Before:	The Honourable Chief Justice Finch
	The Honourable Madam Justice Southin
	The Honourable Madam Justice Rowles

S. K. Gudmundseth, Q.C.	Counsel for the Appellants
M. E. Royce	Counsel for the Respondent
Place and Date of Hearing:	Vancouver, British Columbia
11th and 12th May, 2006
Place and Date of Judgment:	Vancouver, British Columbia
12th January, 2007

Written Reasons by:

The Honourable Madam Justice Southin

Concurred in by:

The Honourable Chief Justice Finch

Dissenting Reasons by:

The Honourable Madam Justice Rowles (P. 59, para. 113)

Reasons for Judgment of the Honourable Madam Justice Southin:

[1] What remedy, either at law or in equity, is properly awarded against persons, servants of another, departing their master en masse without notice, with records pertaining to the deserted firm's clients, and entering into a similar relationship with a competitor of the master? I have used the terms "servants" and "their master" rather than the contemporary nomenclature "employee" and "employer" because the authorities which are at the root of this case, even if the cases cited are only from the last century, use those terms. Although in this appeal there are many issues, the issue of consequence is what is the proper balance in the year 2007 between the rights inter se of a brokerage firm (the master) and those who are known as investment advisors (the servants), including an advisor who was also the branch manager, upon the latter quitting the master's employment, and, in arriving at that balance, what weight, if any, is to be given to the interests of the clients to whom are owed by all those engaged in this litigation, duties of competence and honesty?

[2] The learned trial judge, the Honourable Madam Justice Holmes, who, in addressing the broad question of "liability", gave no weight to the interests of the clients although she did so in assessing punitive damages, awarded to the respondent judgment in the sum of $2,058,700 ($1,964,699 plus interest of $94,001). Because I am of the opinion that the learned judge did not strike a balance appropriate to present times, I would allow the appeal by substantially reducing the damages awarded.

[3] The retail securities brokerage business has aspects about it which differ from many other businesses:

1. Both the companies and those who deal directly with clients – what were once called, generically, stockbrokers, and are now known as investment advisors, and to whom I shall hereafter refer only as advisors – must hold licences from the appropriate provincial authority.

2. The clients, whom the advisors are bound to "know", deal usually with only one advisor, and if the advisor goes to another firm, many of his or her clients, what is known as the "book of business", may well go with the advisor, just as a lawyer's clients, if he leaves one firm, will go with him, because a relationship of confidence has developed between them. Two extracts from the evidence are apposite, assuming one needs evidence for a proposition so obvious:

- From an expert report, "Assessment of Damages", tendered in evidence by the respondent:

Retail brokerages have traditionally relied on personal service and relationship management to attract and retain profitable clients. The skills and abilities of IAs [investment advisors] in this regard are key to the success of a firm. New IAs are expected to develop a client base, or a book of business, through aggressive networking and cold calling. An IA that develops an active client list with significant assets under management can generate substantial revenues for himself or herself and the employing firm.

- From the viva voce evidence of the appellants' expert:

Q ...

You include in your reports some definitions, and I'd like you to particularly deal with and explain the definitions relating to goodwill and personal goodwill.

A Goodwill, My Lady, is an intangible asset perhaps best explained by an example. If the company earns 100,000 a year profit and it's determined the appropriate multiple is five times, then the value of the operations would be $500,000, if -- as compared to the value of the net assets in the business.

If the assets less the liabilities -- that is the operating assets -- less the liabilities equal 300,000, for example, then the difference between the 500,000 and the 300,000, 200,000 can be ascribed to goodwill. That's -- may be commercial goodwill. That is goodwill. It could be sold, transferred. Or it may be a personal goodwill that is not easily sold or transferred.

The definition of personal goodwill is that goodwill that attaches to an individual. An example of that would be if I were to try and sell my own practice. It would be difficult for me to obtain any value for it because people come to me and it's personal. So that type of goodwill is not easily sold.

3. These advisors are remunerated only by commission. Whatever commission is charged to the client is split in some arranged proportion between the house and the advisor. As the expert put it:

Revenues in the retail brokerage industry are primarily earned from either commissions or fees. Commission revenue is generated from transaction volume and active account management including stock and options trading, fixed-income product trading and mutual fund commissions and trailers. Fee revenue is earned from advisory service, insurance and retirement products, or is charged as a fixed percentage of the client assets managed by the firm. As brokerage revenue is sensitive to fluctuations in market activity and asset values, the larger firms attempt to minimize profit risk by offering a wide selection of investment products with varying fee structures.

4. It can, on occasion, be of grave importance to a client that there should be no break in the service available to the client from his or her advisor. The client may well require immediately – the market crash of 1987 comes to mind – advice from the person with whom he or she has a relationship of confidence as to what to do about his or her investments.

[4] I make mention of these points, particularly the fourth, because during the hearing of this appeal I was left with the uneasy impression that the respondent, RBC Dominion Securities Inc. (hereafter DS), was more concerned with its own bottom line than it was with the firm's clients being able, without interruption, to consult with and give instructions to their respective advisors.

[5] In so remarking, I do not discount the possibility, or even probability, that if the positions were reversed, the appellant, Merrill Lynch Canada Inc. (hereafter Merrill Lynch), might take the same line. These two firms were, in fact, fighting over the clients, although so far as counsel informed us, no clients, especially of the appellant, Delamont, who was the key "producer", were called to give evidence as to why each took his or her custom to Merrill Lynch. Did the clients go because DS was unable to provide immediate service, which it might have been able to provide with sufficient advance warning of the departures, or did the clients go because they wanted to continue with their respective advisors?

[6] There are three further introductory comments to be made: First, in the final minutes of his submissions, Mr. Royce made the point, as I understood him, that, as the appellant, Merrill Lynch, had agreed to indemnify the other appellants for any amounts awarded to DS, should it sue them, the Court should not worry itself unduly with the measure of damages which the learned judge adopted, whatever might be necessary in any future case of a departing advisor who had no such indemnity. I do not accept that proposition which, whether intentionally or no, is an invitation to deep pocket justice. Secondly, since, as Mr. Royce informed us and I have no reason to doubt him, this case is the first of its kind in Canada, I consider the Court ought not to consider itself constrained by the arguments of counsel. Thirdly, I regret the length of this judgment, but it is important in this case to "condescend to particulars".

