Budd v. Bath Creations Inc.
Leslie Budd, plaintiff, and
Bath Creations Inc., Creative Bath Products Inc., Ginette
Arsenault, Harvey Sloane and Matt Meinzinger, defendants
 O.J. No. 5468
File No. 96-CU-96971
Ontario Court of Justice (General Division)
Heard: September 14, 1998.
Oral judgment: September 18, 1998.
Master and servant — Contract of hiring (employment contract) — Termination — Notice of termination, by employer — Damages — Mitigation — Fraud and misrepresentation — Misrepresentation — Negligent misrepresentation — Defences – – Unreasonable reliance.
Action by Budd for damages for breach of a contract of employment and negligent misrepresentation. Budd and Friedman held the controlling interest in Spirella Limited. Budd had worked for Spirella for about seven and a half years as a chartered accountant and a business manager. Spirella was sold to the defendant Bath Creations, which was related to the defendant American company Creative Bath. Over the weeks leading up to the closing of the sale, Budd raised the question of his employment. Both Budd and Friedman were kept in place when the transaction closed. They became employees of Bath. However, in September 1995, Budd was given a termination letter telling him that his services were no longer required by Bath or Creative. The termination was effective October 6, 1995.
HELD: Action allowed and Budd awarded damages in lieu of notice for 16 months. There was no representation on which Budd could rely that there was a position in the future business. If Budd did rely on statements of the defendants’ representatives, given what he knew of the whole situation, his reliance was not reasonable. The terms of Budd’s employment with Bath were not spelled out. The provision for notice of termination had to be implied, and a reasonable period determined from all the circumstances. Given that Budd was the effective executive head of Spirella and that he continued in much the same role with Bath in the transition time, that he was with Spirella and Bath for eight years, and given his age, a reasonable period of notice would be 10 months. That should be extended as a non-competition agreement required by the defendant was certain to affect the availability to Budd of similar employment. The court added three months on that account. Further, the court held that the employer was less than forthright and candid about Budd’s prospects. He should have been told that he was there for the transition and given an opportunity to look for other work in a reasonable time. On that account, the court added a further three months.
Statutes, Regulations and Rules Cited:
Courts of Justice Act.
Ontario Rules of Civil Procedure, Rule 49.
J.G. Hodder, for the plaintiff.
S.A. Bernofsky, for the defendants.
¶ 1 BRENNAN J. (orally): Two causes of action are raised on the pleadings in this case: first, an action for negligent misrepresentation, based on the line of authority best known by the decision of the Supreme Court in Queen v. Cognos; and second, a breach of contract of employment by dismissal without reasonable notice. No case was made out against the defendants Meinzinger and Sloane in the scope of their employment, as the plaintiff’s counsel concedes, and I dismiss those claims.
¶ 2 This trial was a demonstration that a lawsuit may be vigorously pursued and, at the same time, counsel can extend the courtesies to the court and each other that make for efficiency and fair dealing. I commend counsel on their conduct of this trial.
¶ 3 Now I turn to the facts. Much of the factual history of this action is undisputed. I was provided with a chronology of events on consent and with a common body of documents, common book of documents, also entered by consent.
¶ 4 Spirella Limited, controlled by the plaintiffs, Leslie Budd and Edward Friedman, had become an increasing liability and had to be sold. They were already deeply indebted to the bank for funds that they had invested in the company, and they – that is, Mr. Budd and Mr. Friedman – were guarantors of the company’s bank debt. Mr. Budd’s liabilities were approximately $320,000 plus a guarantee of $200,000 to the bank for the debts of the company.
¶ 5 Both Mr. Budd and Mr. Friedman had spent years with Spirella, Mr. Budd approximately seven and a half years, having been brought into the business by reason of his being a Chartered Accountant and his business management skills. Mr. Friedman had been a founder of the business some years before.
¶ 6 Other shareholders had become inactive at the time of a refinancing with Integrated Growth Fund, not long before the events which were the focus of this trial. Unfortunately, the funds from that refinancing were quickly spent, leading to the crisis that required the sale.
