



COURT OF APPEAL FOR ONTARIO

CITATION: Dunsmuir v. Royal Group, Inc., 2018 ONCA 773

DATE: 20180924

DOCKET: C64192

Rouleau, Pardu and Benotto JJ.A.

BETWEEN

Douglas N. Dunsmuir and
Ronald J. Goegan

Plaintiffs (
Appellant
)

and

Royal Group, Inc.

Defendant (Respondent)

Milton A. Davis, Ronald D. Davis and Samantha Green, for
    the appellant

Nigel Campbell and Doug McLeod, for the respondent

Heard: September 11, 2018

On appeal from the judgment
    of Justice Frederick L. Myers of the Superior Court of Justice, dated July 20,
    2017, with reasons reported at 2017 ONSC 4391.

REASONS FOR DECISION

[1]

The appellant,
Ronald J. Goegan, appeals the
    dismissal of his action for wrongful dismissal. The trial judge found just
    cause for his termination without notice.

[2]

The respondent, the Royal Group, Inc., is a
    public company. The appellant was, by the time of his termination in 2004,
    Senior Vice-President and Chief Financial Officer and a member of the board of
    directors. The trial judge concluded that three incidents of misconduct
    justified his termination.

[3]

The first
    incident involved a land flip whereby the controlling shareholder of the respondent,
    together with senior officers of the respondent (the controlling shareholders
    group), bought property through a third party then immediately after closing,
    sold it to the respondent for $6.5 million more than they had paid, thereby
    profiting personally. Leading up to this transaction, the appellant, who at the
    time was the senior officer of the respondent responsible for real estate
    acquisitions, had been approached by the vendors agent to enquire whether the
    respondent was interested in purchasing the property. After consulting with the
    controlling shareholder of the respondent, he indicated that the corporation
    was not interested in the property.

[4]

Shortly
    thereafter, the appellant was asked by the controlling shareholder to assist
    him in effecting the acquisition of the property. Thereafter, the appellant was
    involved with and assisted in the acquisition by the controlling shareholders
    group and the immediate resale to the respondent of the same property at a $6.5
    million markup.

[5]

Although the appellant
    knew that the respondent had been offered the opportunity to acquire the
    property and that within months of this the controlling shareholders group had
    acquired and then sold the property to the respondent at the significantly
    higher price, the appellant did not disclose this information to anyone with
    oversight authority. As noted by the trial judge, he was the senior-most
    person at Royal Group with significant involvement in the transaction who was
    not profiting personally in it.

[6]

The second incident arose from the sale of a
    subsidiary of the respondent to another public company called Premdor. The
    purchase price included a share warrant that entitled the respondent to
    purchase an additional 200,000 shares of Premdor at a strike price of $13.25. After
    the share price rose, the warrants were redeemed for the benefit of the
    respondents senior management  including the appellant  for a total profit
    of approximately $ 2 million.

[7]

When managements
    bonuses, which included the profits made by senior management on the exercise
    of the warrants, were disclosed as part of the respondents regular reporting,
    there was a public outcry from shareholders. The appellant then allowed a
    different story to be told to the independent directors that covered up the reason
    for which senior managements bonuses were greater than what the approved bonus
    plan provided.

[8]

This led to the
    third incident: a tax scheme whereby the Canada Revenue Agency was misled about
    the exercise of the warrants in order to reduce senior managements tax
    liability.

[9]

The trial judges
    finding that the appellant had failed in his fiduciary duty to the respondent
    is anchored to these three incidents. The first two constituted failures to
    disclose related party transactions to the independent directors or the
    auditors. The third incident also constituted a breach of fiduciary duty, in
    that it involved the falsifying of corporate documents for personal gain and in
    order to mislead the Canada Revenue Agency.

[10]

The appellant submits that the trial judge erred
    in law by:

1.

Failing to follow the test in
McKinley v. BC
    Tel
,

2001 SCC 38, [2001] 2 S.C.R. 161. He submits that this test requires
    the trial judge to conduct a contextual analysis of the entire employment
    situation, which in this case involved a corporate culture dominated by an autocratic
    controlling shareholder;

2.

Relying on
Advanced Realty Funding Corp. v. Bannink
,
    (1979), 27 O.R. (2d) 193 (C.A.), to conclude that what the board of directors
    would have done had he disclosed the events in question was irrelevant. He
    submits that
Hodgkinson v. Simms
, [1994] 3 S.C.R. 377 overruled
Advanced
    Realty
in the result that it was incumbent on the respondent to show that
    the board would have taken action;

3.

Failing to properly consider that his actions had been condoned.

[11]

We do not accept these submissions.

[12]

McKinley
does not assist the appellant.
    The trial judge was clearly alive to the corporate culture and made factual
    findings that were open to him on the evidence. In any event, no corporate culture
    existing in a public company can reasonably support the course of conduct of
    this fiduciary as evidenced by these three incidents of misconduct. They struck
    at the heart of the employment relationship.

[13]

Nor do we agree that
Hodgkinson
overruled
Advanced Realty
.
Hodgkinson
involved an
    assessment of damages, not a fiduciarys duty to disclose. With respect to
    condonation, the trial judge concluded, and we agree, that the appellant cannot
    rely on other senior managers who were themselves participants of the unlawful
    conduct to establish condonation.

[14]

The appellant owed a fiduciary duty to the
    company and its shareholders which included a duty to disclose. The trial judge
    correctly set this out at para. 134 of his reasons:

A fiduciary who knows about wrongdoing
    committed against the beneficiary has a duty to tell the beneficiary. In
Canson
    Enterprises Ltd. v. Boughton & Co
., the Supreme Court of Canada held
    that a lawyer breached his duty to his client who was the buyer of land. The
    land had been subject to a wrongful flip by an intermediate buyer in breach of
    its duties to the final buyer. The lawyer had acted on the intermediate flip.
    It is significant that in that case, the lawyer had not been a principal
    participating in the flip. Rather, he knew about it and as a fiduciary to the
    ultimate buyer, the lawyer had a duty to disclose to his client the breaches of
    duty committed against it. Similarly, the fact that Mr. Goegan did not make a
    personal profit on the Vaughan West land flip is no answer in law to the claim
    that his knowledge and silence were breaches of his fiduciary duty to disclose
    the Vaughan West land flip. His common law duties of loyalty, fidelity, and
    candour required him to disclose to the corporation the conflicts of interest
    and the misappropriation of corporate opportunities and assets of which he had
    knowledge from his participation in the transactions. [Citations omitted.]

[15]

In
    summary, the trial judge did not err in law and his findings of fact were
    grounded in the evidence.

[16]

The
    appellant has also raised an abuse of process allegation by submitting that the
    respondent relitigated facts found by the trial judge in the appellants
    lengthy criminal trial, resulting in inconsistent findings in the two
    proceedings. We do not accept this submission. The allegations were raised in
    the appellants pleading and struck out by the court in a 2013 order which was
    not appealed. The issue was therefore not before the trial judge. It cannot be
    raised now.

[17]

The appeal is dismissed with costs in the agreed
    upon amount of $65,000 inclusive of disbursements and HST.

Paul
    Rouleau J.A.

G. Pardu
    J.A.

M.L. Benotto J.A. 