AN OVERVIEW

[7] Reduced to its essentials, the case of DS, the plaintiff below, here the respondent and cross-appellant, against the defendant, Merrill Lynch, here an appellant and cross-respondent, and the other defendants, here appellants, was that, in the year 2000, Merrill Lynch and its local manager, the appellant Michaud, by dangling various inducements to the other appellants, including the indemnity, enticed away from their employment the other appellants, all of whom were employed by DS either as advisors or investment advisor assistants in the respondent's Cranbrook branch (which had a satellite office in Nelson), and one of whom, Delamont, was also the branch manager, and for such enticing away, or stealing if one prefers, what was essentially the whole staff of DS in that branch – all but two junior advisors and two clerical staff remaining – and inducing them, or at least encouraging them before they left DS, to bring records concerning their clients, Merrill Lynch and Michaud, and for permitting themselves to be enticed away without giving any intimation of their impending departure and for bringing the records, the other appellants, should pay damages, the measure of which should be the loss of profits which DS suffered from the departure of many clients. Depending upon one's point of view, one can characterize the conduct of Merrill Lynch as either poaching or headhunting. To the "game", this may have been nothing more than an invitation to better themselves economically, which each of us is entitled to do with certain limitations. In our capitalist society, the pursuit of self-interest is not, in and of itself, actionable. Thus, the broad legal question in all of this is whether in it there is something which is actionable, and, if there is something which is actionable, what is the proper measure of the damages?

[8] I shall hereafter, in order not to do an injustice to the pleader, set out the statement of claim so that the reader may judge for himself or herself what causes of action are sought to be raised by the material facts alleged.

[9] What I understand to be raised by the statement of claim, albeit in a manner I have not found easy to follow, are these causes of action:

1. As against all the appellants –

(a) an action in tort for conspiracy, although it is not clear whether the alleged conspiracy was a conspiracy to do an unlawful act or a conspiracy to injure;

(b) an action in tort for conversion founded upon the investment advisors removing the documents, and upon Merrill Lynch receiving the documents knowing them to be the property of DS.

2. As against the appellants, save Merrill Lynch and Michaud –

(a) an action sounding in contract, founded upon a term said to be implied in the contract of service of each of them that he or she will not, upon leaving the employ of DS, compete "unfairly";

(b) an action for the misuse of confidential information, whether founded on the respondent's right of property in the information or upon an implied term in every contract of service, including those here in issue, that a servant will not misuse his master's confidential information, whether during the continuance of the employment or after its termination;

(d) an action for breach of fiduciary duty.

3. As against Merrill Lynch –

(a) an action in tort for inducing the DS staff:

(i) to terminate their contracts of service without notice, such contracts containing an implied term requiring reasonable notice, a form of action once known as an action for "enticing away the master's servants" (see Bullen & Leake's Precedents of Pleadings, 10th ed. (London: Stevens, 1950) at 382);

(ii) to compete unfairly in breach of a contractual obligation of the servants not to do so.

[10] To clear away what may be cleared away, it is convenient to note now that the learned judge did not find (and the respondent did not ask this Court to find the contrary) either a conspiracy to which the appellants or some two or more of them were parties, or the inducing by Merrill Lynch of breach by the staff of their contracts of service by quitting without notice, or any fiduciary duty on the part of the advisors.

[11] As to the claim in conversion, DS conceded, as I understand the learned judge's reasons, that there was really no foundation for compensatory damages for this tort because of the return of the documents. It was, however, the foundation for the award of punitive damages, and, as, in the circumstances, I see no error in that award, I shall say nothing more about the claim in conversion.

THE JUDGMENTS BELOW

[12] In reasons for judgment pronounced the 26th November, 2003, Holmes J. acceded to the submissions of DS (see para. 45 infra). This was the judgment drawn up and entered on the rolls of the court:

THIS ACTION coming on for trial at Vancouver, on the 26th to 29th days of May, 2003, the 2nd to 5th and 9th, 10th and 12th of June, 2003, and on hearing M.E. Royce and R. Kirshblum, counsel for the Plaintiff, and S.K. Gudmundseth, Q.C. and S. Miller, counsel for the Defendants,

AND JUDGMENT being reserved to this date:

THIS COURT ORDERS that:

1. The Plaintiff recover damages against the Defendants in amounts to be determined at a continuation of the trial of this action.

[13] Subsequently, on the 10th November, 2004, the learned judge delivered reasons for judgment upon which this judgment was drawn up and entered:

THIS ACTION coming on for trial at Vancouver, on the 5th to 8th and 12th and 13th days of July, 2004 and on hearing M.E. Royce and R. Kirshblum, counsel for the Plaintiff, and S.K. Gudmundseth, Q.C., and S. Miller, counsel for the Defendants,

AND JUDGMENT being reserved to this date:

THIS COURT ORDERS that:

1. The Defendant Merrill Lynch Canada Inc. shall pay to the Plaintiff damages in the sum of $250,000 plus interest pursuant to the Court Order Interest Act in the amount of $11,961, plus costs at scale 3;

2. The Defendant James Michaud shall pay to the Plaintiff damages in the sum of $10,000 plus interest pursuant to the Court Order Interest Act in the amount of $478, plus costs at scale 3;

3. The Defendant Don Delamont shall pay to the Plaintiff damages in the sum of $1,483,239 plus interest pursuant to the Court Order Interest Act in the amount of $70,966, plus costs at scale 3;

4. The Defendant Reginald Bellomo shall pay to the Plaintiff damages in the sum of $65,093 plus interest pursuant to the Court Order Interest Act in the amount of $3,114, plus costs at scale 3;

5. The Defendant James Swift shall pay to the Plaintiff damages in the sum of $39,607 plus interest pursuant to the Court Order Interest Act in the amount of $1,895, plus costs at scale 3;

6. The Defendant John Evin shall pay to the Plaintiff damages in the sum of $34,896 plus interest pursuant to the Court Order Interest Act in the amount of $1,670, plus costs at scale 3;

