Matthews v. Ocean Nutrition Canada Ltd., 2017 NSSC 16

Supreme Court of Nova Scotia Citation: Matthews v. Ocean Nutrition Canada Ltd. , 2017 NSSC 16 Date: 20170130 Docket: Hfx No. 353606 Registry: Halifax Between: David Matthews Applicant v. Ocean Nutrition Canada Limited Respondent Library Heading Judge: The Honourable Justice Arthur J. Leblanc Heard: November 2, 3, 4, 5, 9, 10, 12, 13, 2015, and January 28, 2016, in Halifax, Nova Scotia Final Written Submissions: January 20, 2017 Written Decision: January 30, 2017 Subject: Employment; constructive dismissal, oppression remedy, punitive damages

Summary: The applicant was a chemist who worked for the respondent as Vice President New and Emerging Technologies until his resignation in June 2011. He alleged that the respondent’s progressive removal of his responsibilities amounted to constructive dismissal. The applicant said the respondent was motivated by a desire to prevent him from receiving a payout under a Long-Term Incentive Plan (“LTIP”). He sought damages for unjust dismissal, including compensation for loss of payouts under the LTIP and the Management Short-term Incentive Plan (“STIP”).

In the alternative, he sought an oppression remedy under the Canada Business Corporations Act , R.S.C. 1985, c. C-44. He also claimed punitive damages. Issues:

(1) Was the applicant constructively dismissed by the respondent and, if so, what were his damages?

(2) Was the applicant entitled to an oppression remedy under s. 241 of the CBCA ?

(3) Was the applicant entitled to punitive damages? Result: The applicant was constructively dismissed by the respondent. His damages included compensation for the loss of payouts under the LTIP and the STIP. It was unnecessary to consider the merits of the oppression claim. Although the respondent constructively dismissed the applicant, there was no evidence of bad faith. The claim for punitive damages was dismissed. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET. SUPREME COURT OF Nova Scotia Citation: Matthews v. Ocean Nutrition Canada Ltd. , 2017 NSSC 16 Date: 20170130

Docket: Hfx No. 353606 Registry: Halifax Between: David Matthews Applicant v. Ocean Nutrition Canada Limited Respondent Judge: The Honourable Justice Arthur J. Leblanc Heard: November 2, 3, 4, 5, 9, 10, 12, 13, 2015, and January 28, 2016, in Halifax, Nova Scotia Final Written Submissions: January 20, 2017 Counsel: Blair Mitchell, for the Applicant Nancy Barteaux, QC and Isabelle French, for the Respondent By the Court: Introduction [ 1 ] David (“Dave”) Matthews is a chemist who has worked in the omega-3 fish oil industry for the past three decades.

In January 1997, he joined Laer Products Inc. (“Laer”) as Operations Manager. Laer, which went on to become Ocean Nutrition Canada Limited (“ONC”), was a small company with only four employees. Fifteen years later, ONC was acquired by Royal DSM N.V. (“DSM”) for a total enterprise value of $540 million. Mr. Matthews did not share in the profits of the sale, having resigned from ONC in June 2011. Matthews alleges he was constructively dismissed and seeks damages. [ 2 ] Mr.

Matthews attributes his alleged constructive dismissal to an intention on ONC’s part to avoid its obligations to him under an Executive Incentive Agreement signed in September 2007. The agreement entitled Matthews to a significant payout in the event of a sale of ONC. In the event that his alleged loss of benefit under the agreement is not recoverable as damages for constructive dismissal, he seeks an oppression remedy under the

Canada Business Corporations Act , R.S.C. 1985, c. C-44. Matthew also claims punitive damages. Issues [ 3 ] This application in court raises the following issues: 1. Was the applicant constructively dismissed by the respondent and, if so, what are his damages? 2. Is the applicant entitled to an oppression remedy under s. 241 of the CBCA ? 3. Is the applicant entitled to punitive damages? Creation of ONC [ 4 ] ONC’s predecessor, Laer, supplied omega-3 fish oils to the veterinary industry and was developing a microencapsulation technology for the pet industry.

After Clearwater Fine Foods Inc. (“CFFI”) purchased the company, Robert Orr, then General Manager of Laer, began working with the CFFI group to set up what became ONC. ONC was formally incorporated in March 1997. [ 5 ] When Dave Matthews joined Laer, the company had plans to develop a new technology for manufacturing omega-3s that was superior to the traditional processes used by other players in the industry. Mr. Matthews was given the mandate, along with several other

individuals that he brought onto his team, of developing this technology and designing the plant where it would be applied. [ 6 ] Before joining Laer, Mr. Matthews had experimented with the use of wiped film evaporators with fractional distillation to produce fatty oil esters from fish oil. Fractional distillation, a known process, had never been applied to the extraction of omega-3s from fish oils.

After presenting the technology to ONC shareholders, Matthews was tasked with overseeing the renovation of a plant in Mulgrave for large-scale extraction of omega-3s using the wiped film evaporation and fractional distillation process. [ 7 ] The fractional distillation process allowed ONC to process a greater volume of oil, with higher purity, more efficiently than its competitors. In other words, the process gave ONC a competitive edge in terms of quality and product cost. The company grew exponentially over the next fifteen years.

What began as a company of four employees evolved into a major player in the omega-3 industry with over 400 employees in 2012. Overview of ONC [ 8 ] ONC was involved in the manufacture of omega-3 products from fish oil, which it would sell to other companies in the supplement and nutraceutical industry. ONC’s head office was located in Dartmouth, Nova Scotia. The company had plants in Mulgrave and Dartmouth, as well as in Arcadia, Wisconsin, and Piura in Peru. The plant in Peru was acquired in January 2012. [ 9 ] ONC was a privately-held, federally-incorporated company.

From June 2002 until October 2005, CFFI was ONC’s only shareholder. On October 26, 2005, Richardson Capital Limited (“Richardson”) acquired 22.5 percent of the shareholdings in ONC. Two years later, it acquired a further 2.5 percent. Finally, on July 31, 2009, Richardson increased its shareholdings to 45 percent. The remaining 55 percent of the shares were held by CFFI. There were no further changes in the shareholdings of ONC until the sale to DSM was finalized on July 18, 2012. [ 10 ] Under the shareholders’ agreement, each of ONC’s shareholders was entitled to make two appointments to the Board of Directors.

Richardson appointed David Brown and James McCallum, while CFFI appointed John Risley and Stanley Spavold. Robert Orr, who was President and Chief Executive Officer of ONC until July 2010 and Chairman of the Board from July 2010 until July 19, 2011, was also a director. Martin Jamieson became President and CEO on July 3, 2010, and a director when Orr resigned. Positions of the parties [ 11 ] According to Dave Matthews, his problems at ONC began when Daniel Emond was hired as Chief Operating Officer and Matthews was required to report to him instead of Robert Orr. [ 12 ] Prior to Mr.

Emond’s arrival in June 2007, Mr. Matthews had roughly sixty or seventy people reporting to him. In October 2007, Matthews says, Emond reassigned a major part of his portfolio to Paul Empey, another ONC employee. According to Matthews, this was the first of many efforts by Emond to diminish his role at ONC. He claims these efforts culminated in his constructive dismissal in May 2011, when Emond removed his last substantial responsibility, leaving him with only one or two hours of work per day.

Matthews resigned from ONC on June 24, 2011. [ 13 ] The applicant says ONC wanted to get rid of him in order to avoid honouring its obligations under an Executive Incentive Agreement – often called an LTIP within ONC – that the parties had signed in 2007. Under the LTIP, Mr. Matthews was entitled to a payout in the event of a sale of the company, described under the agreement as a “realization event.” As the longest serving management employee subject to an LTIP, he would receive the highest payout upon a realization event.

Matthews’ continued full-time employment with ONC was a condition precedent of a payout under the LTIP. [ 14 ] ONC denies that it constructively dismissed Dave Matthews, or that it attempted to avoid its obligations to him under the LTIP. ONC says that it regularly adjusted the duties and responsibilities assigned to Matthews in accordance with the company’s needs and best interests. Mr. Matthews not only agreed to these changes, he also requested changes of his own when he felt that he was not being challenged in his current role.

