



COURT OF APPEAL FOR ONTARIO

CITATION: ACT Greenwood Ltd. v. Desjardins-McLeod, 2019 ONCA
    158

DATE: 20190228

DOCKET:
    C65412

Pepall,
    Trotter and Harvison Young JJ.A.

BETWEEN

ACT Greenwood Ltd., c.o.b. as ACT Greenwood
    Office Management and

Dr. Clement Sun

Plaintiffs (Appellants)

and

Jocelin
    Desjardins-McLeod

Defendant
    (Respondent)

Robert
    Harrison and Zohar Levy, for the appellants

Justin Necpal and Anisah Hassan,
    for the respondent

Heard:
    February 6, 2019

On appeal
    from the judgment of Justice Bernadette Dietrich of the Superior Court of
    Justice, dated April 25, 2018, with reasons reported at 2018 ONSC 2545.

Harvison
    Young J.A.:

A.

Overview

[1]

This appeal arises from a breakdown in the contractual relationship between
    the appellants and the respondent. The appellants, ACT Greenwood Ltd. (ACT) and
    its principal, Dr. Clement Sun, operate methadone treatment clinics, and hired the
    respondent, Dr. McLeod, to care for patients at some of those clinics. Their contract
    provided that Dr. McLeod would remit 45% of her OHIP billings to ACT. It also
    contained a non-competition provision.

[2]

The appellants brought an action for damages against Dr. McLeod
    following the breakdown of their relationship. They alleged that she had repudiated
    the contract and was in breach of a number of the contractual terms. In
    particular, the appellants alleged the respondent had breached the
    non-competition provision. Dr. McLeods defence was that, for reasons that will
    be detailed below, the contract had been frustrated and that the
    non-competition provision could not be interpreted as the appellants submitted.

[3]

After a week-long trial, the appellants action was dismissed in its
    entirety. At the heart of this appeal is the question of whether the trial
    judge erred in applying the doctrine of frustration and in interpreting the
    non-competition provision. The appellants also argue that the trial judge erred
    in failing to address their claim for an underpayment due to them in the amount
    of $8,194.59.

[4]

For the reasons that follow, I reject the appellants submissions that
    the trial judge erred in her conclusion that the contract had been frustrated
    and in her interpretation of the non-competition provision. However, I agree
    that the trial judge erred in not granting the appellants judgment for the
    amount of $8,194.59. I would therefore allow the appeal in part.

B.

The factual background

[5]

In April 2014, Dr. McLeod, then a recent medical graduate, entered into
    a contract with ACT in which she agreed to pay 45% of her OHIP billings to ACT.
    Either party could terminate the ten-year contract on 30 days notice. On
    termination, Dr. McLeod was to reassign all patients whom she had registered
    with the College of Physicians and Surgeons of Ontario to another doctor in the
    clinic. For six months after the termination of the contract, she agreed not to
    work in a clinic or open a practice within ten miles of a clinic operated by
    ACT.

[6]

Dr. McLeod was assigned by Dr. Sun to work in two clinics: one clinic in
    Hamilton (the John Street Clinic) and one in Brantford (the Darling Street Clinic).
    She began to work at those clinics, and to acquire and treat patients.

[7]

Unbeknownst to Dr. McLeod at the time she entered into the contract with
    ACT, ACT was jointly operating those two clinics, as well as two other clinics,
    with Toward Recovery Clinics (TRC). By early 2015 the ACT-TRC relationship
    was breaking down. In June 2015, TRC denied Dr. Sun access to the joint ACT-TRC
    clinics, including the John Street Clinic and Darling Street Clinic.

[8]

After being barred from the John Street Clinic and Darling Street
    Clinic, Dr. Sun established temporary competing clinics in Hamilton and
    Brantford. He encouraged Dr. McLeod to join him there. He assured her that her
    patients at the John Street Clinic and Darling Street Clinic would follow her.
    She declined. On July 10, 2015, Dr. Sun alleged that Dr. McLeod had repudiated
    the contract.

[9]

The arrangement between ACT and TRC was dissolved by court order, which
    specified July 17, 2015 as the latest possible date of dissolution. There is
    ongoing litigation relating to the dissolution of the ACT and TRC relationship.