7. The Defendant Dave Neilson shall pay to the Plaintiff damages in the sum of $37,358 plus interest pursuant to the Court Order Interest Act in the amount of $1,787, plus costs at scale 3;

8. The Defendant Victor Kravski shall pay to the Plaintiff damages in the sum of $15,512 plus interest pursuant to the Court Order Interest Act in the amount of $742, plus costs at scale 3;

9. The Defendant Christine Clarke shall pay to the Plaintiff damages in the sum of $15,941 plus interest pursuant to the Court Order Interest Act in the amount of $763, plus costs at scale 3;

10. The Defendant Alan Duffy shall pay to the Plaintiff damages in the sum of $8,053 plus interest pursuant to the Court Order Interest Act in the amount of $385, plus costs at scale 3;

11. The Defendant Connie Dodgson shall pay to the Plaintiff damages in the sum of $1,000 plus interest pursuant to the Court Order Interest Act in the amount of $48, plus costs at scale 3;

12. The Defendant Norma Juozaitis shall pay to the Plaintiff damages in the sum of $1,000 plus interest pursuant to the Court Order Interest Act in the amount of $48, plus costs at scale 3;

13. The Defendant Alison Van Nest Klein shall pay to the Plaintiff damages in the sum of $1,000 plus interest pursuant to the Court Order Interest Act in the amount of $48, plus costs at scale 3;

14. The Defendant Barbara Daniel shall pay to the Plaintiff damages in the sum of $1,000 plus interest pursuant to the Court Order Interest Act in the amount of $48, plus costs at scale 3;

15. The Defendant Holly Hale shall pay to the Plaintiff damages in the sum of $1,000 plus interest pursuant to the Court Order Interest Act in the amount of $48, plus costs at scale 3.

[14] The defendant, James Michaud, was the regional manager for Merrill Lynch in the Kootenay; Mr. Delamont, as I have noted, was the manager of the DS branch in Cranbrook, as well as an advisor; the defendants named in clauses 4-10 were advisors; and the other defendants were "assistants".

[15] Counsel for Merrill Lynch summarized the damages awarded in this way:

41. Following the damages stage of the trial, the learned Trial Judge awarded the following damages:

a. for Mr. Delamont's breach of his duties as manager, he is personally liable for DS's profits for 5 years, less a contingency discount of 14.73% in the second year, 24.73% in the third year, 34.73% in the fourth year, and 44.73% in the fifth year (net of the contingency discount, this amounts to some $1.4 million);

b. for the IAs failure to give proper notice of their departures, all of the IAs, including Mr. Delamont, must personally reimburse DS for lost profits during the 2 1/2 week notice period (this loss amounts to some $40,000);

c. for the IAs unfair competition during the notice period, all of the IAs, including Mr. Delamont, are liable for 11.5% of DS's profits for 5 years. Mr. Michaud and Merrill Lynch bear joint and several liability for these damages (this amounts to some $225,000);

d. the IAs' assistants must pay nominal damages of $1,000.00 each for failure to provide reasonable notice; and

e. punitive damages of $250,000 against Merrill Lynch, $10,000 against Mr. Delamont and Mr. Michaud and $5,000 against each IA.

I am unable to reconcile paragraph c. with the judgment as it was drawn up.

[16] Why two judgments were thought necessary, I do not understand. It was within the power of the learned trial judge to give a direction upon her handing down her first reasons for judgment that no judgment should be drawn up until she delivered her reasons on damages.

THE CASE AS PLEADED

[17] Although I have summarized, I hope fairly, the respondent's case as pleaded, I shall now go through the statement of claim paragraph by paragraph, not only to identify with particularity the issues of fact as pleaded and the learned judge's findings thereon, but also, in case I have not summarized, in the opinion of the respondent, its case fairly, to give the respondent the opportunity to speak in its own voice.

[18] The first 19 paragraphs identify the parties.

[19] Paragraph 20 -

20. Each branch is managed by a Branch Manager who has responsibility for running the day-to-day operations of the branch, hiring, coaching, counselling and supervising employees, ensuring compliance with regulatory requirements, representing the firm in the local community, arranging local advertising and setting the budget for each branch. The Branch Managers also develop, service and maintain clients for DS in the same manner as Investment Advisors.

I do not understand this paragraph to be disputed.

[20] Paragraphs 21, 22, 25 and 26 -

21. In addition to the confidential information to which Investment Advisors are privy, as described below in paragraph 25, Branch Managers are privy to additional confidential information of DS, including:

a. the identity of all clients of the branch in question and the investment portfolios, objectives and preferences of those clients;

b. daily revenue information on all branches;

c. specific monthly targets and totals of objectives for all branches;

d. daily trading summaries which show all transactions by account within the branch in question; and

e. controllable cost reports on all branches.

22. DS provides investment services to its clients in each branch through Investment Advisors. These clients pay to DS fees and commissions which are split between DS and its Investment Advisors.

* * *

25. Investment Advisors are privy to confidential information of DS including:

a. the names of DS clients for whom they provide services and in particular, the appropriate contact people for investment needs;

b. the financial circumstances of the DS clients for whom they provide services, including the assets, income and investment objectives of those clients and their dependants;

c. the investment portfolio of DS clients for whom they provide services, including the particulars of their portfolios and objectives, including the specific securities and respective originating values; and

d. selected revenue information on the branch at which they are employed.

26. Investment Advisor Assistants such as the Defendants Dodgson, Juozaitis, Van Nest Klein, Daniel and Hale are employed by DS to provide assistance to its Investment Advisors and are privy to the confidential information referred to in paragraph 25 herein and, to one extent or another, develop close relationships with the clients of DS with whom they have regular contact.

It is not disputed that the personal appellants were privy to the information as therein described or that DS considers it confidential. But it does not follow inexorably that the use of any of the various species of information thus described for a purpose other than a purpose sanctioned by DS is actionable.

[21] Paragraphs 24 and 28 -

24. While DS at all times makes it clear to its Investment Advisors that all clients belong to DS, rather than to any individual Investment Advisor, Investment Advisors are expected to and do develop a close rapport with the clients with and for whom they work and obtain extensive knowledge of the individual financial circumstances of each of these clients and their investment objectives and portfolios. In developing their relationships with clients, Investment Advisors rely substantially upon the advertising and the research carried out by DS and, perhaps most importantly, upon DS' nation-wide reputation as the leading Investment Dealer in Canada for many years.

