC), [1991] N.S.J. No. 362 (S.C.) (QL), affirmed at 1992 NSCA 70 , [1992] N.S.J.

No. 175 (C.A.) (QL).Most everyone focuses on Kelly J.’s observation that a party acts in bad faith when their conduct is “contrary to community standards ofhonesty, reasonableness or fairness” (para. 58). He goes on to hold that “bad faith can be said to occur when one party, withoutreasonable justification, acts in relation to the contract in a manner where the result would be to substantially nullify the bargainedobjective or benefit contracted for by the other, or to cause significant harm to the other, contrary to the original purpose and expectationof the parties” (para. 60).

Others insist the good faith doctrine has a broader objective: to prevent the “excessive promotion of self interest at the expense of a weaker party”. See Boyle and Percy, Contracts: Cases and Commentaries, 7th ed. (Toronto: Thomson CanadaLtd., 2004) at p. 713, cases such as Shelanu Inc. v. Print Three Franchising Corp., (ON CA), [2003] O.J. No. 1919(C.A.) (QL), and generally Shannon K.

O’Byrne, “The Implied Term of Good Faith and Fair Dealing: Recent Developments” (2007) 86C.B.R. 193. [53] Parenthetically, I note a passing reference in one of our decisions to the effect that a finding of bad faith restson a finding of fraud. I know of no judicial precedent for such a narrow proposition of law. It is well-established in Canadian law that badfaith conduct embraces more than fraudulent conduct and the law of New Brunswick should be deemed to be no different (see Crawfordv. New Brunswick (Agricultural Development Board), at paras. 7-8, and the comments of Glennie J. in Castle Bridge Real Estate v.

G.Midwinter & Associates et al., at paras. 107-108, as discussed in the trial judge’s reasons for decision at paras. 227-228). [54] Much of the relevant jurisprudence governing good faith conduct in a contractual setting is gathered inMcCamus (784-805), where he examines a number of Canadian cases in which good faith has been found to be an implied term of thecontract. He places the cases into three categories: (

a) those imposing a duty to cooperate in achieving the objectives of the agreement;(

b) those imposing limits on the exercise of discretionary powers provided for in the contract; and (

c) those precluding parties fromacting to evade contractual duties, such as by engaging in conduct not strictly prohibited by the letter of the terms of their agreement butthat has the effect of defeating rights under the agreement. The present case appears more suited to the second category. Spielo had thediscretion to dismiss with or without cause under the employment contract, which had the automatic effect of triggering a right andobligation under a second contract, the share subscription agreement.

It is the exercise of discretion and the interaction of those twocontracts that attracts the tenets of the good faith doctrine. [55] It could be argued that the law of good faith performance has developed to the point where the exercise ofcontractual discretion is subject to a “reasonableness” requirement.

Reasonableness being a slippery concept, one might want to invokethe language of the trial judge in Mesa Operating Ltd., as stated by Kerans J.A.: “As the trial judge said, a party cannot exercise a powergranted in a contract in a way that “substantially nullifies the contractual objectives or causes significant harm to the other contrary to theoriginal purposes or expectations of the parties”. Curiously, this formulation of the good faith standard mirrors the language used by theSupreme Court in BCE Inc. with respect to the application of the oppression remedy under s. 241(1) of the

Canada BusinessCorporations Act.

The notion of reasonable expectations of the parties is but a restatement of the classical notion of contractual intention,which looked more to the terms of the contract as opposed to what conduct should be regarded as acceptable commercial behaviour. [56] If an employer terminates an employee for reasons not tied to a valid corporate objective (e.g. employeeeffectiveness) but rather for the purpose of acquiring and realizing the fair market value of company shares that were issued as anincentive to ensure employee loyalty and productivity, surely the employer is guilty of bad faith when it comes to insisting on thecontractual right to reacquire the shares without offering proper compensation.