[10]

The
    appellants commenced an action against Dr. McLeod. They alleged that Dr. McLeod
    had repudiated their contract and sought damages arising from the alleged
    repudiation, primarily for breach of the non-competition provision as Dr.
    McLeod continued to see patients at both the John Street Clinic and Darling
    Street Clinic. Dr. McLeods position was that the intervening events including
    the dissolution of the relationship between ACT and TRC and the attendant
    denial of access to the John Street Clinic and Darling Street Clinic had
    frustrated her contract with ACT. She entered into a contract with TRC in which
    she agreed to pay it 33% of her OHIP billings.

[11]

The
    trial judge found that the contract between ACT and Dr. McLeod had been
    frustrated by the intervening events and, in particular, by the dissolution of
    the relationship between ACT and TRC. The trial judge also found that, even if
    the contract survived the dissolution of the ACT and TRC relationship, Dr.
    McLeod had not breached the terms of the contract. Further, and in any event,
    the appellants had not proved any damages. For those reasons, she dismissed the
    appellants action.

C.

The Issues on Appeal

[12]

The
    appellants submit that the trial judge made three major errors which warrant
    the intervention of this court. First, they say that the trial judge erred in
    finding that that the relationship between ACT and TRC had brought about a
    radical change in the contractual arrangement between ACT and Dr. McLeod, thus
    frustrating their contract. In particular, they state that the trial judges
    focus was misplaced and that the relevant legal question was whether the
    dissolution of the ACT and TRC relationship radically changed Dr. McLeods
    obligation under the non-competition provision. The appellants argue it did
    not. Second, they submit that the trial judge erred in concluding that Dr.
    McLeod was not in breach of the non-competition provision. Third, they submit
    that the trial judge erred in finding that the appellants had failed to
    establish damages.

[13]

For
    the reasons below, I reject those arguments. The trial judges findings that
    the contract between ACT and Dr. McLeod had been frustrated, that Dr. McLeod had
    not breached the non-competition provision, and that ACT had failed to prove
    any damages were open to her on the record before her. I see no basis to
    interfere with those findings.

[14]

However,
    I agree with the appellants that the trial judge erred in failing to address
    Dr. McLeods alleged underpayment to them in the amount of $8,194.59 for the
    period prior to July 10, 2015 (when ACT took the position that Dr. McLeod had
    repudiated her contract). In my view, that amount (representing the difference
    between the 45% of her OHIP billings she agreed to remit to ACT, and the 33%
    she agreed to remit to TRC) is owed to ACT. I would allow the appeal on this
    narrow issue, but dismiss the remainder of the appeal.

D.

Law and Analysis

(1)

The non-competition provision

[15]

On
    the issue of frustration, the appellants argue that the trial judge committed
    an extricable legal error in failing to ask the right question. They submit
    that she should have asked whether the dissolution of the ACT-TRC arrangement
    frustrated Dr. McLeods obligation under the non-competition provision by
    radically changing that obligation. The appellants argue that the trial judge
    mistakenly focused on the fact of the dissolution itself, and the corresponding
    relocation of the ACT clinics, without considering how that affected the
    respondents non-competition obligation. In particular, they submit that she
    failed to consider the fact that the provision specifically provided that it
    would operate after termination for whatever reason.

[16]

I
    disagree. First, the trial judge found that Dr. Sun, by suggesting a new plan
    and by offering to substitute his own patients for patients that might not
    follow her to the new temporary clinics, had implicitly accepted that the
    contract had been overtaken by radically changed events and that the existing
    agreement had been frustrated. Indeed, the parties were faced with a new and
    unforeseen reality: at para. 29. She continued, at para. 30, to explain that
    this effectively frustrated the non-competition provision:

[I]t was highly inappropriate for the [appellants] to take the
    position that the original contract continued even after Dr. Sun had left the
    John St. and Darling St. clinics and, in essence, had imposed a duty on Dr.
    McLeod to follow him and to encourage the patients she was treating at those
    clinics to do the same.