* * *

28. DS nevertheless recognises the right of any Branch Manager, Investment Advisor or Investment Advisor Assistant to leave its employ and work in due course for a competitor, provided that the Branch Manager, Investment Advisor or Investment Advisor Assistant, gives DS a reasonable opportunity to persuade any affected clients to remain with DS and further provided that the Branch Manager, Investment Advisor or Investment Advisor Assistant does not make any improper use of any confidential information or material proprietary to DS. Indeed, DS has not traditionally required that Branch Managers, Investment Advisors or Investment Advisor Assistants enter into any form of written non-competition or non-solicitation agreement, because it relies upon its Branch Managers, Investment Advisors and Investment Advisor Assistants to behave in a fair and reasonable manner if they leave the employ of DS.

As will appear hereafter, I consider it material to the question of whether the appellant is entitled to the damages awarded to it against the appellant Delamont that the respondent drew no distinction in these paragraphs between the appellant Delamont's obligations as Branch Manager and the obligations of the other staff.

[22] On paragraphs 24 and 28, these questions arise:

1. Do the clients "belong" to DS, a question which itself raises the question of what does "belong" mean in such a context?

2. Do departing servants of DS have any legal obligation to give it a "reasonable opportunity to persuade any affected clients to remain with DS"?

3. Do departing servants have a legal obligation "to behave in a fair and reasonable manner" after they leave the service of DS, whatever the words "fair and reasonable" mean in the context?

[23] As to the first question, my answer is "no". DS has no right of property in any client. What DS has is that species of property which, if it had sold the branch to another for a price greater than the value of the branch's tangible assets, would result in the purchaser including on its own balance sheet as "goodwill" the difference between the value of the tangible assets and the price. As The Shorter Oxford English Dictionary (3d ed.) puts it:

Goodwill...

4. Comm. The privilege, granted by the seller of a business to the purchaser, of trading as his recognized successor; the possession of a ready-formed connection of customers, considered as a separate element in the saleable value of a business 1571.

[24] My answer to the second and third questions is also "no" for reasons which I will address hereafter.

[25] Paragraph 31 -

31. No later than the Summer of 2000, Merrill Lynch and the Defendant Michaud contacted the Cranbrook Sales Force in an eventually successful attempt to induce them to breach their contractual and legal duties to DS by:

a. resigning from the employ of DS on November 20, 2000 without giving any or reasonable notice;

b. removing and/or making improper use of confidential information and material proprietary to DS for the benefit of Merrill Lynch; and

c. moving contemporaneously as a single group from DS to Merrill Lynch so as effectively to destroy the ability of DS to carry on business in Cranbrook and Nelson, to the benefit of Merrill Lynch.

[26] Subparagraphs a. and b. are true and c. is true in the sense that moving contemporaneously as a single group did, if not destroy, at least seriously impair the ability of DS to carry on business profitably in Cranbrook and Nelson, but, on this paragraph, the issue is the use of the words "so as", a point which I address again infra paragraphs 29-30. As to b., the learned judge made this finding in paragraph 4 of her first reasons, 44 B.L.R. (3d) 72, 2003 BCSC 1773:

[4] In the two or three weeks before the group departure, most of DS's confidential client records were removed or copied and sent to Merrill Lynch, ostensibly to facilitate the opening and handling of accounts at Merrill Lynch for the large proportion of clients expected to follow the IAs. Merrill Lynch returned this material to DS on the Friday after the Monday departures, evidently on the advice of its solicitor, and does not dispute that its original removal of the material was improper.

[27] By this passage and the words I have emphasized, the learned judge appears to be drawing no distinction, as a matter of legal consequence, between, on the one hand, making a copy, by whatever means, of a piece of paper belonging to A and taking the copy away, and, on the other, taking away A's piece of paper. There is, in the modern world, the further complication that big brokerage houses keep clients' original accounts not on paper but on computers from which the client's account can be printed out, perhaps on a piece of paper for which the brokerage house had paid.

[28] The learned judge made further reference to the records at paragraph 92 et seq and in paragraphs 134-136. But she did not expressly answer the question of whether DS was, by the removal of records, deprived of the ability to communicate with the clients. Not addressed is whether, for instance, DS was able to send, on 20th November, 2000, to all the clients, a letter in the form:

Dear Client,

As you may be aware, Reg Bellomo and Dave Neilson have resigned from RBC Dominion Securities to join the firm of Merrill Lynch.

I know that many of our valued clients appreciate the strength and stability of RBC Dominion Securities, not only because of our relationship with the Royal Bank, but because of our firm's reputation, trustworthiness and leadership as Canada's dominant investment firm.

As the Branch Manager, it is my hope that you will remain a client of our firm and keep your account with our Cranbrook branch. I will have a new Investment Advisor contact you as soon as possible to ensure your investment needs are continuously attended to.

If you have a preference for another Investment Advisor or wish to discuss your account with me, please call me at....

Yours truly,

Cindy Taylor, CIM
Branch Manager
RBC Dominion Securities

[29] Paragraph 32 -

32. The Plaintiff states that the said acts as detailed in sub-paragraphs 31(a), (b) and (c) were unlawful in that:

a. the Cranbrook Sales Force owed a duty to DS to provide reasonable notice of their resignations;

b. the Cranbrook Sales Force owed a duty to DS not to remove or make improper use of confidential information and material proprietary to DS for the benefit of Merrill Lynch;

c. the Cranbrook Sales Force having decided to enter into competition with DS, owed a duty to DS to do so fairly; and

d. moving contemporaneously as a single group without notice was intended and calculated to cripple the DS operations in Cranbrook and Nelson for the foreseeable future.