The employer is guilty of engaging in opportunisticbehaviour under the guise of exercising a contractual right. To be blunt, what employee would want to be part of a share purchasescheme which provides the employer with an additional incentive for dismissing that employee without cause? Surely, that could nothave been the intention or the reasonable expectations of the parties at the time the share purchase agreements were signed. For greatercertainty, and lest there are those who hold a contrary view, I find it paradoxical that an employee could be forced to explain to family

members that his or her dismissal was a consequence of the company doing too well. [ 57 ] The advantage of s. 241(1) of the

Canada Business Corporations Act is that an applicant shareholder or corporate officer need not be concerned with the legal obstacles or uncertainty surrounding the principles of contractual

interpretation or the application of the good faith doctrine. The reality of the statutory solution is that the applicant for relief need only establish a reasonable expectation, one that was negated by conduct otherwise permissible on a literal reading of the contract. The easy cases are those in which the corporation, director or majority shareholder is guilty of opportunistic or vindictive behaviour. This is why the trial judge erred in rejecting the appellants’ plea of oppression under s. 241(1) of the

Canada Business Corporations Act, based on the simple notion that Spielo and Mr. Manship had the contractual right to do what they did. Certainly, they had the right to terminate the appellants’ employment with or without cause. But this leaves us to ask whether Spielo’s decision, requiring the appellants to redeem their shares, qualifies as unfair conduct in the sense that the acquisition defeated the appellants’ reasonable expectation that the obligation would only arise if their employment was terminated for reasons related to the employment relationship.

The remedy they seek is neither reinstatement nor the right to retain the shares. They want compensation based on the difference between the monies received for their shares and what they would have received had their employment continued for another 15 months. In other words, they wanted to receive the full value of what GTECH paid for their shares. [ 58 ] Returning to the analytical framework established in BCE Inc ., the first task is to identify the reasonable expectation held by the appellants and that Spielo supposedly breached. In broad terms, Mr. Doucet and Mr.

Dauphinee held the reasonable expectation that they would not be fired simply because Spielo and Mr. Manship wanted to reacquire their shares for the purpose of realizing on the full capital gain that would materialize from a possible or impending sale of the business to a third party. In narrow terms, the two employees held the reasonable expectation that they would not be forced to sell their shares back to Spielo unless their employment was terminated for reasons tied to the employment relationship, as was the case in Dashney v. McKinlay , [1996] O.J. No. 2037 (Gen.Div.) (QL) .

Hence, the first prong of the two-prong framework articulated in BCE Inc. has been established. The next prong is to consider whether the narrow expectation was breached by Spielo and Mr. Manship by virtue of conduct that can be described as oppressive or unfairly prejudicial. Why did Spielo terminate the appellants’ employment? The answer qualifies as a finding of fact and is central to the plea of oppression within the meaning of s. 241(1) of the

Canada Business Corporations Act . [ 59 ] The trial judge made a number of factual findings that destroy the appellants’ contention of oppressive or opportunistic conduct on the part of Spielo and Mr. Manship. Those findings are scattered throughout the trial judge’s comprehensive reasons and, although made in the context of other legal issues and arguments, they are consistent with and supportive of the finding that the appellants failed to establish the right to relief under s 241(1) of the

Canada Business Corporations Act . The critical finding addresses the following question: Did Mr. Manship terminate the appellants’ employment and the sale negotiations with respect to the on-line division for the purpose of reacquiring their shares in Spielo, and reaping the benefit of their full capital gain, because of an impending or possible sale of Spielo to a third party? The trial judge effectively answered that question with a “no”. This is what he had to say: The evidence satisfies me that Mr. Doucet and Mr. Manship spoke of the possible sale or a public offering of Spielo throughout the time Mr.

Doucet was with Spielo and in particular when Spielo won the Netherlands' contracts and were part of the Virgin proposal. I do find as a fact that from time to time during the period the Plaintiffs were employed by Spielo, different companies expressed an interest in purchasing some or all of Spielo's assets or shares. As mentioned, there were overtures just before and just after the negotiations to purchase OLD failed. None of these overtures came to anything and the GTECH overture did not arise until ten months after the collapse of the OLD sale.

There was no evidence that established that GTECH was considering or advancing a proposal to purchase Spielo during the period of negotiations for the purchase of OLD by Mr. Doucet. In fact, GTECH only became interested when Spielo won part of the New York Lottery tender. The other parties made what can only be described as preliminary inquiries and when pushed, failed to respond with proposals. [para. 179] [ 60 ] In light of the above finding, there is no need to ask what the reasons were for Mr. Manship’s decision to terminate the appellants’ employment. For the sake of completeness, I address this question.

At paragraph 269 of the trial judge’s reasons he holds: “I am satisfied that both employees were dismissed for proper business reasons, given what was happening in the on-line division.” The trial judge accepted the evidence that the on-line division of Spielo, headed by Mr. Doucet, was performing below expectations and that Mr. Doucet’s and Mr. Dauphinee’s performance evaluations were “negative”. This is what the trial judge had to say in his reasons: I find, as well, that Mr. Doucet and Mr. Dauphinee’s performance

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