¶ 7 Mr. Budd and Mr. Friedman needed to find a buyer. They approached a number of other entities in their market and focused on a competitor who they thought would be interested and who they knew was capable of making the purchase. Although there was some evidence that other buyers showed interest, there is no question that they pursued the corporate defendants exclusively once it was apparent that they were in fact interested.
¶ 8 Creative Bath Incorporated, an American company with whom they had done business, was controlled by Mathias Meinzinger. A related Canadian company, Bath Creations, was headed by Ginette Arsenault. Mr. Friedman had had more dealings with Meinzinger and his companies than Mr. Budd. Mr. Friedman contacted Meinzinger and arranged to visit him in New York, with Mr. Budd, with a view to selling the Spirella holdings to Meinzinger. In this they were successful.
¶ 9 The sale was conducted through a receiver so as to avoid the problems of a bulk sale. The effect of that process was to effect a sale of the assets free of trade creditors’ claims. It freed Mr. Budd and Mr. Friedman of liabilities as guarantors and provided them with some sale proceeds to be applied against the shareholders’ loans they had advanced with bank borrowings. The sale was beneficial to them to that important extent.
¶ 10 It was obvious that they both would need employment when the sale was complete. I need not detail the discussions and arrangements. It is common ground that the early discussions touched upon the future employment of the two principals Budd and Friedman. Both hoped to be part of the future business after the sale. But I find that the question of their employment was not the primary concern of any of the principals at the early stages of the dealings. Mr. Budd’s and Mr. Friedman’s main concern then was to effect the sale quickly, to stop the increasing losses and the liabilities of the two Principals.
¶ 11 A letter of intent was prepared embodying the terms of the agreement. Late in the dealings, Mr. Meinzinger insisted that Mr. Budd and Mr. Friedman sign a non-competition agreement. The sale transaction was made conditional upon their signing it. They did so, although reluctantly.
¶ 12 The effect of that, of course, was to remove from them, for at least the two years specified in that agreement, the prospect of employment in the industry in which they had worked for several years, unless they were kept on in the newly constituted enterprise. No doubt Mr. Meinzinger was fully aware of that reality. There is no doubt, either, that the subject of their future was raised at the first meeting of the principals in New York, although I find it was of less concern to them and to all the principals than effecting a rapid sale.
¶ 13 Over the weeks to the closing of the sale, Mr. Budd, from time to time, raised the question of his employment. He hoped to be kept on in a similar capacity and with similar income benefits. His case in court depends on whether representations were made about his employment with the defendants which caused him to act to his detriment.
¶ 14 In fact, both he and Mr. Friedman were kept in place when the transaction closed. Bath Creations, the Canadian company, was the purchaser and became their employer. Both were paid at the same salary rate as they had received with Spirella. Mr. Budd worked closely with Ms. Arsenault, who took the position with Meinzinger that their salaries should not be changed. On her evidence I hold that they were seen as necessary for the period of transition as the new owner established itself with Spirella’s customers. Mr. Budd raised his future employment with both Ginette Arsenault and Mr. Meinzinger from time to time. He says he was told that Meinzinger “wanted him on board”.
¶ 15 Harvey Sloane, a senior officer of Creative Bath, enthused about his coming to join the New York operation.
¶ 16 Mr. Budd’s evidence is that he raised his future employment with Meinzinger on a number of occasions. Meinzinger’s evidence was that it came up but it did not appear to him that Mr. Budd was really looking for a job with them. He acknowledged that he spoke with him about replacing an employee, Mr. Robinson, in the New York headquarters. Meinzinger both admitted and denied that he had made an offer of that position to Mr. Budd. I find as a fact that he told Mr. Budd that the position was open to him with a salary of $75,000 a year, plus a 10 per cent override on sales. It is doubtful that this amounted to an offer which was sufficiently certain in its terms to constitute a contract if it had been accepted. In any event, it was not accepted.