[30] The learned judge found subparagraph a. to be so, and the appellants do not here contest that finding. Therefore, I need not grapple with the interesting question, although there is a hint of it in the evidence, of whether the custom of the brokerage industry is to the contrary, and if so, whether a custom to the contrary excludes the usual implied term as to notice. Subparagraph b., if treated as a proposition of law, is true, but it does not answer the question of what information is of such a nature that use of it for other than the business of DS is actionable. As to subparagraph c., the issue of whether there is any duty to compete "fairly" is the same issue which I raised in paragraph 22 supra. Subparagraph d., like subparagraph c., appears to be asserting a conspiracy to injure DS in its trade. But if that is so, it was an attempt to revive that tort as it was sometimes understood before the House of Lords, in Crofter Hand Woven Harris Tweed Co. v. Veitch, [1942] 1 All E.R. 142, brought it into the modern world. Apposite here is this passage from Lord Wright's speech, at 163:

I have attempted to state principles so generally accepted as to pass into the realm of what has been called jurisprudence, at least in English law, which has for better or worse adopted the test of self-interest or selfishness as being capable of justifying the deliberate doing of lawful acts which inflict harm, so long as the means employed are not wrongful.

[31] As I have already noted, the learned judge rejected the assertion of conspiracy:

[129] Although I find the departures to have been coordinated, and to have involved the breaches of numerous duties to DS, I do not find the defendants' conduct to amount to a conspiracy, as DS alleges.

[32] Paragraph 32A -

32.A. The misconduct referred to in paragraph 31 herein constituted the implementation of an ongoing, widely practised and entirely unlawful corporate policy and practice of Merrill Lynch described in a Merrill Lynch document entitled "Preparation Guidelines For Receiving a Competitive Recruit". Pursuant to these Guidelines, Merrill Lynch required that its Branch Managers and other employees take every possible step to cause employees joining Merrill Lynch from competing investment dealers to provide to Merrill Lynch, for the benefit of Merrill Lynch, complete information with respect to the clients of the competing investment dealer with whom the Investment Advisor in question had been dealing, notwithstanding the fact that the said information was proprietary to the competing investment dealer and the employees in question had no entitlement whatever to provide that information to Merrill Lynch. Merrill Lynch was at all material times aware that the said policy and practice was unlawful but nevertheless induced the Cranbrook Sales Force to carry out the unlawful conduct referred to in paragraph 31 herein with full knowledge that it was unlawful for each and every one of the Defendants to do so.

[As this is not a plea of a material fact within the meaning of British Columbia Supreme Court Rule 19, I assume it was made as a foundation for the claim for punitive damages.]

[33] It is so that Merrill Lynch did have such a policy. As it played an important part in the award of punitive damages, I quote it, in part:

Moving the Book to Merrill Lynch

* * *

The recruit will need to provide the following information to the SIU [Manager of the Special Incoming Unit]:

□ The most recent portfolio printout of your clients' holdings.

□ A breakdown of the number of client account types:

* Cash/margin	* RRSPs/RRIFs/RESPs
* Locked-in RRSPs	* Group RRSP plans
* Option accounts	* Short hedge accounts
* Commodity accounts

□ A list of accounts that are currently set up for Systematic Plans or Pre-Authorized Contributions.

□ A list of accounts that hold mortgages in RRSP accounts (consider who will pay the legal fees)....

[34] DS also had a competitive recruitment guide which is not as blatant, but certainly contemplates inducing advisors to depart from one brokerage house and take up with DS. Part of its guide, "Transitioning Your Competitive Hire", includes:

Tips on how to Organize the Process

Before you begin the process of filling out documentation and sending out packages you should:

* * *

q Have the IA and team review the Client list to ensure accuracy in the names and addresses

q Group all accounts by Household

q Create a list of top 20 clients to whom they may wish to hand deliver the packages

q Identify Platinum clients and arrange On-line Access and Platinum welcome package....

Is the advisor to create his client list from memory?

[35] Paragraph 33 -

33. DS states that the Cranbrook Sales Force owed and owe, individually and collectively, a fiduciary duty to DS which, among other things, prohibits those Defendants from soliciting or dealing with clients of DS until the expiration of a period of time sufficient to give DS a reasonable opportunity to replace them and retain its clients in Cranbrook and Nelson. That fiduciary duty was and is owed to DS by those Defendants because:

(a) the Defendant Delamont was a Vice-President and Branch Manager;

(b) as to the remainder of the Cranbrook Sales Force, they entered into a joint venture or scheme with the Defendant Delamont and are thus fixed at law with the same fiduciary duty as is he;

(c) as to the entire Cranbrook Sales Force and the Defendant Delamont, their close and special relationship with the clients of DS rendered DS particularly vulnerable to subsequent competition by those Defendants;

(d) the Cranbrook Sales Force effectively constituted the full DS sales force in Cranbrook and Nelson and was thus the "whole show" at law;

(e) any other conclusion would result in manifest unfairness of a kind this Honourable Court should not countenance.

[36] The words "until the expiration of a period of time..." are an echo of paragraph 28 of the statement of claim. Subclauses (a) and (d) are true in the sense that Mr. Delamont was, indeed, the branch manager, although not a vice-president, and the Cranbrook sales force did effectively constitute the full DS sales force in Cranbrook and Nelson.

[37] I do not know any principle of law arising from some group of people being a "whole show".

[38] The learned judge found no fiduciary duty on the part of any of the appellant advisors and assistants.

[39] Paragraph 34 -

34. In the alternative, if the Cranbrook sales force did not owe a fiduciary duty to DS, they nevertheless owed at law a duty to make no improper use of confidential information or material provided to DS and to compete, if at all, in a fair manner. For the reasons set out elsewhere in this Statement of Claim, the Cranbrook Sales Force have fundamentally and repeatedly breached the said duties.

[40] This paragraph also raises the question of whether there is any duty after leaving an employment to compete "in a fair manner".