According to ONC, Matthews voluntarily resigned in order to pursue employment with TASA, a company that recruited him to design and build a competing omega-3 manufacturing plant. [ 15 ] ONC says that Mr. Matthews informed Martin Jamieson, President and CEO, of his desire to leave the company on May 27, 2011. He did not disclose his intention to join TASA. Matthews was not interested in severance but wanted an exit strategy that would protect his entitlement under the LTIP. ONC says Matthews was advised that a non-compete agreement would be a condition of any potential payout under the LTIP.

Realizing a non-compete agreement would prevent him from building the plant for TASA, Matthews walked away from the negotiations, abandoning his LTIP entitlement. Preliminary matters [ 16 ] Before discussing the evidence, I will deal with four preliminary matters. The first relates to a ruling I made during the hearing to allow the applicant to call Paul Empey, a former ONC employee, as a witness. [ 17 ] At the pre-hearing conference, Blair Mitchell, counsel for the applicant, indicated that he intended to call Mr. Empey, under subpoena, to rebut aspects of Mr. Emond’s evidence. Mr.

Mitchell chose not to obtain an affidavit from Empey, preferring that his evidence be given viva voce . According to Nancy Barteaux, counsel for the respondent, she learned that the applicant intended to call

Empey some time prior to the conference by searching the subpoenas filed with the court. [ 18 ] Cross-examination of the applicant’s first two witnesses took longer than anticipated, and the court was informed that Daniel Emond, a witness for the respondent, had travel plans that might interfere with his availability to testify. Accommodations were made to allow Mr. Emond to take the stand out of order, testifying between witnesses for the applicant. With Emond’s testimony completed, the applicant’s counsel sought to call Paul Empey before the respondent opened its case. [ 19 ] Ms.

Barteaux, relying on Dunrite Contracting Ltd v. Christians , 1996 NSCA 120 , [1996] N.S.J. No. 248; Springer v. Aird & Berlis , [2009] O.J. No. 1016 (Ont. Sup. Ct. J.) ; and Halford v. Seed Hawk Inc , 2003 FCT 141 , [2003] F.C.J. No. 237, took the position that Mr. Empey should not be permitted to testify because his evidence was not proper reply evidence. Admitting the evidence would allow the applicant to unlawfully split his case. [ 20 ] After considering the authorities cited by Ms. Barteaux, Mr. Mitchell conceded that Mr. Empey’s evidence was not proper reply evidence.

He noted, however, that the applicant’s situation could be distinguished from the authorities on the basis that he had not yet closed his case. He argued that the court should exercise its discretion to allow Empey to be called as part of the applicant’s case-in- chief. [ 21 ] Although direct evidence on an application will ordinarily be provided by affidavit, the court controls the conduct of a hearing and has the discretion to allow viva voce evidence in appropriate circumstances: Civil Procedure Rules 53.01 and 53.03. I exercised my discretion to allow Mr.

Empey to testify as part of the applicant’s case-in-chief because I was not satisfied that, in the particular circumstances of this case, the respondent would suffer any prejudice as a result. [ 22 ] Paul Empey’s evidence was limited to two specific exchanges between himself and Daniel Emond. During Mr. Emond’s cross-examination, he was questioned specifically about the exchanges and Empey’s anticipated evidence was put to him directly. Ms. Barteaux was given the opportunity to interview Empey prior to his testimony. Since Mr.

Empey’s evidence related strictly to private conversations between himself and Emond, there was no additional relevant evidence that the respondent was deprived of the opportunity to call. Furthermore, unlike other witnesses, Paul Empey had no interest in the outcome of this application, and it was consistent with the fair and just disposition of this matter to hear his evidence. [ 23 ] The second preliminary matter relates to objections by the respondent to hearsay and opinion evidence contained in Dave Matthews’ affidavit.

These objections were raised after the hearing in the respondent’s post-hearing written submissions. [ 24 ] On the first day of the hearing, I informed the parties of my concern that the affidavit of Martin Jamieson was replete with hearsay. In the absence of any response by Ms. Barteaux to these concerns, Mr. Mitchell brought a motion to strike portions of the affidavit prior to the opening of the respondent’s case. Ms. Barteaux expressed her “shock” that Mr. Mitchell was objecting to the affidavit at this late stage, having had the evidence in his possession since early 2015.

She noted his failure to object to its contents at any of the motions for directions or during the pre-hearing telephone conference. [ 25 ] Martin Jamieson’s affidavit consisted of 358 paragraphs, with five large volumes of exhibits. I made it clear to the parties that I was prepared to adjourn the application to allow Ms. Barteaux to properly respond to the extensive challenge to the affidavit’s contents. This proved unnecessary, as the parties reached agreement on some of the contested paragraphs and I ruled on the remainder. Ms.

Barteaux was given the opportunity to amend Jamieson’s affidavit, and that of Craig Wilson, and to obtain additional affidavits from any other potential witnesses in order to ensure that no relevant evidence was lost. [ 26 ] During argument on the Jamieson affidavit, which occurred after Dave Matthews’ cross-examination, Ms. Barteaux stated that Matthews’ affidavit also contained inadmissible evidence and noted that the respondent might elect to bring a motion to strike those portions of the affidavit at a later time.

She did not object to the content of Matthews’ affidavit on the first day of the hearing when I raised my concerns about Jamieson’s affidavit. [ 27 ] No formal motion was made by the respondent during the hearing. However, in the respondent’s post-hearing brief, Ms. Barteaux identified approximately seventy items within the applicant’s affidavit that she argued were hearsay, opinion or submission and should be excluded. Mr. Mitchell says that Ms.

Barteaux’s failure to object to the affidavit’s contents at an earlier time means the contested evidence must be admitted. [ 28 ] I am concerned about the lack of attention paid to the rules of affidavit evidence in this proceeding. A judge should not need to point out to the parties on the first day of a hearing that their affidavits are brimming with potentially inadmissible evidence. An application in court is intended to be an efficient, cost-effective alternative to a trial.

That intention is frustrated when arguments are made during the hearing, or after the hearing, on the admissibility of evidence that has been in the hands of the parties for more than a year. [ 29 ] It is unacceptable for counsel to review an opposing party’s affidavit, see that it contains hearsay or other inadmissible evidence, and choose not to object unless or until the opposing party challenges counsel’s own affidavits. Parties should arrive at the hearing having either reached agreement on the evidentiary issues, or had the matter resolved by a judge on a motion under Rule 39.04. [ 30 ] Although Mr.

Mitchell brought his motion to strike long after it was appropriate, the court went to great lengths to ensure that the respondent’s case was not compromised as a result. Ms. Barteaux had ample opportunity to review Matthews’ affidavit, including during her preparation for his cross-examination. She now attempts to challenge large portions of it after the hearing when the court is no longer in a position to offer the applicant the same accommodation it gave to the respondent. [ 31 ] That said, most of the contested statements can be struck without prejudice to Mr.

Matthews because the same evidence has been admitted through another witness, the evidence amounted to submissions or opinions that the court would have given no weight in any event, or the evidence was not being offered for the truth of its contents. There are three objections, however, that require closer scrutiny.

[ 32 ] The first objection relates to the acquisition of the “S-5” equipment. Matthews stated at paragraph 67 of the affidavit: In this December 2007 meeting where Mr. Emond disclosed this acquisition, Mr. Orr asked me whether I had been made aware of this project. When I stated that I had not Mr. Orr directed that I be given responsibility for the acquisition and its integration into ONC operations. [ 33 ] Ms. Barteaux argues that the statements attributed to Robert Orr are hearsay and should not be admitted. Only statements offered for their truth offend the rule against hearsay.

In order to determine whether the statement is subject to the exclusionary rule, it is necessary to inquire into the purpose for which it is being offered. In my view, the statement is being offered to show why Matthews subsequently took on the project, but also, more importantly, that Orr wanted Matthews to take responsibility for the S-5 acquisition because he considered it part of Matthews’ role. The second purpose offends the rule against hearsay. However, I find that the statement falls within the hearsay exception concerning statements of intention or state of mind, and is admissible.

Even if I am wrong, I would allow the statement to be admitted for the truth of its contents. Ms. Barteaux did not raise her objection prior to – or even during – the hearing. She then chose not to question Matthews or Orr about the statement. It would be grossly unjust for the court to exclude the evidence at this stage. [ 34 ] The next objection relates to evidence that Daniel Emond advised an employee in Mr. Matthews’ department that she would no longer report to him.