¶ 17 A later conversation occurred in which the prospective remuneration was changed to $100,000 a year with an override of 0.1 per cent. Mr. Budd wanted to pin down the details and offered to travel to New York and meet Mr. Meinzinger for that purpose. In further telephone exchanges, Meinzinger indicated he could not make a decision on the matter until a date in early October. Before that time Mr. Budd was handed a termination letter dated September 26, 1995, telling him that his services were no longer required, with reference to both Creative Bath Products Incorporated and Bath Creations Incorporated. The termination was first effective September 29th, later extended to October 6th.
¶ 18 Mr. Budd was successful in finding remunerative work, helping the corporate restructuring of Danbury Sales from October 6, 1995, until February 15, 1996. The parties agreed upon the credit to be given in respect of that mitigation of damages. When that assignment ended, however, he was out work until February 1997, when he established a new enterprise, CB Metal Industries, in which I understand he holds an equity position and is the senior principal officer.
Elements of each cause of action
¶ 19 I begin with the claim founded on misrepresentation. Although the statement of claim speaks of negligent misrepresentation, Mr. Hodder submitted that the representations here were willful. I think an action founded on willful misrepresentations would be no less viable than one founded on misrepresentations negligently made.
¶ 20 In Queen v. Cognos, Mr. Justice Iacobucci said, in the Supreme Court of Canada – and I quote at page 110 of the  1 R.C.S. report:
“The required elements for a successful Hedley Byrne claim have been stated in many authorities, sometimes in varying forms. The decisions of this Court cited above suggest five general requirements: (1) there must be a duty of care based on a ‘special relationship’ between the representor and the representee; (2) the representation in question must be untrue, inaccurate or misleading; (3) the representor must have acted negligently in making the said representation.”
¶ 22 In addition to that, it is my view that it is essential that the thing represented be a matter of fact, not a plan for the future, not a business prospect, not a stock value forecast or things of that kind.
¶ 23 On these facts I hold that it is not a representation of fact that there is a prospect of a position in the future of the combined businesses. Talk about position in the future might lead to an offer, and, if the offer was accepted, there might be a contract, and an action might lie for breach of that contract. But I do not find that Mr. Meinzinger or Ms. Arsenault or anyone acting for the defendants made factual representations to Mr. Budd which were untrue, inaccurate or misleading.
¶ 24 If he relied on what Meinzinger said to him about wanting him on board or what Sloane said to him about replacing Robinson in New York, or what Ginette Arsenault said to him about Meinzinger’s state of mind, his reliance was not reasonable in the light of what he knew of the whole situation.
¶ 25 Mr. Meinzinger was emphatic in his testimony that two salaries of $100,000 were not justifiable. In light of the financial difficulties of Spirella before the sale, Mr. Budd must have been aware of concerns of that kind. I accept the evidence of Ginette Arsenault to the effect that she needed the help of both Budd and Friedman during the transition. But I heard no evidence that would lead me to conclude that she made a representation that Mr. Budd would be kept on indefinitely or given a different position.
¶ 26 I do not accept that the vague indication that he would be “kept on board” was a material factor in the decision to sell the assets to this purchaser. The whole thrust of Mr. Budd’s efforts was to ensure an early sale to the best prospect. On his own evidence, he did not pursue other purchasers when Meinzinger showed interest. The evidence does not establish that any representation as to prospective employment was a factor in that decision.
¶ 27 Neither do I find that the plaintiff suffered any detriment as a result of the decision to sell to this purchaser. On the contrary, this was apparently the best sale that could reasonably be expected. No damages resulted to Mr. Budd from the hope that there would be a place for him in the new operation. And in any event, that hope was not founded upon a representation as to fact.
Reasonable notice of dismissal from Bath Creations
¶ 28 There is no doubt Mr. Budd was employed by Bath Creations. The terms of his employment were not spelled out, and as is so often the case, the provision for notice of termination must be implied and a reasonable period determined from all the circumstances.
¶ 29 The factors are well known from Bardal v. Globe & Mall  O.W.N. 253 at 255.
¶ 30 I quote:
“The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.”
¶ 31 While the use of the word servant may be somewhat archaic, the law, I think, is fundamentally found in that expression.