[41] Paragraph 35 -

35. While still employed by DS, the Cranbrook Sales Force took numerous steps to benefit Merrill Lynch and prejudice DS, all in violation of the duties of fidelity and good faith owed by those Defendants to DS. While full details of that misconduct are not yet known to the Plaintiff, the misconduct includes the fact that the Cranbrook Sales Force, while still employed by DS:

(a) in early November removed original confidential material proprietary to DS including all or substantially all of the client files located at the DS Cranbrook Branch and caused those files to be transferred to the Merrill Lynch Branch in Cranbrook and/or the Merrill Lynch Regional Office in Abbotsford, British Columbia;

(b) caused or permitted employees of Merrill Lynch to review the said client files in early to mid-November and to make use of the information and material in those files to, among other things, prepare solicitation letters to each DS client;

(c) photocopied confidential material proprietary to DS with a view to subsequently transferring the said copies to the premises of Merrill Lynch to be used for the benefit of Merrill Lynch; and

(d) communicated with clients of DS for the purpose of soliciting those clients to accompany them to Merrill Lynch.

[42] The primary facts in subparagraphs (a) and (b) are true. As to (c), the exact nature of the material, other than lists of clients and documents relating to an individual client, is not clear to me. It is unfortunate that the appellants did not demand particulars, especially of subparagraph (c). As to (d), this is the relevant passage in the learned judge's first reasons:

[105] Here the IAs' conduct extended far beyond cautious letters and phone calls to clients, and amounted to a determined and frenetic campaign to move the clients to Merrill Lynch. This campaign began with the removal of client information weeks before the move, and continued with telephone calls in the case of some IAs before the move, and in the case of others immediately after. I find, despite some evidence otherwise, that letters to clients on Merrill Lynch letterhead were sent within at most two or three days of the move. At the DS Nelson office, an assistant was left behind for the express purpose of referring all clients to Merrill Lynch.

[106] It was suggested that the letters to clients were no more than is required by professional courtesy, to advise clients of the IAs' departure from DS. The text of the letters belies this suggestion. For example, the letter under the signatures of Mr. Delamont and Mr. Duffy, who worked together as IAs, is taken from the Merrill Lynch "Preparation Guidelines for Receiving a Competitive Recruit" and began as follows:

We are pleased to announce an exciting new business opportunity. We have decided to move to Merrill Lynch Canada Inc., Canada's pre-eminent financial service organization serving the needs of the individual investor. We believe that in order to improve one's situation, one must periodically assess and make changes, and that is exactly what we have done.

After describing Merrill Lynch's attributes as a firm, Mr. Delamont and Mr. Duffy thank the client and invite him or her to contact them at indicated telephone numbers "[s]hould you have any questions or concerns".

[107] It is difficult to conceive of an "exciting new business opportunity", as announced in the first line, other than the opportunity to do business with Messrs. Delamont and Duffy at Merrill Lynch. On a literal reading, the opportunity might refer [to] Mr. Delamont and Mr. Duffy's own move to Merrill Lynch. However, the letter as a whole and its general tenor make clear that Mr. Delamont and Mr. Duffy will continue at Merrill Lynch to perform the types of services they performed at DS. The letter cannot be read as a regretful announcement of the termination of their relationship with the client.

[108] It is unnecessary for me to determine whether the letters went so far as to solicit the DS clients. The letters themselves may, like the letter in Investors Group, [Investors Group Financial Services Inc. v. Smith, [1994] N.S.J. No. 466 (Q.L.) (S.C.)], have come up to but not over the line. However, they clearly provided clients with the ready means to continue their relationship with the IAs at their new firm. They did so while DS was reeling from the departures and not in a position to even send its own letters to clients, let alone to reassure clients that DS would provide satisfactory replacements for the IAs who had left.

[109] I have no difficulty concluding that Loo J.'s evocative metaphor applies, and that the IAs were in fact well past the starting line before DS had any inkling that a race was on. This was unfair competition.

[43] Paragraphs 36 to 40 -

36. Because of the aforementioned communications by the Cranbrook Sales Force, DS became aware on or about November 16, 2000 that certain members of the Cranbrook Sales Force might be intending to leave the employ of DS. When confronted about this on November 16, 17 and 18, the members of the Cranbrook sales force were initially equivocal and in particular refused to confirm or deny their intention to move to Merrill Lynch.

37. On Monday, November 20, 2000, the Cranbrook Sales Force either failed to attend for work at all or attended only very briefly before leaving the Cranbrook and Nelson offices of DS. They immediately began working at Merrill Lynch with the result that, while the Cranbrook branch of DS had, as of November 17, 2000 one Branch Manager, eight experienced Investment Advisors, two very junior Investment Advisors and seven support staff, those branches had as of the morning of November 20th, only two very junior Investment Advisors and two support staff.

38. On and after November 20, 2000, the Defendants continued an active campaign of communicating with all DS clients in Cranbrook and Nelson by means of letters, telephone calls and meetings with a view to attempting to persuade them to transfer their business from DS to Merrill Lynch.

39. The Defendants did not return to DS any of the original confidential documentation proprietary to DS, including in particular client files, until on and after November 24, 2000.

40. The Defendants conspired amongst themselves from at the latest the summer of 2000 through November, 2000 to effect the many unlawful acts referred to in this Statement of Claim.

[44] Paragraphs 36-39 are true. As to paragraph 40, as I have noted, the learned judge did not find there to have been an actionable conspiracy.

THE FIRST REASONS FOR JUDGMENT

[45] The learned judge, in her second reasons, 36 B.C.L.R. (4th) 138, 2004 BCSC 1464, summarized her first reasons, 2003 BCSC 1773, thus:

Introduction

[1] Earlier reasons for judgment (2003 BCSC 1773) set out numerous findings as to liability associated with the coordinated departure of most of the sales staff of the RBC Dominion Securities Inc. ("DS") Cranbrook branch for the competitor Merrill Lynch Canada Inc. branch, and the defendants' unfair competition and conversion of DS's records. These reasons address the damages arising.

[2] The underlying body of evidence concerning DS's financial position before and after the employee departures is not in dispute. Numerous issues nonetheless arise from the evidence and the parties' detailed and helpful submissions, and are determined in principle below. If the parties are unable to agree on the precise aggregate effect for each defendant of these determinations, they may settle the matter before a Registrar or arrange through the court registry to appear before me (by telephone or in person) for further direction.

Summary of Previous Findings as to Liability

[3] I found the following breaches of duties to DS:

· The DS employees (namely Mr. Delamont, the IAs [investment advisors], and the assistants) each breached the implied term in their employment contracts with DS to provide reasonable notice of the termination of their employment.