Matthews stated at paragraphs 79 to 83 of the affidavit: 79 … I learned from Sharon Spurvey, the Manager of Technical Services, who reported to me, that she had been called into a meeting by Mr. Emond in which Mr. Emond advised her that she and technical services would cease reporting to me and would thereafter report to ONC’s Research and Development Vice-President. 80 Mr. Emond did not inform me or consult me in connection with this proposed change. 81 On this information from Ms. Spurvey I went to Mr. Emond and asked him to meet with me. I told him I wanted to meet with him in front of Mr. Orr. We went to Mr.

Orr’s office and I advised both men what I had heard of this change. Mr. Emond denied the change and denied that he had met with Ms. Spurvey on the topic. 82 I left Mr. Emond and Mr. Orr for a moment and went to the meeting room where the meeting involving Mr. Emond and Ms. Spurvey had occurred and retrieved the page of the flip chart showing the change in the reporting relationship and came back to Mr. Orr’s office and produced it to Mr. Orr. 83 Mr. Orr directed that the change in reporting not be made. [ 35 ] Ms. Barteaux argues that the underlined statements are hearsay.

In my view, it is not necessary to admit the evidence as to what Ms. Spurvey told Matthews for the truth of its contents. The fact that the statement was made is relevant to Matthews’ understanding or state of mind during the subsequent exchanges. The court can decide whether Emond and Spurvey did in fact meet, and what was said, by weighing Matthews’ evidence of the conversation he had with Emond and Orr as a result of the statement being made. [ 36 ] As in the previous objection, Matthews gave evidence of a direction by Orr (para. 83).

It is offered to show both that the statement was made, which is relevant to the context in which Matthews was operating, and that Orr did not want the change in reporting to be made because he had not approved it. For the same reasons outlined above, the statement is admissible as evidence of intention. If I am wrong, I would admit the evidence for the truth of its contents for the reasons I have previously explained. [ 37 ] The final objection pertains to evidence of a conversation alleged to have occurred between James Peach, one of Matthews’ direct reports, and Mr. Emond. Paragraph 115 states: Mr.

Peach told me that Mr. Emond had come directly to him and told him that he wanted NET’s budget. Mr. Peach told him he could give him the numbers he was responsible for, regulatory’s numbers. Mr. Emond said he wanted the total for all of NET. Mr. Peach said he told Mr. Emond that I had the total budget. Mr. Emond told Mr. Peach, Mr. Peach said, that he wanted Mr. Peach to get him the total budget. Mr. Peach ultimately allowed that he could get the budget from Sharepoint and did so, providing it to Mr. Emond. … [ 38 ] This paragraph is hearsay.

The evidence is being offered to prove that a meeting took place between Peach and Emond in relation to the NET Department budget. Mr. Matthews was not present for the alleged meeting, and has no personal knowledge of the statements that were made. This evidence should have been entered through Mr. Peach, who could have been cross-examined on it. [ 39 ] If this objection had been raised during the hearing, I would have offered Mr. Mitchell the opportunity to obtain an affidavit from Mr. Peach, without analyzing the probative value of the evidence. Since the evidence was relevant, Mr.

Matthews would have been given the chance to enter it properly. Now that the hearing has concluded, however, the degree of relevance is pertinent. [ 40 ] Considering this piece of evidence in the context of the entire evidentiary record, I am not satisfied that Dave Matthews will be prejudiced by its exclusion. The evidence goes to prove that Daniel Emond was reviewing aspects of Mr. Matthews’ New and Emerging Technology department without his knowledge. There is ample evidence on the record that the algal oil initiative being managed by

Matthews’ department was under review during this time period, and that he was not told about the review or invited to participate in it. [ 41 ] The third preliminary matter relates to the use of discovery transcripts in this proceeding. Counsel for the respondent acted as the affiant for three affidavits attaching excerpts from the discovery examinations of Robert Orr, Stanley Spavold and Craig Wilson. Mr. Wilson’s discovery excerpts were filed by Ms. Barteaux in addition to an affidavit from Wilson himself. [ 42 ] At the start of the hearing I informed Ms.

Barteaux of my understanding that discovery evidence in support of a party is inadmissible unless that party establishes that the witness in question is not available to testify, or is otherwise necessary. According to Ms. Barteaux, in the last motion for directions with Justice Gerald P. Moir, it was agreed that discovery excerpts could be filed as long as the witnesses were available for cross-examination. I have since reviewed the recordings of the two motions for directions before Justice Moir.

As I understand it, Justice Moir’s comments were in relation to the evidence of Robert Orr, who did not wish to participate in this proceeding on behalf of either party. In other words, neither party was in a position to obtain an affidavit from Mr. Orr. Justice Moir explained that the Civil Procedure Rules allowed for the filing of discovery excerpts as long as Mr. Orr was available for cross- examination. Justice Moir did not suggest that Ms. Barteaux was permitted to file discovery excerpts from her own witnesses in lieu of proper affidavits. Although Ms. Barteaux should have obtained an affidavit from Mr.

Spavold, and limited Mr. Wilson’s evidence to a single affidavit, Mr. Mitchell did not object, and no prejudice has been suffered by these procedural irregularities. [ 43 ] The final preliminary matter relates to the Notice of Application. After the hearing, I asked the parties to comment on whether the applicant had adequately pleaded the material facts required to support the causes of action. Again, this is an issue that should have been dealt with long before the hearing. After considering the parties’ submissions, I am satisfied that no prejudice has resulted from any potential deficiencies in the pleadings.

The material facts were clearly outlined in Dave Matthews’ affidavit and addressed by both parties in their pre-hearing submissions. Both parties had ample opportunity to cross-examine the witnesses in relation to the events underlying the applicant’s claims. If the respondent had concerns, it could have moved to strike the pleadings at any time during the five years since this application was filed. [ 44 ] I now turn back to the substance of this application. Matthews’ career prior to 2007 [ 45 ] Dave Matthews received his diploma in Chemistry from the Nova Scotia Agricultural College in 1982.

His first job after graduation was with the Canadian Institute of Fisheries Technology, where he worked closely with Dr. Robert Ackman, an acclaimed researcher and expert in fish oil and fish oil extraction. It was through his work with Dr. Ackman that Matthews became familiar with the process of wiped film evaporation. [ 46 ] After leaving the Institute in 1987, Mr. Matthews returned to NSAC to take additional course work while also working for a company called Vitashine, producing oils for use in the retail and pharmaceutical industries.

In 1990, Matthews began working for EPA Limited making fish oil concentrates for dietary supplements. He managed the same plant at Mulgrave that Laer/ONC would eventually acquire. [ 47 ] In 1992, Mr. Matthews rented facilities from the Institute to begin experimenting with using wiped film evaporators with fractional distillation to develop a process for producing fatty esters from fish oil. [ 48 ] From 1992 to 1994, Mr. Matthews worked for PharmaGlobe Manufacturing as Plant Manager.

In this role, he managed the contracts, plant construction and equipment purchases necessary for the production of bulk pharmaceutical products. The company became insolvent before completing the plant. [ 49 ] From 1994 to 1996, Matthews worked for Sepracor Canada Ltd. As Operations Manager, he represented the company in the successful design, planning, construction and staffing of a bulk pharmaceutical facility. [ 50 ] In late 1996, Matthews met Robert Orr, then General Manager of Laer, through Dr. Robert Ackman. When Mr. Orr told Dr.

Ackman about CFFI’s intention to develop a new technology for manufacturing omega-3s, Dr. Ackman told him about a former student who had gone on to build several omega-3 plants and had an excellent understanding of the science and technology involved. Mr. Matthews was the first person Orr hired into the company, accepting the position of Operations Manager with Laer/ONC in January 1997. In this role, he was responsible for the supervision and organization of the Mulgrave plant. [ 51 ] In 2001, Matthews was promoted to Senior Operations Manager.

He continued to oversee the plant in Mulgrave and was involved in the construction of a small pilot plant at 101 Research Drive in Dartmouth. This plant, called DP1, was built to produce a spray-dried omega-3 powder derived from fish oil that could be added to food products. He also headed the design and renovation of a larger plant in Arcadia, Wisconsin, which would also manufacture omega-3 powder. By 2004, Matthews had approximately 160 people reporting to him. [ 52 ] In January 2005, Mr. Matthews became Vice President Healthy Food Ingredients (“VP HFI”).