¶ 32 Since that decision, of course, we have the decision in Wallace v. United Grain Growers, which is important in every modern case of alleged wrongful dismissal. Since that decision, Wallace v. United Grain Growers  3 S.C.R. 701, it is apparent that the appropriate measure of damages in lieu of reasonable notice may be increased where there are additional factors arising from conduct which adds to the damaging trauma of being dismissed from one’s job.
¶ 33 At page 742 of the Wallace decision, about the middle of paragraph 95, Justice Iacobucci notes the following:
“… the loss of one’s job is always a traumatic event. However, when termination is accompanied by acts of bad faith in the manner of discharge, the results can be especially devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period.”
¶ 34 At paragraph 98, page 743, he continues:
“The obligation of good faith and fair dealing is incapable of precise definition. However, at a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.”
¶ 35 There is evidence here that the employer knew that there would not be jobs for both Mr. Friedman and Mr. Budd in the new organization. The two salaries could not be justified. I hold that Mr. Meinzinger knew that for the whole time that they were dealing with each other. Ginette Arsenault knew that Mr. Budd’s position would be eliminated when the transition was complete. She intimated in her evidence that Mr. Budd should have perceived that for himself. But the obligation is clearly on the employer. Although there is no question that Mr. Budd is a sophisticated, senior businessman, Bath Creations owed him the duty set out in the Wallace case.
¶ 36 Following the principle of Addison v. M. Loeb, Ltd. (1986), 53 O.R. (2d) 602 (C.A.) Mr. Budd is entitled to reasonable notice as if he had continued in the employ of Spirella. The fact that the transaction was through a receiver and that the employment with Bath Creations did not follow immediately from his employment with Spirella is not germane to the question of reasonable notice of termination.
¶ 37 Given that his employment was as the effective executive head of Spirella and that he continued in much the same role with Bath Creations in the transition time, given that he was with Spirella and Bath Creations for the best part of eight years, and his age, a reasonable period would be, in my opinion, ten months. That should be extended in the circumstances because the non-competition agreement required by the defendants was certain to affect the availability of similar employment, to make it much more difficult, in fact, to find similar employment. I add three months to the period of notice on that account.
¶ 38 In addition, I hold that the employer was less than forthright and candid about his prospects. He should have been told that he was there for the transition and given the opportunity to secure a new position for himself in a reasonable time. On that account I add a further three months, for a total notice period of 16 months. He is entitled, therefore, to damages in lieu of notice equivalent to 16 months’ compensation. The compensation is to include what it included at Spirella. That is set out, as I recall, at Tab 65 of Exhibit No. 1. The mitigation number, which is agreed, is to be subtracted. I allow the full claim for expenses in seeking other employment.
¶ 39 Now, counsel, are there other details of the numbers that need to be addressed?
¶ 40 MR. HODDER: If I might just have a moment, your honour.
¶ 41 THE COURT: Of course.
¶ 42 MR. HODDER: Your honour, aside from issues of interest and costs, there is nothing —
¶ 43 THE COURT: Yes, I was about to ask counsel about that.
¶ 44 All right. Let’s hear from counsel about interests and costs —
¶ 45 I’m sorry; is that what you said, Mr. Hodder? You would like to address that?
¶ 46 MR. HODDER: I would like to address that.
¶ 47 THE COURT: Yes, please.
¶ 48 MR. HODDER: In the matter of interest and costs, prejudgment interest is obviously something that’s provided for by the Courts of Justice Act. And I would ask that such interest be awarded.
¶ 49 Obviously, there’s perennially the question in a wrongful dismissal case as to when that interest ought to run from. My submission would be – my principal submission would be that it ought to run from the day the cause of action arose – that is to say, the date of dismissal.
¶ 50 And perhaps it would be appropriate, and I would ask your honour if it would be possible, for the issue of — if it’s at all possible, for the issue of interest to be dealt with before we turn to the issue of costs.
¶ 51 THE COURT: I suppose we could do that. Certainly.
¶ 52 Mr. Bernofsky, any difficulty with that?
¶ 53 MR. BERNOFSKY: If I understand my friend correctly, he’s suggesting that October the 6th would be the correct date?
¶ 54 THE COURT: Yes.
¶ 55 Do you have any problems with dealing with interest before we deal with costs?
