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Law Offices of Nizam Hashmi > Recent case laws  > Breach of Contract and Fiduciary Duty: Prim8 Group Inc. v. Tisi

Breach of Contract and Fiduciary Duty: Prim8 Group Inc. v. Tisi

employment law-termination-breach of contract-breach of fiduciary duty-civil conspiracy-conversion-tort-damage-loss-court litigation-appeal

*Prim8 Group Inc. v. Tisi, 2016 ONSC 5662

“T began working for Prim8 in 2008, bringing with him customized content management software (“CMS”) which had previously been written by contracted programmers under T’s direction. In 2010, T became a shareholder, director and officer of Prim8. At that time, CMS became a Prim8 asset. In December 2011, T removed computer equipment from Prim8’s offices after hours and then resigned without notice in order to offer web-based services through his own firm. M, a senior employee who reported to T, resigned without notice about a month later and joined T’s competing firm. Acting on T’s advice, M refused to respond to requests for information (such as access codes) which was necessary for the continuation of Prim8’s day-to-day operations. Prim8 sued for damages for breach of fiduciary duty, breach of duty of good faith and loyalty, conversion, inducing breach of contract, conspiracy and intentional interference with economic relations. T counterclaimed for repayment of the balance of a loan to Prim8, the payment of dividends and other relief.

Held, the action should be allowed; the counterclaim should be allowed in part.

Employees owe their employer a general duty of good faith and loyalty as an implied term of their employment contract. That duty requires the employee to give reasonable notice of resignation. In addition, a senior officer of a corporation owes the corporation a fiduciary duty. T breached his fiduciary duty as a senior officer and director of Prim8 as well as his duty of good faith and loyalty as a Prim8 employee. M breached his duty of good faith and loyalty by failing to give reasonable notice and by impeding Prim8’s ability to mitigate its losses by with- holding information such as access codes.

T was liable for conversion of Prim8 property, including the CMS. It was not established that M had any prior knowledge of T’s intention to remove those assets. M was not liable for conversion.

T was liable for inducing breach of M’s employment contract.

Both defendants were liable for unlawful conduct conspiracy in relation to M’s departure from Prim8. In withholding important information from Prim8, M engaged in unlawful conduct, that is, he acted contrary to his duty of good faith and loyalty to Prim8 and thereby breached an implied term of his employment contract. T also engaged in unlawful conduct, that is, he breached his fiduciary duty to Prim8 and induced M to breach his employment contract. Their conduct was directed toward Prim8. They should have known that Prim8 was likely to suffer economic loss as a result, and Prim8 in fact suffered such loss.

The defendants were not liable for intentional interference with economic relations as they did not commit a wrongful act against a third party that caused harm to Prim8.

Prim8 was not entitled to punitive damages. Neither defendant was motivated by a desire to cripple Prim8, which in fact continued to carry on business.

The defendants were jointly and severally liable to Prim8 for damages in the amount of $40,000. T was liable to Prim8 for additional damages in the amount of $51,167.

Prim8 was liable to T for $2,500, the amount outstanding on a loan made by T to Prime8. T’s other claims were dismissed.

Employees owe their employers a general duty of good faith and loyalty (or fidelity) as an implied term of their employment contract.2 As indicated by the Supreme Court of Canada in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.,3 that duty requires the employee to provide reasonable notice of termination of the employment relationship. An employee may be held liable to the employer for failing to pro- vide such notice.

In addition, a senior officer of a corporation owes the corporation a further duty. Under s. 122(1) of the Canada Business Corporations Act, a director and officer of a corporation is required to act honestly and in good faith with a view to the corporation’s best interests. As indicated by the Supreme Court of Canada in Canadian Aero Service Ltd. v. O’Malley,4 senior officers, like directors, owe a fiduciary duty to the corporation, which the court describes as requiring “loyalty, good faith and avoidance of conflict of duty and self-interest”. The court also indicated that senior officers were not “mere employees”, and that they had a “larger, more exacting duty”.

In the Drouillard decision,7 the court provided further guidance with respect to the third element, stating that in order to satisfy this element, “the procurement of the breach must be intended and direct”. The court also quoted the following pas- sage from John G. Fleming’s text, The Law of Torts:8

Merely that the breach was a natural consequence of his conduct is not suf- ficient: he must have intended it. Not that he need have actually known the precise terms of it or that his object could be accomplished only through its breach. If — turning a blind eye — he went about it regardless of whether it would involve a breach, he will be treated just as if he had knowingly pro- cured it. Indifference is equated with intent.

Conspiracy:

In its 1983 decision in Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd.,9 the Supreme Court of Canada identified two categories of civil conspiracy. Two or more defendants who act in combination engage in civil conspiracy where

(a)  the predominant purpose of the defendants’ conduct is to cause injury to the plaintiff, whether the means used by the defendants are lawful or unlawful; or

(b)  if the defendants’ conduct is unlawful, the conduct is directed toward the plaintiff, and the defendants should know that in the circumstances injury to the plaintiff is likely to and does result.

The second category of civil conspiracy was more recently considered by the Ontario Court of Appeal in its 2011 decision in Agribrands Purina Canada Inc. v. Kasamekas.10 The court referred to this category of civil conspiracy as unlawful conduct conspiracy, and identified the following elements of the cause of action:

(a)  the defendants act in combination, that is, in concert, by agreement or with a common design;

(b)  their conduct is unlawful;

(c)  their conduct is directed towards the plaintiff;

(d)  they should know that, in the circumstances, injury to the plaintiff is likely to result; and

(e)  their conduct causes injury to the plaintiff.

In Agribrands, the court also indicated that there are two separate categories of conduct that can be described as comprising the unlawful conduct required for unlawful conduct conspiracy: (i) conduct amounting to an independent tort or other actionable wrong; and (ii) conduct not actionable in itself, including criminal or quasi-criminal conduct. The court went on to indicate as follows:

What is required, therefore, to meet the “unlawful conduct” element of the conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as “unlawful conduct” for the purposes of this tort.

Intentional Interference with Economic Relations

…in Drouillard v. Cogeco Cable Inc., which indicated that the plaintiff needed to prove the following elements in order to establish that tort:

(a) the defendant intended to injure the plaintiff’s economic interests;

(b)  the interference was by illegal or unlawful means; and

(c)  the plaintiff suffered economic loss as a result.”

*source: Ontario reports

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