He was asked to take over the powder division of ONC, supervising the DP1 and Arcadia plants, including the purchase of raw materials. Paul Empey was hired to replace him in overseeing the oil side of the business in Mulgrave. As VP HFI, Matthews had about sixty to seventy people directly or indirectly reporting to him. [ 53 ] In October 2005, a serious explosion occurred at the plant in Arcadia. Mr. Matthews immediately traveled to Wisconsin where he assumed responsibility for the cleanup and rebuild. Having spearheaded the design and renovation of the plant, Mr. Matthews took the Arcadia explosion personally.

Roughly two weeks after it occurred, Matthews told Robert Orr, then President and CEO of ONC, that if the Board of Directors expected anyone to resign, he would do so immediately to ensure that responsibility was not imputed to anyone else. Mr. Orr declined Matthews’ offer.

The arrival of Daniel Emond [ 54 ] On June 18, 2007, Daniel Emond was hired as COO of ONC. At that time he had more than thirty years of operations experience with companies in the food sector. During the recruitment process, several senior employees, including Dave Matthews, were consulted on whether Mr. Emond or another candidate should be selected for the position. After meeting with Emond and giving him a tour of the two Dartmouth plants, Matthews expressed support for his candidacy. [ 55 ] According to Mr. Emond, he first met Mr. Matthews when he came to ONC for an interview in Dartmouth.

During that first meeting, he said, Matthews told him that he was not happy at ONC, and that if things didn’t change, he would resign. Mr. Emond did not report this exchange to anyone at ONC at any time before or after he accepted the position as COO. Matthews denied that this exchange took place. [ 56 ] As COO, Daniel Emond was responsible for overseeing the activities of the Operations, Engineering, R&D, Supply Chain, Information Technology and Information Systems, Quality Assurances, Sales, and Health and Safety departments at ONC.

The head of each department, and all other members of ONC’s senior management team except Robert Orr and Megan Harris, the Chief Financial Officer, began reporting to Emond. Mr. Emond reported to Mr. Orr. [ 57 ] Mr. Emond testified on cross-examination that after he joined the company, he did one-on-one interviews with the senior executives who would be reporting to him. During the interview with Mr. Matthews, Emond said Matthews again expressed discontent with his position at ONC, and Emond gave him assurances that, as COO, he would help to alleviate his concerns.

There is no written record of the meeting, and it was not described in Mr. Emond’s affidavit. The LTIP [ 58 ] In September 2007, Dave Matthews and ONC entered into an Executive Incentive Agreement, more commonly called an LTIP within the company. [ 59 ] Robert Orr testified that John Risley, founder of CFFI, was generally averse to the creation of stock options, preferring other means of retaining and compensating senior management who had created value for his companies. Early on, when ONC was wholly owned by CFFI, there was a high degree of trust among senior management that Mr.

Risley would look after those people who contributed to the development of his companies. According to Orr, Risley’s word was his bond. However, when ONC began to grow, Mr. Orr recommended the introduction of a formal compensation structure. [ 60 ] Although Mr. Orr preferred stock options for senior management, the Board of Directors proposed a long-term incentive plan that was similar to stock options in terms of value creation.

The LTIP was intended to be both an incentive and a retention tool. [ 61 ] Under the LTIP, two percent of the company’s value created on the sale or public offering of the company in excess of one hundred million dollars (a “realization event”) would be distributed among a limited number of executives. Under the formula, each individual was given a base value meant to reflect the company’ value at the time the employee was hired. Since Mr.

Matthews was the longest serving management employee subject to an LTIP, his base value was the lowest, meaning he would receive the highest payout upon a realization event. [ 62 ] The LTIP contained the following recitals: A. ONC desires to establish a mechanism to provide an [ sic ] retention incentive and to reward certain of its employees, including the Employee, for their service to ONC in the event of a Realization Event (as defined below); B.

The Employee has served as a management-level employee of ONC and has been deemed to be eligible to participate in the Long Term Value Creation Bonus Plan on the terms contained in this Agreement; [ 63 ] The LTIP defined a “realization event” as follows: (g) “Realization Event” means the happening any [ sic ] transaction that results in the sale of more than forty percent (40%) of the shares or substantially all the assets of ONC company, and includes a transaction that provides holders of common shares in ONC with liquidity with respect to the common shares in ONC, such as a listing on a recognized stock exchange, including by means of a reverse take over, merger, amalgamation, arrangement, take over bid, insider bid, joint venture, sale of all or substantially all assets, exchange of assets or similar transaction or other combination with a reporting issuer.

A “Realization Event” does not include a transaction or a series of transactions that is a corporate reorganization that does not involve the sale of its shares at arm’s length. [ 64 ]

Section 2.01 dealt with payment under the agreement: 2.01 PAYMENT OF EXECUTIVE INCENTIVE: Provided the conditions precedent set out in

Section 2.03 are satisfied on the date on which a Realization Event occurs, ONC shall pay to the Employee, in cash, less any appropriate withholding of other [ sic ] taxes, an amount calculated in accordance with

Section 2.02, which payment shall be made within thirty (30) days of such Realization Event. [ 65 ] The LTIP included the following condition precedent: 2.03 CONDITIONS PRECEDENT

ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full- time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if the employee ceases to be an employee of ONC, regardless of whether the Employee resigns or is terminated, with or without cause. [ 66 ] Robert Orr testified that ONC’s intention in providing Dave Matthews with an LTIP was that the company would be able to reward him for his contributions.

According to Orr, there would have been little or no value in ONC without Matthews’ work in the early days of the company, and the LTIP was long overdue. He noted that, “[e]veryone who has gotten any value created out of ONC in large part owes that in some measure to David.” Orr explained that the LTIP anticipated a crystallization event not too far in the future and served the dual purposes of enabling Matthews to be a party to that while allowing ONC to retain him in the company. [ 67 ] Mr.

Matthews agreed on cross-examination that he understood the terms of the LTIP, including the condition precedent that he be employed with ONC at the time of the realization event. Evolution of Mr. Matthews’ role at ONC [ 68 ] Both parties agree that Dave Matthews’s role at ONC evolved with the company’s needs. The changes before Daniel Emond’s arrival in 2007 are not controversial and have been recounted above. I will now discuss the changes that took place from the time of Emond’s arrival until September 2010, including those occasions where Matthews alleges that Emond tried to minimize his role in the company.

Removal of powder [ 69 ] During Daniel Emond’s first three months at ONC, he assessed the company’s operations and prepared a presentation setting out his findings and recommendations. This presentation included a slide that stated: As we need to reinforce our integration to customer application (HFI/DS) it is imperative to strengthen our Technical Sales, Dave Matthews has accepted the responsibility of Technical Sales. With this change a new department will be created and be named: Technical Services. This group will work closely with customer application and also internally with R&D.

In addition to his new role Dave will keep the engineering projects including the new facility and the operation of the Arcadia Plant. [ 70 ] According to Dave Matthews, in October 2007, Mr. Emond informed him that responsibility for powder was being transferred to Paul Empey, who had joined the company in January 2005. Emond presented this change as a fait accompli. Matthews’ evidence is that he told Emond he did not agree with the change, but Emond said he had discussed it with Robert Orr and had his approval. Since Mr.

Orr was out of the province at the time, Matthews could not immediately verify Emond’s story. He subsequently learned, however, that Emond had not discussed the change with Orr. [ 71 ] In addition to the Engineering group, Mr. Emond advised Matthews that he would assume responsibility for the Technical Services group. With this change, his title became Vice President Engineering and Technical Services. The Technical Services group consisted of Mr. Matthews, Sharon Spurvey – who reported directly to Matthews – and six to eight other team members they selected.

The group’s focus was on how to get powder and fish oils into food applications. [ 72 ] The removal of powder from Dave Matthews’ authority and the addition of Technical Services reduced the number of people reporting to him, directly or indirectly, from about seventy to seven. [ 73 ] Both parties agree that Mr. Matthews ultimately accepted the new role, and excelled in it. It is Matthews’ position, however, this this incident was the first in a series of attempts by Mr. Emond to minimize his involvement at ONC. S-5 [ 74 ] During a senior management meeting in December 2007, Mr.