¶ 56 MR. BERNOFSKY: Oh, no, your honour.
¶ 57 THE COURT: All right. Let’s deal with interest first.
¶ 58 All right. Anything else to say, Mr. Hodder, other than that it should start from the date of dismissal?
¶ 59 MR. HODDER: And be in accordance with the Act.
¶ 60 THE COURT: Be in accordance with the Courts of Justice Act, right.
¶ 61 MR. BERNOFSKY: Your honour —
¶ 62 THE COURT: Mr. Bernofsky.
¶ 63 MR. BERNOFSKY: I have one question before the interest matter is dealt with. In making your decision, you had indicated the number of months less the mitigation. Was it also less the amount of the one week provided to Mr. Budd from September the 27th to October the 6th?
¶ 64 THE COURT: I hadn’t really addressed that.
¶ 65 MR. BERNOFSKY: It wasn’t —
¶ 66 THE COURT: It was in fact there until October the 6th — yes, it shouldn’t run until the 6th of October. So yes, that is intended.
¶ 67 All right. Now, what about the time of commencement of interest?
¶ 68 MR. BERNOFSKY: There are a number of points in time that the court can consider with respect to the running of interest. I am in your hands, your honour, with respect to what you feel is more appropriate, at the commencement of the action, with respect to a point of time that is more reasonable than I think the October 6th date my friend is suggesting. But I’m in your hands. It is really a matter that is not settled in terms of the various case law.
¶ 69 THE COURT: Well, I suppose, strictly speaking, the appropriate way to calculate the interest on income that would have been earned over the period of notice is the way that we used to calculate interest for loss of earnings over an extended period of time. So there would be interest on, let’s say, a full week’s pay for the first week of the period in question and interest on the final week’s pay for only one week or one day, or whatever the case may be.
¶ 70 So I think the proper, fair way to calculate that interest is to take the Courts of Justice Act rate and divide it by two. That way you average out — remember how it worked in the loss of earnings calculations, because interest on the last week’s pay is for only a short period of time.
¶ 71 Now, then from the end of the notice period, it should be the Courts of Justice Act rate.
¶ 72 Are you with me, counsel? Do you follow what I’m saying?
¶ 73 MR. HODDER: I’m with you. For ease of calculation, and I don’t know if what I’m about to suggest gives the exact same result. I haven’t turned my mind to whether it’s good or bad for the plaintiff. But it strikes me – and see what your honour thinks of this — if interest were to be calculated from the midpoint of the notice period —
¶ 74 THE COURT: Same effect.
¶ 75 MR. HODDER: then it should have the same effect, it seems to me.
¶ 76 THE COURT: Yes, I think that’s correct.
¶ 77 MR. BERNOFSKY: Yes.
¶ 78 THE COURT: Mr. Bernofsky?
¶ 79 All right. Well, then, let’s say that interest should be calculated from the midpoint of the notice period – that is, eight months after October 6, 1995 – and the interest is calculated in accordance with the Courts of Justice Act.
¶ 80 Ready to deal with costs, gentlemen?
¶ 81 MR. HODDER: I am, your honour. And what I have to put before you is an offer that, by my calculation, has been exceeded by your honour’s judgment.
¶ 82 I’m sorry to report I’ve only brought one copy. Let me make sure that my friend has his copy.
¶ 83 MR. BERNOFSKY: I do.
¶ 84 MR. HODDER: Okay.
¶ 85 THE COURT: This is a plaintiff’s offer?
¶ 86 MR. HODDER: This is a plaintiff’s offer. I’ll submit it together with an affidavit of service. It’s an offer to settle, dated April 21, 1997, in which the plaintiff offers to settle for the sum of $170,000, plus prejudgment interest, plus costs to be agreed upon or assessed.
¶ 87 THE COURT: Yes. Mr. Hodder — sorry; Mr. Bernofsky.
¶ 88 MR. BERNOFSKY: Yes, your honour.
¶ 89 In fact I received that. And there’s no doubt that that number is —
¶ 90 THE COURT: All right. I haven’t done a calculation, but is Mr. Hodder correct that the amount of judgment exceeds the amount of the offer?