[17]

Second,
    the law of frustration requires that there be a radical change in the nature of
    the parties contractual obligations, arising from a situation which the
    parties had not contemplated in the formation of the contract: see
Naylor
    Group Inc. v. Ellis-Don Construction Ltd.
, 2001 SCC 58, [2001] 2 S.C.R.
    943, at paras. 53-56. In G.H.L. Fridman,
The Law of Contract in Canada
,
    6th ed. (Toronto: Carswell, 2011), at p. 619, the author writes:

From the decided cases to which reference has been made it is
    deducible that the basis of frustration is impossibility. By this is meant
    physical impossibility and impossibility resulting from a legal development
    that has rendered the contract no longer a lawful one.
However,
    frustration goes further, and comprehends situations where the contract may be
    both physically and legally capable of being performed but would be totally
    different from what the parties intended were it performed after the change
    that has occurred
. [Citations omitted, emphasis added.]

[18]

This
    is precisely what the trial judge found had occurred here.

[19]

Third,
    as will be discussed, the trial judge did effectively consider whether the
    dissolution of the ACT-TRC relationship radically changed Dr. McLeods
    obligations under the non-competition provision. The trial judge found that the
    non-competition provision could not be interpreted in the manner propounded by
    the appellants, and that the performance of the non-competition provision was
    frustrated: at paras. 39, 48-51. The appellants concede that the trial judge
    did not misstate the test for frustration as set out in
Naylor
, at
    paras. 53-56. Thus, while the appellants disagree with the trial judges
    interpretation of the non-competition provision, that is a question of mixed
    fact and law and I see no extricable error of law or palpable and overriding
    error of fact that could warrant this courts interference with her
    interpretation:
Sattva Capital Corp. v. Creston Moly Corp
., 2014 SCC
    53, [2014] 2 S.C.R. 633, at paras. 51-53.

[20]

The
    appellants emphasize that Dr. McLeod did express a concern about the potential
    negative financial impact that moving to the appellants new clinic locations
    would have. They argue that a change that makes a contract less profitable,
    without more, does not constitute frustration: see e.g. Fridman, at pp. 618-619.
    However, the trial judge did not base her finding of frustration on economic
    grounds. Rather, she based it on her conclusion that the contract simply did
    not contemplate the dissolution of the ACT-TRC relationship, such that the
    contractual relationship between Dr. McLeod and ACT had been frustrated: see
    paras. 34, 39-41. Furthermore, the trial judge indicated that Dr. McLeod was
    constrained by her ethical obligations to her patients. She pointed to the
    physicians duty not to solicit patients, and also to the importance of
    continuity of care for these patients: see paras. 35-38.

[21]

In
    interpreting the contractual provisions, the trial judge expressly considered
    and applied the correct law. In effect, the appellants are asking this court to
    reapply the same legal tests applied by the trial judge, but to consider the
    evidence differently so as to reach a different result. That is not the role of
    this court.

[22]

The
    appellants second argument also fails. The trial judge expressly considered
    the interpretation to be given to the non-competition provision. In
    interpreting the non-competition provision, the trial judge found that properly
    construed, it meant that Dr. McLeod was not to leave the Darling Street Clinic
    or John Street Clinic to compete with Dr. Sun within 10 miles for a six-month
    period: at para. 50. She expressly rejected the appellants submission that it
    meant that Dr. McLeod was effectively forced to follow Dr. Sun when he left the
    clinics and set up new ones nearby, and to encourage the patients she was
    treating at those clinics to do the same, finding that such a broad
    interpretation of the non-competition provision would effectively render it a
    personal services contract: at paras. 47-49.

[23]

As
    noted by the trial judge, a practical common sense reading of the non-competition
    provision would have it apply to a situation in which Dr. McLeod was working at
    an ACT clinic and then left that ACT clinic to work at another competing
    clinic, or if she opened a practice (other than a family practice), within ten
    miles of an ACT clinic. That is not what happened. In fact, it was Dr. Sun who
    was legally barred from the Darling Street Clinic and John Street Clinic owned
    by TRC in which Dr. McLeod had been assigned to work: at para. 49.

[24]

Again,
    absent an extricable error of law, the trial judges contractual interpretation
    is a matter of mixed fact and law and is entitled to deference on appeal:
Sattva
,
    at paras. 51-53. There is no basis upon which to interfere with the trial
    judges interpretation of the non-competition provision.