Matthews learned that Emond had submitted a purchase order to acquire $8 million in capital equipment for the production facility at Mulgrave, including wiped film evaporator and fractional distillation equipment. The equipment and associated project were collectively referred to as “S-5.” Both Mr. Orr and Mr. Emond were in attendance at the meeting. [ 75 ] Mr. Matthews says the purchase of this equipment for ONC plants was his responsibility as VP Engineering and Technical Services.

The Engineering group was responsible for capital expenditures in the Mulgrave Plant, and the plants in Dartmouth and Arcadia directly reported to him. Matthews had experience ordering this type of equipment at ONC, and it normally required months of advance planning, including consideration of how the equipment would integrate into the production process of the plant and how the resulting capacity would fit into the company’s operation. [ 76 ] During the meeting, Robert Orr asked Mr. Matthews whether he had been made aware of the project.

When Matthews said that he had not, Orr directed that he be given responsibility for the acquisition and integration of the equipment into ONC operations. Mr. Matthews says that matters involving S-5 consumed more than fifty percent of his working time from January to August 2008. [ 77 ] ONC did not address the matter of the S-5 acquisition and integration in its evidence, or cross-examine Matthews on his version of events.

Responsibility for Arcadia [ 78 ] Also in December 2007, Daniel Emond is alleged to have tried to transfer responsibility for the Arcadia plant from Dave Matthews to Paul Empey. [ 79 ] Mr. Empey testified that Emond asked him to oversee the Arcadia plant in addition to the Mulgrave facility. Mr. Empey confirmed that Matthews was in charge of Arcadia at the time. According to Empey, Emond assured him that he would be taking over the Arcadia plant. Relying on this information, Empey sent a Christmas greeting to the Arcadia facility.

This upset Robert Orr who sent an e-mail to Empey telling him that he was not running the Arcadia, and querying why he considered it appropriate to send such a message. Mr. Empey brought the e-mail to Mr. Emond’s attention.

Emond’s response was that everything would be taken care of, and not to worry about it. [ 80 ] When asked what Daniel Emond meant when he said “not to worry about it”, Paul Empey explained that during Emond’s first year at ONC, Emond told him that he was getting very close with John Risley and the Richardson group, and he would make sure that Empey was eventually given oversight of the entire operations side of ONC. Mr.

Empey testified that Emond told him, on more than one occasion, that he would not have to worry about Dave Matthews or Robert Orr going forward because they would not be around for much longer. [ 81 ] On December 7, 2007, Robert Orr sent an e-mail to Mr.

Emond with the subject line “Arcadia Reporting structure.” Orr indicated that he and Emond “need to get aligned on reporting structure”, and that Shawn, the employee in charge at Arcadia, “is clearly under the impression that he is now reporting to Paul.” [ 82 ] Robert Orr testified that he told Daniel Emond several times that he did not approve of Paul Empey being given responsibility for the Wisconsin plant because, in Orr’s estimation, Empey wasn’t fulfilling all of his responsibilities effectively for the Mulgrave facility. Mr.

Emond assured him that he did not intend, and had never intended, to give the role to Empey. Mr. Orr subsequently learned, through other communications and speaking with other employees, that Emond had already committed to Empey that he would be taking over Arcadia. Orr proceeded to have a “very stern communication” with Emond in which he made clear that this change was not going to occur and that he did not appreciate Emond’s failure to be straightforward with him.

According to Orr, this was one of several incidents where Emond either failed to disclose information, or provided “absolutely false” information to him. [ 83 ] On cross-examination, Mr. Emond vigorously denied ever telling Paul Empey that he was close with Mr. Risley and the Richardson group, or that Mr. Matthews and Mr. Orr would not be around much longer. Furthermore, according to Emond, Matthews’ responsibility for the Arcadia ended when he became VP Engineering and Technical Services in October 2007.

Emond testified that when Orr refused to give responsibility for the Arcadia to Empey, he assumed that responsibility himself. Alicorp-Peru [ 84 ] In 2008, ONC developed an initiative to produce omega-3s through Alicorp, a Peruvian contractor. The plan was for ONC to build a plant in Lima under Alicorp, which had no prior experience with wiped film evaporators. [ 85 ] Dave Matthews says that although the Alicorp initiative directly involved both engineering and technical responsibilities, he was excluded from participation in the project.

Daniel Emond assigned it to Paul Empey without any discussion with Matthews. [ 86 ] During a senior management meeting in May 2008, Mr. Matthews learned that Alicorp could not complete the project in the time frame required by ONC, and that certain individuals in the company had been aware of the problem for several months. Previous efforts to correct the situation had failed. To that point, Matthews had not been consulted by Emond or anyone else on the Alicorp program or its failure to meet specifications. Robert Orr directed Matthews to go immediately to Peru and take over the project.

For the next four months, Matthews spent half of his working time on the Alicorp initiative. Under his direction, the work was completed and production began before the original deadline. [ 87 ] In May 2009, ONC’s Peru facility was set to formally open. Several executives from Halifax were designated by Daniel Emond to attend. Mr. Matthews was not one of them. Matthews’ evidence is that he only received an invitation, which he accepted, because Orr intervened. [ 88 ] Robert Orr testified that he was surprised Mr.

Matthews had not been invited to the opening because he had been instrumental in “opening up” Peru, in terms of product procurement, and the development of both the technology and the relationship with Alicorp. He sent Mr. Emond an e-mail on May 1, 2009, stating: Dan, Please talk to Dave Matthews today about attending the grand opening. If we wait till Monday his flight will be less than 7 days and will cost us a lot more. Also we need to assure hotels, space on the Alicorp chartered plane and that his name is on the guest list etc.

Thanks Robert [ Emphasis in original ] [ 89 ] Daniel Emond’s account of the events surrounding the Alicorp initiative is very different than that of Mr. Matthews. According

to Emond, Paul Empey told him in March 2008 that although the plant would be ready to produce in time, there were delays. Mr. Emond testified that he began to doubt Empey’s ability to meet the deadline and he recommended to Robert Orr that they seek Matthews' assistance. Orr immediately agreed, and Emond asked Matthews to go to Peru. He denied that the matter was discussed during a May 2008 meeting or that it was Orr who decided to involve Matthews. [ 90 ] When asked about Dave Matthews’ contribution in Peru, Daniel Emond denied that Matthews was “instrumental” in getting the plant up and running.

He would say only that Matthews was a “contributor” in getting the plant open and producing. With respect to the grand opening celebration, Mr. Emond testified that he had invited Matthews to attend several times, but Matthews told him he had no interest in going. Responsibility for Technical Services [ 91 ] Dave Matthews says that in January or February 2009, Sharon Spurvey, the Manager of Technical Services, informed him that Daniel Emond had told her that she and the rest of the Technical Services group would stop reporting to Matthews and report instead to ONC’s Vice President Research and Development.

On the basis of this information, Matthews asked Emond to meet in front of Robert Orr. They went to Orr’s office, where Matthews advised both men of what he had heard from Ms. Spurvey. Mr. Matthews says Emond denied even meeting with Ms. Spurvey. Matthews briefly left the office, went to the room where the meeting between Mr. Emond and Ms. Spurvey had occurred, and retrieved a page from the flip chart showing the proposed change in the reporting relationship.

When Matthews showed Orr the page, Orr directed that the change in reporting not be made. [ 92 ] ONC did not address this incident in its evidence, and Matthews’ version was not challenged on cross-examination. The Mulgrave fire [ 93 ] On the morning of Monday, March 9, 2009, a serious fire occurred at the Mulgrave plant, resulting in damages of $1 million. Dave Matthews was quite ill with a flu at the time. According to Matthews, Robert Orr called him at home later that day, told him about the fire, and asked where he was and whether he had heard about it.

He told Orr that he had not heard about the fire and would go to the site as soon as he was well enough. [ 94 ] Mr. Matthews said he traveled to the plant on Wednesday. He arrived at lunch time and saw Daniel Emond, Ron Savoury – the plant manager – and another employee leaving the plant. When he went into the facility to inspect it, Matthews asked the receptionist to tell Emond where he would be when he returned from lunch so that Matthews could speak to him. According to Matthews, the receptionist told him she passed on the message, but Emond got in his car and drove away. Mr.

Matthews testified that he was annoyed and called Emond’s cellphone six or seven times during the three hours it would take him to drive back to Halifax. Emond did not answer. [ 95 ] That evening, after returning to his hotel in Mulgrave, Mr. Matthews called Charlene McQuaid – the Human Resources Officer at ONC – to talk to her about his frustrations with Emond. He was unable to reach her. [ 96 ] On cross-examination, Mr. Matthews was shown a number of e-mails in relation to the Mulgrave fire.