¶ 91 MR. BERNOFSKY: Yes, having based your decision on the Spirella income, it does.
¶ 92 MR. HODDER: So premised on that, your honour, and in accordance with the ordinary dictates of Rule 49, both as it reads and as it’s been interpreted, I would ask that, No. 1, costs should follow the event, and secondarily, that in terms of the scale of costs that there should be an award of party-and-party costs up to the date of service of the offer, which took place on April 21, 1997. So that there should be party-and-party costs up to that date and solicitor-and-client costs thereafter.
¶ 93 And perhaps, your honour, that – and I don’t know what your honour’s ordinary practice is in this respect, but perhaps it could be left to myself and Mr. Bernofsky to try to sort it out, and if we cannot sort it out, then maybe to short-circuit the assessment process, your honour might be able to help us.
¶ 94 THE COURT: Yes, I’d be happy to do that. I think if counsel do exchange information concerning the party-and-party bill to that date, the solicitor-and-client bill after that date up to today, that may resolve the problem. If you are unable to resolve the problem that way, I may be contacted.
¶ 95 I would suggest that you reach me through my secretary and I will arrange a time either to see you or to have you submit some written submissions as to costs, if that seems to be appropriate to both of you.
¶ 96 MR. HODDER: With one small qualification, your honour. I’ve run into this — and I hope you don’t think I’m being petty, but — your honour indicated that solicitor-and-client costs after the date of the offer, and your honour said up until today. Ordinarily, costs would include the costs of any necessary assessment. I suspect that Mr. Bernofsky and I will be able to sort it out, but I would prefer that your wording be solicitor-and-client costs thereafter.
¶ 97 THE COURT: Thereafter is correct, yes. And I think I said that inadvertently. The rule, I think, is quite clear that you’re entitled to the solicitor-and-client costs after the date of service of the offer.
¶ 98 All right. I’ll make the appropriate endorsement if you’ll just hold on for a moment.
¶ 99 I’ll return the offer to you, Mr. Hodder. In case we do have to meet again on this subject, you should provide a copy to Mr. Bernofsky and to me in anticipation of that.
¶ 100 That was April 21st, 1997?
¶ 101 MR. HODDER: That’s correct, your honour.
¶ 102 THE COURT: My secretary, for that purpose, is Margaret Anne Hulyk, at 327-5293.
¶ 103 MR. HODDER: And your honour, just to avoid any possibility of dispute — I don’t think there would be one, but — as I read the Courts of Justice Act, the prejudgment interest rate is the — in terms of the level of rate rather than the commencement date — the level of the rate ought to be the rate applicable in accordance with when the action was commenced. And this action was commenced in January of ’96. That would put the prejudgment rate at 6.1 per cent. And I don’t know if my friend has had an opportunity to check that; if he agrees with it, then we’re agreed. But if there’s submissions, well, then we ought to address — perhaps to address that now.
¶ 104 MR. BERNOFSKY: I haven’t had an opportunity to check, of course, but if my friend is reading from the appropriate text, then I believe it was in there. It looks like 1996, first quarter, 6.1 per cent.
¶ 105 THE COURT: 6.1 per cent. All right. I’ll put that right in the endorsement. I have it noted, but I didn’t put it in the endorsement.
¶ 106 Have you calculated what that date is eight months after the 6th of October? November, December, January, February, March, April, May, June.
¶ 107 MR. HODDER: Okay. June 6th.
¶ 108 THE COURT: June 6th, 1996. Right?
¶ 109 MR. HODDER: Yes.
¶ 110 THE COURT: Thank you.
¶ 111 Thank you, counsel. I say again it’s been an example of the kind of trial that we wish we could have all the time, where the issues are hard-fought but done with courtesy and expeditiousness. And I’m grateful.
¶ 112 MR. HODDER: Thank you, your honour. I thank my friend for his professional courtesies throughout. And I insist that he knows more of this law than I do.
¶ 113 THE COURT: And what?
¶ 114 MR. HODDER: I insist that he knows more of this law than I do. He takes issue with that, but …
¶ 115 THE COURT: Thank you.