· The DS employees also breached their larger contractual duty not to compete unfairly with DS by:

○ failing to provide reasonable notice of termination (which itself breached an implied contractual duty, as noted above)

○ engaging in concerted and vigorous efforts to move clients to Merrill Lynch well before DS was in a position to try to protect its relationship with those clients, and

○ removing all DS's confidential client records several weeks before the move in order to facilitate the transfer of DS clients to Merrill Lynch (actions which also constituted the tort of conversion, as noted below).

· Mr. Delamont also breached his contractual duty to faithfully perform the functions of his role as branch manager. Although he was specifically remunerated (over and above his earnings as an IA) for this role, over a period of months (beginning June 2000 at the latest) he promoted and coordinated the departure of virtually all of the sales staff of the DS branch.

· As was acknowledged at the trial, Mr. Delamont, the IAs, and the assistants bear liability for the tortious conversion of DS's confidential client records. Merrill Lynch and Mr. Michaud also bear liability for that conversion.

· Merrill Lynch and Mr. Michaud tortiously induced the DS employees' breaches of their duty not to compete unfairly with DS after they left DS.

[4] I was satisfied that each of the various breaches caused loss to DS, but I did not at that stage of the proceedings assess the extent of the loss from each breach or particularize the loss caused by each defendant.

[5] I did not find Merrill Lynch or Mr. Michaud to have induced Mr. Delamont's breach of his duty to faithfully perform his role as branch manager. I mention this because plaintiff’s counsel read ¶145 of my reasons as sufficiently broad to encompass such a finding.

[46] Thus, it appears the learned judge:

1. accepted the plea of DS that the Cranbrook staff, either individually or collectively, owed a legal duty "[to give] DS a reasonable opportunity to...retain its clients", "to behave in a fair and reasonable manner", to compete "fairly", and "to compete, if at all, in a fair manner";

2. found, although there was no plea to that effect, that Mr. Delamont, in breach of a duty specific to him, "promoted and coordinated the departure ...";

3. held the investment advisors to have a contractual duty to give notice;

4. found that Merrill Lynch and Michaud committed the tort of inducing breach of the advisors' contracts "not to compete unfairly" after they left DS;

5. found the advisors and Merrill Lynch and Michaud liable for the tort of conversion.

[47] As to the first and fourth of these conclusions, when one analyzes the pleas of DS and the learned judge's findings, the concept of competing unfairly appears to come to this question: Does a servant who is contemplating departure, or has departed, owe any contractual duty to the master to refrain for some period of time from immediately competing in order to give the master a window of opportunity to persuade the clients to remain?

[48] If there is no such contractual obligation, it would follow that there can be no inducing a breach of it.

[49] I address this question, together with the other questions arising on these conclusions, in paragraphs 59 and following.

EVIDENCE ON THE QUESTION OF DAMAGES

[50] At the hearing before the learned judge, the principal evidence was that of two expert valuers, Mr. Wayne Rudson, for DS, and Mr. Robert Mackay, for Merrill Lynch and the other appellants.

THE SECOND REASONS FOR JUDGMENT

[51] In her second reasons, the learned judge put the position of the parties and the issues, thus (I have added in square brackets the answers which she gave consequent upon her discussion of the issues):

Positions of the Parties as to Damages

[6] DS submits that without the breaches set out above, the departures to Merrill Lynch would not have happened and the DS Cranbrook branch would have continued to function unimpaired into the indefinite future, subject to usual employee turnover. In particular, the mass departure would never have gained its momentum without Mr. Delamont's breach of his duty as manager. In any event, with reasonable notice of their intention to depart DS would have been able to persuade the employees to stay. The defendants are therefore liable for either the drop in value of the branch as a capital asset, or for its profits lost since and because of the departures.

[7] DS submits that even if some of the IAs would have left DS in any event, without the breaches enough IAs would have remained (or could have been hired) to staff a viable branch which would have been able to retain a greater proportion of the DS clients serviced by the IAs who departed.

[8] The defendants respond that the breaches did not cause the virtual collapse of the branch as DS maintains because the employees were entitled to leave their employment, whether separately or together; the employees were discontented with significant aspects of their employment, and would have left DS in any event.

[9] The defendants submit that therefore the losses caused by the breaches, and for which DS is entitled to damages, are only those flowing from the absence of reasonable notice and the employee's unfair competition during what should have been the notice period. Since the court concluded that in these unusual circumstances of a mass departure which left behind almost no staff the appropriate notice period was "a matter of weeks", DS should therefore be awarded damages limited to its lost profits during the several weeks after the departures.

[10] DS makes, and the defendants resist, a forceful claim for punitive damages, in part on the basis that compensatory damages will be inadequate to condemn the prolonged course of unlawful conduct.

Issues

[11] The positions of the parties and the evidence in relation to damages raise the following issues:

Damages Payable By Mr. Delamont

1. Did Mr. Delamont's breach of his duty as branch manager to work against the departures, and not to promote and coordinate them, cause the virtual collapse of the Cranbrook branch as DS maintains?

[Yes: "[48] In summary, Mr. Delamont's breach did much more than provide the mere occasion for the mass departure. His various acts and failures in breach of his duty to DS led directly to the circumstances in which the employees determined to leave. I am satisfied that his breach caused the mass departure and the near collapse of the DS branch, but did not cause the departures of Mr. Swift and Mr. Kravski." ]

2. If so, are DS's damages arising from the virtual collapse of the branch too remote to be compensable by Mr. Delamont? [No]

Damages Payable By (Variously) All Defendants

3. Are the defendants liable for DS's losses beyond the notice period because, with reasonable notice of the employees' termination, DS could have persuaded them to stay?

[Yes: "[64] The IAs are therefore liable for DS's loss of profits during the 2 ½ week notice period, to December 4, 2000. The loss in relation to that period will be calculated in accordance with the principles discussed below. The IAs will bear individual liability in relation to the total amount of this loss of profits in proportion to their share of the total of the assets under management at DS at the time of the departures.

[65] The assistants will pay nominal damages of $1,000 each in relation to their breach of duty to give notice." ]

4. If the DS employees had competed only fairly after their departure (including by not competing during the period of reasonable notice of termination), would DS have retained a higher proportion of clients?