The first was sent at 1:55 pm on March 9, 2009, from Daniel Emond to Robert Orr, Megan Harris, Dave Matthews and Joanna Lane, with the subject line “Events

summary.” Attached to the e-mail was a document entitled “Events to the fire in Mulgrave March 9 th .doc.” According to the attached document, which was almost completely redacted, the fire alarm at the plant went off at 9:45 am that morning. In the e-mail itself, Emond indicated that the situation was under control and the damage was being evaluated. He stated that he would stay in Mulgrave for the night and would be available by e-mail or phone. [ 97 ] Megan Harris replied to Mr. Emond’s email at 2:12 pm the same day, asking when they could have a conference call. Mr.

Matthews replied to her at 4:56 pm, stating “I am sick with the flu will try to get to mulgae [ sic ] on Tuesday.” Several minutes later, Matthews sent an e-mail to Kevin Hughes in IT at ONC, requesting that a purchase order system be set up called “Mulgrave Fire Recovery.” [ 98 ] On Tuesday, March 10, Ms. Harris sent an e-mail to Mr.

Matthews and Ron Savoury, copied to Daniel Emond, discussing next steps, including the need for a call with Matthews in relation to the contractor and demolition the following day. [ 99 ] On Wednesday, Dave Matthews went to Mulgrave and sent an email to Daniel Emond and Charlene McQuaid with the subject line, “Verbal report on origin of the fire.” He reported that the fire originated in the southeast corner of the plant, inside the pump shack. [ 100 ] On Friday, March 13, Mr. Emond sent an e-mail to the Mulgrave employees, copied to ONC management – including Mr.

Matthews – updating them on the fire and upcoming rebuild. He noted in the e-mail that, “Dave Matthews and his team have been working on a contingency/rebuilding plan.” [ 101 ] When Mr. Matthews was shown these e-mails on cross-examination, he stopped short of admitting that he had been notified of the fire by Mr. Emond several hours after it occurred and had taken initial steps to address the situation that evening. He said only that he had been sicker at that time than he had ever been in his life, and reiterated that he first learned of the fire through Robert Orr.

He said it should have been Emond calling him first to tell him about the fire. When Ms. Barteaux pointed out that Emond happened to be in Mulgrave with Charlene McQuaid on the morning of the fire – something Matthews did not learn until discovery – Matthews conceded that it was reasonable for Emond not to call him while caught up in the event. [ 102 ] For his part, Daniel Emond testified that he did not recall being told by the receptionist at Mulgrave that Matthews wanted to speak with him when he returned from lunch on Wednesday, March 10, 2009. Nor did he recall receiving six or seven phone calls from

Matthews on his cellphone while driving back to Halifax. Mr. Matthews attempts to resign [ 103 ] When Dave Matthews returned to the ONC offices from Mulgrave, he wrote a letter to Daniel Emond which allegedly outlined his frustrations, including his view that Emond had been removing his responsibilities and refusing to consult with him on matters that remained within his authority. The letter also informed Emond that Matthews would be resigning from the corporation effective August 2009.

According to Matthews, he chose this time for resignation in order to allow him to complete the Mulgrave rebuild and to give ONC reasonable time to respond to his resignation and present it appropriately within the organization. [ 104 ] Mr. Matthews prepared three copies of the letter. On Friday, March 13, he gave one copy to Ms. McQuaid and left another on Mr. Emond’s desk. Matthews said he tried to talk with Emond several times that day, but did not recall ever connecting with him. At 5:50 pm, Robert Orr sent the following e-mail to Mr.

Emond, copied to Charlene McQuaid: Daniel, I just spoke (by phone) to Dave Matthews who informed me that he is resigning. He said that he had communicated this to you earlier. Is there any reason why you would not call me when you heard this news? This is a significant loss for the company. Despite his idiosyncrasies and our under-utilization of his technical and chemistry knowledge of fish oils – he is one of the top 2 or 3 people in the world in this area and we have no one in the organization that is remotely close to his knowledge base.

I have asked Dave to meet with me on Monday morning before he goes to Mulgrave, but given his tone I doubt that I can convince him to reconsider. [ 105 ] Mr. Emond responded at 9:34 pm: Robert I came down but you where on the phone and really I have learn from him late this afternoon because I was in meeting most of the afternoon I am surely surprise mainly since we have improve our relationship in the last few months I agree with you that it will be a huge loss considering his knowledge and expertise and I felt excited to give him oil improvement that we have talk about the structure etc…..

I told him that I was going to see you this week to finalize this and he felt excited about it so I really do not understand after our discussion I said to him to wait and we would talk this week and he agreed that we would meet on tuesday in mulgrave, and that whatever frustration he was experiencing that I was committed to help but do not know why but during the conversation he was referring to the fire in mulgrave and the explosion in arcadia a few times ??? is sentence did make any sense so I was sure that something tip him today even if we have very good meetings this week on the rebuild plan so again I was puzzle and confuse about the true reason of his decision.

I apologize if I did not come to talk to you and was expecting that he would wait til Tuesday for our discussion. – was oing to talk to you monday morning to think about what we could do but seems things when faster than expected.

I am still committed to talk to him and see what we could do. [ Errors and punctuation as in original ] [ 106 ] When shown this e-mail on cross-examination, Dave Matthews testified that Daniel Emond had never spoken to him prior to his resignation about another role in the company relating to oil improvement or otherwise. [ 107 ] When Robert Orr was asked about these e-mails, he testified that the resignation of a key member of the organization was a critical piece of information, and he was not surprised that Daniel Emond was cavalier in communicating that information. [ 108 ] Although Matthews had an electronic copy of the resignation letter saved on his home computer, he later lost it due to a computer crash.

None of the other copies were produced in this proceeding. [ 109 ] Daniel Emond was questioned about the contents of the letter and denied that Mr. Matthews had alleged in it that Emond was not taking advantage of his knowledge and experience in relation to the Mulgrave fire. According to Emond, Matthews came to see him on March 13, 2009, and was very emotional about the Mulgrave fire. He testified that Matthews felt responsible for the fire because he designed and built the plant. Mr. Emond said he tried to convince Matthews that it was not his responsibility, and that things like this happen.

Emond conceded that the fire was found to have been caused by a lack of cleanliness in the pump shack, not the plant’s design. He testified, however, that there were rumours around the plant prior to Matthews’ visit on March 11 that the fire was caused by bad design. Mr. Matthews becomes VP NET [ 110 ] Dave Matthews said Daniel Emond did not respond to his resignation letter until June 2009, when Matthews suggested that ONC should make an announcement about him leaving the company in August.

Emond subsequently approached him about taking responsibility for the algal oil program. [ 111 ] ONC intended to use a marine algal organism, known as ONC T-18, in two ways: (1) to produce omega-3s that would be added to food, and (2) to produce fatty acids for bio-fuel. Mr. Matthews would be responsible for the food side of the initiative, and Ian Lucas, Vice President New Business Development, would be responsible for development of the bio-fuel.

[ 112 ] In April or May, prior to being approached by Mr. Emond, Mr. Matthews had discussions with Robert Orr about potentially remaining with ONC. In an e-mail to Orr on June 6, 2009, Matthews indicated that he had discussed the matter with his wife, and the best options going forward appeared to be either working on the algal oil project, or assuming the role of Technology Officer. In the e- mail, Dave Matthews asked for clarification as to the future plans for the algal oil position once the oil reached the marketplace.

He testified that he was told that after the product entered the marketplace, the person in the algal oil position would oversee the manufacturing. [ 113 ] According to Daniel Emond, it was him, not Robert Orr, who first raised the possibility of Mr. Matthews taking over the algal oil program. He said he suggested Matthews for the position in December 2008, while he and Orr were at a conference in California. Mr. Orr could not recall who initially raised the idea. [ 114 ] On June 17, 2009, Mr. Emond formally offered Mr. Matthews the algal oil position in a letter which the two men later signed on July 10, 2009.