[25]

As
    for the issue of damages, I agree with the appellants that they were not
    required to lead evidence to establish mitigation of damages. In this regard,
    the trial judge was incorrect in suggesting at para. 56 that the appellants had
    an onus to lead evidence of mitigation, and in drawing an adverse inference
    from their failure to do so: see
Barber v. Molson Sport & Entertainment
    Inc.
, 2010 ONCA 570, 269 O.A.C. 108, at para. 94 and
Belton et al. v.
    Liberty Insurance Company of Canada
(2004), 72 O.R. (3d) 81 (C.A.), at
    paras. 33-34.

[26]

This
    does not, however, impair the trial judges finding that, based on the evidence
    advanced by the appellants, she was unable to assess any damages. The trial
    judge determined that the evidence on damages was speculative and not
    persuasively proven: at para. 55. There is a difference between damages that
    are difficult to quantify due to their inherent nature and those that elude
    quantification due to the partys failure to lead adequate evidence: see
Martin
    v. Goldfarb
(1998), 41 O.R. (3d) 161 (C.A.), at para. 75. Furthermore, it
    is not for the appellant to now advance a new theory of damages untethered from
    any submissions made at trial, including reliance on the
Frustrated
    Contracts Act
, R.S.O. 1990, c. F.34, a claim neither pleaded nor argued at
    trial. I would not give effect to this ground of appeal.

(2)

The Appellants claim for $8,194.59

[27]

The
    appellants also submit that the trial judge erred in failing to address Dr.
    McLeods alleged underpayment to them in the amount of $8,194.59 for the period
    prior to July 10, 2015.

[28]

Pursuant
    to an interpleader order issued in the action between ACT and TRC (on the
    consent of all parties), Dr. McLeod paid into court $22,535.12 less costs fixed
    at $500 (i.e. $22,035.12). ACT and TRCs respective entitlement to this money
    is one of the issues in the ongoing litigation between them. The order was
    silent on what this sum represented. It also provided that nothing in the order
    would prejudice the appellants position regarding all other amounts alleged to
    be owing by Dr. McLeod in the action.

[29]

The
    appellants argue that this amount represents 33% of Dr. McLeods OHIP billings
    during the relevant period, as invoiced by TRC pursuant to their agreement with
    Dr. McLeod. However, ACTs contract with Dr. McLeod entitled them to 45% of her
    OHIP billings. Thus, they say they are entitled to an additional $8,194.59
    (representing 12% of Dr. McLeods OHIP billings over the relevant period), no
    matter what the outcome of the ACT-TRC litigation.

[30]

Dr.
    McLeod in response submits that the $22,535.12 paid into court was a negotiated
    amount intended to include all amounts she owed
both
ACT and TRC during the relevant period. Dr. McLeod argues that since the amount
    paid into court constituted revenue from the combined business of ACT and
    TRC, any claim by ACT for additional monies as against Dr. McLeod is properly
    dealt with in the ongoing ACT-TRC proceedings.

[31]

The
    record before this court supports the appellants position on this issue. The
    amount paid into court ($22,535.12) closely approximates 33% of Dr. McLeods
    billings ($22,452.93) during the relevant period. On the other hand, if the
    amount paid into court included the 12% now claimed by ACT, one would expect
    that amount to be closer to approximately $30,617.63.

[32]

The
    appellants claim to this sum was raised before the trial judge but not
    addressed. Based on the record before her, I agree with the appellants
    submission that the $22,535.12 paid into court was intended only to reflect 33%
    of Dr. McLeods OHIP billings during the relevant period, as invoiced by TRC
    pursuant to their contract with Dr. McLeod, not all amounts invoiced by TRC and
    ACT. The appellants are therefore entitled to the additional amount of
    $8,194.59. If the $8,194.59 amount to be paid by Dr. McLeod to ACT becomes an
    issue in the related litigation between ACT and TRC, the appropriate remedy
    would be for TRC to seek to recover this amount from ACT.

(3)

DISPOSITION AND COSTS

[33]

For
    these reasons, I would allow the appeal in part. As the respondent was largely
    successful, I would also order the appellants to pay the respondent costs of
    the appeal on a partial indemnity scale fixed in the amount of $10,000
    inclusive of disbursements and applicable tax.

Released: February 28, 2019

S.P.

A. Harvison Young
    J.A.

I agree S.E. Pepall
    J.A.

I agree G.T. Trotter
    J.A.


