In Dumbrell v. The Regional Group of Companies Inc., the Court of Appeal has reviewed the principles governing contractual interpretation. It has also provided a useful discussion of the circumstances in which the directing mind of a corporation can (and when he or she cannot) be held personally liable.
The plaintiff had been an employee of Regional Realty, a well-known Ottawa real estate business. After leaving the company, Dumbrell sued for payment of commission to which he claimed to be entitled, for a particular commercial real estate transaction (“the Queen Street property”). The trial judge ruled that he was entitled to fifty percent of Regional’s $1 million profit.
Both parties appealed certain aspects of the trial decision and both enjoyed some success in the Court of Appeal. In this commentary, we have focused on the legal issues, rather than the somewhat complicated factual ones.
The trial judge had held that Regional was liable to compensate Dumbrell for profit earned on the Queen Street property. But she had based her finding on a case which, the Court of Appeal said, “blends notions of quantum meruit and implied terms of a contract to resolve a problem that the parties had not addressed when establishing their relationship”. Here, said the Court, the parties had considered the nature of their working relationship in entering into an employment contract. Thus, any entitlement to commission on the Queen Street property would have to emanate from the words of the contract.
This led the Court to consider two approaches to the interpretation of commercial contracts. One aims at divining the actual intentions of the contracting parties at the time the contract was made, while the other focuses on the intent that emerges from the words used in the document. The first is referred to as the “intentionalist” approach and the second as the “textual” approach (terminology borrowed from Professor Ruth Sullivan in an article written for the Supreme Court Law Review).
The Court of Appeal expressed its preference for the objective, “textual” approach to interpreting written contracts. However, the Court went on to caution that this kind of analysis is not necessarily confined to a consideration of the dictionary meaning of words. Rather, the meaning must be looked at in the particular context in which the words appear. The Court quoted with approval the following passage from Professor John Swan’s text, Canadian Contract Law:
There are a number of inherent features of language that need to be noted. Few, if any words, can be understood apart from their context and no contractual language can be understood without some knowledge of its context and the purpose of the contract. Words, taken individually, have an inherent vagueness that will often require courts to determine their meaning by looking at their context and the expectations that the parties may have had.
The Court went on to discuss what it meant by the “context” or “factual matrix” of a contract. This would include “the genesis of an agreement, its purpose, and the commercial context in which the agreement was made”. Evidence of context would, it said, aid in the textual interpretation of a contract.
Applying this analysis to the contract in the present case (and we have not summarized the factual discussion), the Court concluded that the plaintiff was entitled to fifty percent of the profit earned by Regional on the Queen Street property.
Piercing the Corporate Veil
The plaintiff had sued not only The Regional Group of Companies but also Steven Gordon, its CEO and directing mind. According to the reasons of the Court of Appeal, in his statement of claim, the plaintiff had alleged breach of contract, but only against Regional. However, the trial judge found both Regional and Gordon liable for breach of contract. The Court of Appeal said that the trial judge’s reasons also suggested that she had found Gordon liable on the alternative ground, that he had induced Regional to breach its contract.
The Court set aside the finding that Gordon was liable in breach of contract, saying:
I have difficulty understanding the basis upon which the trial judge found Gordon liable for breach of contract. She spoke of “piercing the corporate veil” and described Regional as Gordon’s agent for the purposes of the contract. However, she found both Regional and Gordon liable for breaching the contract. I agree with Mr. Zarnett’s submission that if Regional acted as Gordon’s agent for the purposes of the contract, only Gordon could be liable for breaching that contract. The trial judge’s finding that Regional was liable along with Gordon for breaching the contract was also inconsistent with the trial judge’s conclusion, at para. 187, that she should “pierce the corporate veil” and hold Gordon liable. Either Regional had a separate legal persona for the purposes of the contract or it did not.
The Court proceeded to discuss what is meant by “piercing the corporate veil”, as well as the circumstances in which an individual will be viewed as the “agent” of a corporation. It noted that the two concepts are quite different; the latter assumes the distinct legal personae of the corporation and the individual, while in the former case, that difference is ignored.
The panel said that the separate identity of a corporation can be ignored (i.e., the corporate veil “pierced”) where the corporate structure is being used for a fraudulent or dishonest purpose, but that that was not the case here.
Likewise, the ruling rejected the notion that liability could be founded on Gordon having induced a breach of contract:
Cases where an individual has been held liable for inducing a corporation’s breach of contract have nothing to do with piercing the corporate veil or the concept of agency. These cases acknowledge the separate legal identity of the corporation and its directing mind. They hold the directing mind liable for the discrete tort of inducing the breach of contract and not for breach of contract itself. The measure of damages for inducing the breach of contract may or may not be the same as would apply to the breach of contract.
First of all, the Court said, inducing breach of contract had not been pleaded. And on the facts of this case, the Court said that there was no evidence that Gordon’s conduct had not been in the best interests of the corporation, as there would have to be to sustain such a cause of action.