The letter stated: Dear Dave, After few months thinking about the situation between you and me I wanted to assure you that I really acknowledge you capacity in resolving issues and driving project to end. I know that our relationship is based on mistrust and only our commitment from our

part could solve this. Nevertheless I do believe that if we together we make and effort we will succeed and ONC will benefit of our relationship and commitment to make thing happen in a positive way. I wanted to offer you a new position to drive and deliver the algal project. The main purpose of your role is to manage all aspects of the project: R&D, Production, Outsourcing, Recruiting, Project Management, Quality and any other function required to make this a success. I strongly believe that you are the right Champion to make this project a success.

Even this seems still a project stages in the next coming weeks I will required from you a final proposal on how this structure should and will work. I trust your judgment to come with the right solution and support needed to make this project a success. From this letter I am making a firm commitment from my side to support you in any way I can, to have a full transparency in our relationship and commitment in trusting you for your actions.

I am truly committed improving our communication, I will include you more, being more open and honest with you on all matters and genuinely being invested and committed to help you be successful and respected by me and others. In return I want from you your personal commitment to be open and direct towards me, no sidebar agenda, communication should be as transparent as possible. I you see frustrating things you talk to me in return I will commit to have you in the loop for other matters if urgently needed your input.

If you decide to take this project I wanted to be sure that you have a follow-up communication with me and Megan for cash flow keeping us updated and making sure in case of variances we could be there to support you. Your official salary will be at $142,000 per annum. You will keep the same actual benefits and bonus performance as in your prior role. Access of the employee rate for the biodiesel should be provided should be available for life-time.

Hope this will convince you of my commitment to you and to this project. [ Errors in original ] [ 115 ] When Dave Matthews was asked about this letter, he said he had explained to Daniel Emond that there had been several occasions in the past where Emond had not been honest with him, and had not allowed him to use the knowledge he acquired building ONC’s plants to help the rest of the organization. Matthews testified that some of these conversations made their way into the letter. [ 116 ] According to Mr. Matthews, the reference to a “sidebar agenda” related back to 2007, when Mr.

Emond told him that he was transferring responsibility for powder to Paul Empey, with Robert Orr’s approval. Matthews understood that Emond believed Matthews had subsequently called Orr behind his back. Mr. Matthews said he made it clear to Emond that he had never discussed the incident with Orr. [ 117 ] As the author of the letter, Daniel Emond was questioned extensively about its contents. He said the “mistrust” between him and Matthews began around the time of the fire. He said he was getting e-mails from Robert Orr about issues within the company that could only have originated with Matthews.

He reminded Matthews that he reported to him, not Orr. Mr. Emond said Matthews had a great affinity for Orr, and this made it difficult to create unity and trust within the larger organization. [ 118 ] According to Mr. Emond, the references to “transparency” and “improved communication” related to Mr. Matthews’ need to be informed about everything that was going on at ONC. He said Matthews was a pioneer of the company, having built the plants, but there were functions and responsibilities that he no longer needed to be involved in.

In other words, Matthews wanted to be involved in decisions concerning the plants, even if those matters were no longer directly within his area of responsibility. Mr. Emond explained that he was committing in the letter to keep Matthews more informed. [ 119 ] When asked about the sentence, “I will include you more, being more open and honest with you on all matters,” Mr. Emond attributed his use of the word “honest” to the fact that French is his first language. He said that he used the word to mean “straightforward”, not to imply that he had been dishonest in the past.

He suggested that focusing on the individual words in the letter was misleading. [ 120 ] Mr. Matthews drafted a document in response to the letter on the same day he received it from Emond. In it, he asked for a salary of $150,000. He asked that the job description for the new position be developed and agreed to by July 15, and that the reporting

structure be written into the job description. The document set out Matthews’ thoughts on what the position should entail and how the new business unit should function. These thoughts served as the foundation for the subsequent job description. [ 121 ] Mr. Matthews later agreed to the original offer of $142,000 per annum, and a job description was formalized on June 18, 2009. Matthews says the position was originally called Vice President Algal, but he pointed out that this title might signal to competitors that ONC was interested in algal production.

He agreed that the title should be Vice President New and Emerging Technologies (“VP NET”). This explanation is consistent with an Employee Change Form dated July 27, 2009, which showed Matthews’ new position as “VP Algal Technologies”, with the “Algal” crossed out and replaced with the handwritten word “New”. [ 122 ] On June 25, 2009, Daniel Emond sent out the following announcement to all ONC employees: Dear Ocean Nutrition Associates, Ocean-nutrition has been developing an additional source of omega-3 coming from algal.

The project that took place few years ago is approaching it’s final phase of development and we will soon enter into the production cycle. This project is the result of ingenious scientific research and highly committed employees specifically within our R&D department. Moreover I want to also acknowledge a strong contribution from within our Ocean Nutrition support team to ensure this initiative is accomplished.

Since this project is critical for Ocean-Nutrition growth in the years to come we will have to dedicate a multi-functional team and also a leader that will delivered the project from a R&D to a production state. Following this commitment and effective immediately I am pleased to announce that Dave Matthews will be leading the next phase of the project. With Dave’s leadership and technical expertise we are committed to position this initiative for success. Dave Matthews, with my support will be building this multi-functional team over the next weeks.

Also effective immediately and reporting to Dave will be Jason Blair, Blair Gray and Eric Chaytor. These three key individuals will support Dave in the production phase of the project. To permit Dave to focus on this project Sharon Spurvey, Director Technical Services, Heather Matthews, Manager Occupational Health and Safety will be reporting directly to me. The Engineering team will be reporting to Dave Elder, Senior Director Operations. … With these changes I am confident that this project will be a key success.

Please join me to congratulated Dave Matthews in his new role and provide him and his team with your support in an effort to accomplish this new initiative. [ Errors in original ] [ 123 ] The parties agree that from mid-July 2009 until September 2010, Dave Matthews performed well in his new role and had no difficulties in his relationship with Daniel Emond. A plan to terminate Daniel Emond? [ 124 ] Although he did not specify the precise timing, Robert Orr testified that before he stepped down as CEO in July 2010, an agreement was reached at the Board level that Daniel Emond would be terminated.

He explained that members of the Board were not pleased with Emond’s overall performance and were aware of Orr’s concerns about Emond’s leadership, character and the quality of his communications with him and others at the company. [ 125 ] An e-mail sent by Robert Orr to Daniel Emond on February 13, 2008, exemplified Orr’s longstanding concerns about Emond’s communication: Daniel, I did not wish to get into this matter while you were leading the process on Oak Island but please see me immediately on your return to the office.

In follow-up to our discussions the last 2 weeks on improving communications it is disconcerting to me that today you are introducing a new pricing policy and a new sales bonus program without having discussed and reviewed these matters with me. (finding out about these matters on Sunday when you issued the Agenda). I do not think it inspires confidence in the senior team when you do not include/consult other senior managers on such key decisions – “do as I say” on improving interdepartmental communications “not as I do”.

But even more significantly the fact that you have not reviewed these things with me is very troublesome to me. I have been with the company over 10 years and have never introduced a bonus program without first presenting it and clearing it with my boss. Apart from the concept of common courtesy of doing so with your supervisor – it is quite confusing to me why you think you have singular unilateral authority to create and issue bonus plans. Please see me at your earliest convenience. Robert [ 126 ] Daniel Emond was asked about this e-mail on cross-examination.

He stated that he had brought most of the company on an outing because he felt that they needed a morale boost. The bonus program was a topic on the agenda to be discussed, but nothing had been finalized at that time. Emond said he had been working on a presentation to Orr about the program but, as a result of “a leak”, Orr found out about it before he had a chance to discuss it with him. [ 127 ] In any event, Robert Orr testified that the plan to terminate Emond never came to fruition. He explained that the company had

recently lost Dr. Colin Barrow, Vice President of Research and Development, and the Board members from Richardson did not want two senior management seats empty at the same time. Orr was informed that the Board would move on the recommendation to remove Emond in a few months when a replacement was found for Barrow. [ 128 ] In his discovery evidence, Stanley Spavold agreed that Emond’s employment had been in jeopardy but proposed his own theories as to the reasons for the conflict between Robert Orr and Daniel Emond. According to Spavold, the Board had given Emond too many responsibilities as COO.

He explained that the Board had come to the realization that the company needed a different type of leadership and tried to achieve it by putting a strong COO underneath Robert Orr rather than replacing him as CEO. Spavold said Orr was not happy that the Board “had stripped most of [his] responsibilities and shifted it down to Daniel Emond. And there was always tension as a result of that transition.” Considering the matter in hindsight, Spavold said the Board should have brought in a new CEO, rather than setting Emond up to fail by inserting him into the existing organization.

The second source of conflict between Orr and Emond, according to Spavold, was that Daniel Emond was French, and “French people communicate differently than English people.” [ 129 ] Mr. Spavold gave evidence that he was a big supporter of Daniel Emond and he “continued to defend him through a lot of people who have criticized him, including Martin at times and – but again, he was a valued member of the company.” In Spavold’s view, some of Emond’s shortcomings were due to Robert Orr’s failure to give him “good management”.

He stated that Daniel Emond may have tried to avoid certain issues, and perhaps did not bring issues to the Board’s attention as promptly as he should have, but, in Spavold’s assessment, he did not lie or purposely misrepresent issues. Arrival of Martin Jamieson [ 130 ] In July 2010, Martin Jamieson became the President and CEO of ONC. Robert Orr was appointed Chair of the Board of Directors. Prior to joining ONC, Mr. Jamieson was involved in growing large multi-national companies in the international food industry.

He had been an executive with Loblaw Companies, International MultiFoods, and Pillsbury Canada. [ 131 ] According to Martin Jamieson, he was brought into ONC in order to lead the company on a journey “from small co. to big co.” He believed the Board of Directors recognized that the company needed a different style of leadership as it continued to grow. Mr. Jamieson considered it his role to simplify processes and formalize various aspects of the company’s operations in order to expedite the company’s growth.

On cross-examination, Jamieson denied that he was brought on by the shareholders of ONC to sell the company. He described his mandate as taking the company on the next stage of its journey toward a mature, fast-growth, well-organized global leader, at which point it would likely be more attractive for purchase and command a higher premium. [ 132 ] After Mr. Jamieson became President and CEO, management of ONC was carried out through a multi-level executive structure. The top rung of the leadership structure was the Executive Leadership Team, which included Mr. Jamieson, Daniel Emond, Megan Harris, and Dr.

Clint Brooks, Senior Scientific Advisor/Officer, among others. The next rung was called the Senior Management Team and it consisted of approximately 25 individuals with the titles of Vice President or Director. Dave Matthews was a member of the Senior Management Team. Change in direction for algal oil project [ 133 ] According to Dave Matthews, a few months after Martin Jamieson’s arrival and Robert Orr’s transition from CEO to Chairman of the Board, the functions associated with his position began to change again, without notice or discussion. [ 134 ] On October 7, 2010, Dr. Clint Brooks sent an e-mail to Mr.

Jamieson stating that he and Daniel Emond had been working on creating an overview of the R&D component of the algal fermentation program. He suggested that Mr. Jamieson might find the information useful for a discussion with the Board regarding future value creation for ONC with respect to algal DHA for food and infant formula applications, and algal biofuel products. Dr. Brooks recommended a three-year fermentation program including food oil and biofuel.

Attached to the e-mail were documents entitled “Timeline, Biofuel September.ppt”, “Timeline Algal Oil, September 2010.ppt”, and “Fermentation R&D 3 year plan.xlsx.” [ 135 ] Dave Matthews said that, notwithstanding his position as Vice-President of the algal program, he was not consulted about any prospective three-year plan. On cross-examination, he testified that while he was not in charge of the R&D component, the R&D people in fermentation reported to him on various aspects of the program. [ 136 ] On October 15, 2010, Mr.

Emond e-mailed Matthews the three documents mentioned above with the subject line “Fermentation.” In the ensuing days, Matthews and James Peach, who reported to Matthews on the regulatory aspect of the algal oil project, provided budgetary and regulatory information to Emond and other members of the Executive Leadership Team on request. [ 137 ] On October 25, Martin Jamieson met with Dr. Brooks in relation to the algal program. Later that day, Dr. Brooks e-mailed Jamieson a spreadsheet for a licensing strategy similar to the format of the three-year plan.

He stated, in part: I would expect we would not need the production NET team led by Dave Matthews going forward with a licensing strategy. They could be deployed to other core needs in operations. [ 138 ] On November 3, 2010, Martin Jamieson sent an e-mail to the Board of Directors explaining that the previous week he and three of the directors – David Brown, Stanley Spavold and James McCallum – discussed various aspects of the business in lieu of a formal Q3 Board meeting. One topic of their discussion was the direction that ONC should take going forward to develop the potential of the algal organism.

Jamieson confirmed that Ian Lucas’ efforts to secure investments from oil companies and other potential stakeholders had not been fruitful and were using significant resources that could be more productively spent otherwise. He outlined two options: During the last quarter, work has also been done on developing an alternative path for the development of this organism. … The first of

these options is more comprehensive and sees us complete legal, regulatory and process development work in addition to us completing R&D development work on the organism for its food and bio-fuel potential. Option 2 sees us complete the R&D work in full but restricts the balance of the work in legal, process development and regulatory (where we would complete toxicology studies and the current EU filings only). We would then seek to license the organism for food and bio-fuel use and invest the revenue stream in developing our core business of supplement and food ingredient manufacture and supply.

Should we choose to license only in fuel and pursue the potential in food and infant formula ourselves eventually, this would remain open for us. Option 2 was recommended by the ONC senior leadership team including Dr.

Clint Brooks and was well received by the Directors present for its simplicity and focus … Should we choose to pursue this option the various discussions ongoing in the present bio-fuel project would be wound down with immediate effect and we would cease, at least for now, to pursue these potential partners. [ 139 ] The Board chose the second option, electing to wind down the bio-fuel consortium and work toward licensing the algal organism for food and bio-fuel use. This would allow the company to focus on developing its core business.

As a result of this decision, Ian Lucas was terminated by ONC, and Dave Matthews was asked to slash $750,000 from the fermentation budget. [ 140 ] According to Mr. Matthews, the decision to pursue a licensing strategy effectively ended his position and removed all but ten to twenty percent of his responsibilities in terms of time.

He described the approach taken by ONC as “very below board.” In his view, if the decisions being made were not motivated at least in part by a desire to diminish his role at ONC, he would have been asked to participate in the process. [ 141 ] Daniel Emond testified that he was not involved in the work done by Dr. Brooks respecting the future options for the algal organism. He attributed the statement in Dr. Brooks’ e-mail suggesting otherwise to Dr. Brooks “being polite.” Mr. Emond said that, unlike Dr. Brooks, he was not a scientist and had no real understanding of what Brooks was doing. According to Emond, Dr.

Brooks offered to show him the timelines he prepared, but that was the extent of his involvement. [ 142 ] As for the failure to consult Matthews, Mr. Emond said the Board was concerned about the amount of money being spent on the algal initiative and questioned its value. For that reason, Martin Jamieson asked Dr. Brooks to prepare a presentation outlining options for the future of the program. Emond described Matthews’ role as being “on the operational side of the business”, while Dr.

Brooks was providing information from a “research perspective.” Only when a decision was made between the two potential options would Matthews become involved. Mr. Emond denied knowledge of any discussion concerning disbanding the NET team or deploying its employees elsewhere within ONC. [ 143 ] Martin Jamieson’s evidence was that Daniel Emond would not have been in a position to tell Matthews about the strategic discussions regarding the algal program because they would have remained confidential within the Executive Leadership Team. Mr. Matthews would not be informed until a decision was made.

According to Jamieson, the only termination contemplated as a result of the shift in direction of the algal oil initiative was that of Ian Lucas. There was no discussion of terminating Matthews. Ian Lucas LTIP negotiations [ 144 ] Prior to Ian Lucas’ departure, he had discussions with Robert Orr and Stanley Spavold about whether he was entitled to a payout under his LTIP. On November 23, 2010, Orr sent the following e-mail to Martin Jamieson and Mr.

Spavold: Martin/Stan, With respect to Ian’s request for additional compensation related to his termination, I would like it clearly understood what I have previously communicated to Ian and what my position is on this matter. With respect to the LTIP, Stan and I went through this with Ian in March. Some of his statements in his letter are inaccurate. I did not say that I felt the board would pay him – I agreed that he had the right to request a payout and that I would take his case to the board.

I did so and the board rejected his request and I told him that the “must be employed provision would not be waved [ sic ] and if a transaction took place while he was still here he would get paid – otherwise no payment was forthcoming. I have been very clear with him on this fact and also

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