[Yes: "[80] DS retained 13.5% of the assets under management in the departing IAs' client books. I am satisfied that had DS had a reasonable notice period within which to regroup and enter into a fair competition for clients, it would have been able to increase that retention rate to 25%." ]

5. Did DS unreasonably fail to mitigate its loss? [No]

6. If DS is to be compensated for the near-collapse of the branch, what method should be used to value that loss?

[Loss of profits:

"[93] For several reasons, I agree with the defendants that the loss of profits approach (though not necessarily the defendants' application of that approach) is the more suitable of the two approaches here." ]

7. If the loss of profits method of valuation is used,

(a) Should DS's actual profits since the departures include the profits generated by Cindy Yates, an IA who joined DS after the trial?

[Yes:
"[104] In the application of the loss of profits method of valuing DS's loss, DS's actual profits since the departures will therefore include those generated by Ms. Yates." ]

(b) What equivalent business should serve as a guide to how DS's profits would have continued had the breaches not occurred?

[Group average:
"[110] Mr. Royce for DS suggested that because no single group of branches can offer a perfect basis for comparison, an average of the various groupings Mr. Rudson considered [including the DS private client division involving all branches in Canada, and various branch groupings, both in B.C. and Canada, as listed in para. 107] is the most reliable basis on which to project DS's lost future profits. I agree. Mr. Rudson's groupings attempt to isolate key characteristics of the Cranbrook branch, insofar as they may be reflected in the financial information available. Averaging will reduce the effect of any anomaly within any particular grouping.

[111] The calculation of DS's lost profits will therefore be based on an averaging of the six groupings Mr. Rudson considered." ]

["[118] For all these reasons, I conclude that DS’s compensable loss runs for five years, to October 31, 2005. However, it will also be subject to an appreciable discount for contingencies, to which I now turn."]

(d) By what percentage should DS's projected profits be reduced to reflect uncertainties inherent in assumptions as to the future (a contingency reduction)?

["[122] In my view, more appropriate to the industry and the Cranbrook branch in particular is a rate which increases over time. The discount rate will therefore be as follows:

20% on the loss to October 31, 2001

30% on the loss to October 31, 2002

40% on the loss to October 31, 2003

50% on the loss to October 31, 2004

60% on the loss to October 31, 2005 "]

(e) Should there be a reduction equivalent to the amount Merrill Lynch paid as incentives to the IAs to leave?

[No:
"[123] The defendants submit that the calculation of DS's lost profits should include a deduction for the financial incentives Merrill Lynch paid the employees to move from DS, because DS would have had to offer similar incentives to retain them. Mr. Mackay concluded that the aggregate present value (as at the date of the departures from DS) of these incentives (which were forgivable loans and incentive bonuses) was approximately $1.4 million. He was unable to determine the negative impact on profits that the higher commission rates to IAs may have had.

[124] I am not persuaded that DS would have had to offer the IAs the same incentives to stay. In their evidence, most of the IAs spoke about their dissatisfaction at DS in a fashion I described earlier as euphemistic, emphasizing client interests and Merrill Lynch's superior technological system at the time. Although it was evident from the IAs' evidence as a whole in this area that their dissatisfaction stemmed largely from their actual remuneration or from the expected downward pressure on their remuneration by DS's banking arm, the evidence was not specific as to amounts. Also, as I have noted in other contexts, the group departure took on its own momentum and in its final days responded to an extent to social, rather than financial, pressures.

[125] I note also that the very fact that IAs who move from one firm to another retain considerably less than 100% of their client book indicates the financial risk to an IA in making such a move. A financial incentive to move serves in part to compensate the IA for the inevitable loss of some clients, and therefore commissions, as a result of the move.

[126] Finally, I note that this issue (which relates only to the calculation of DS's loss of profits associated with the near-collapse of the branch) has the greatest, though not its only, effect in relation to damages payable by Mr. Delamont. It was Mr. Delamont's own breach which created the situation in which the IAs were susceptible to the financial incentives Merrill Lynch offered, and he should not benefit from that breach.

[127] For all these reasons, I do not conclude that absent Mr. Delamont's breach similar financial incentives would have been required to keep the IAs at DS. No doubt adjustments to remuneration would have been required from time to time, as part of the normal operation of the branch within the overall DS structure. However, such adjustments would not be unique to the Cranbrook branch, and to the extent that they would have decreased the branch's profits they are reflected in the profits of the groups of equivalent businesses Mr. Rudson considered.

[128] In the calculation of DS's lost profits, there will be no deduction equivalent to the financial incentives Merrill Lynch gave the IAs to move. "]

8. Is DS entitled to damages for the conversion of its documents?

[No: "[129] As Mr. Royce candidly acknowledges, it is difficult to identify any component of DS's loss which flows uniquely from the conversion of DS's documents.

[130] The documents were returned to DS on the Friday after the Monday move, and any Merrill Lynch documents prepared from them were destroyed.

[131] There will be no compensatory damages in relation to the conversion. However, I will return to the matter in relation to the discussion of punitive or exemplary damages below." ]

9. Should punitive damages be awarded?

[Yes: "[143] Mr. Delamont and Mr. Michaud will each pay $10,000 in punitive damages. The other IA defendants will each pay $5,000. The assistants acted under instruction and will not pay punitive damages. Merrill Lynch will pay $250,000." ]

ERRORS ALLEGED

[52] In this Court, the appellants, in their factum, allege these errors:

Damages Against Mr. Delamont Personally

1. The pleadings do not support the award of damages against Mr. Delamont personally.

2. The learned Trial Judge erred by failing to give proper consideration to the reasonable expectations of the parties to the employment contract.

3. In finding that Mr. Delamont caused DS' loss, the learned Trial Judge erred by:

a. failing to apply the proper test for causation in contract;

b. making inconsistent findings regarding causation.

4. The learned Trial Judge erred by failing to apply the doctrine of minimum performance.

5. The learned Trial Judge erred by awarding damages without adequate reduction for contingencies.

Damages Generally against all Defendants

6. The learned Trial Judge erred by awarding damages for failing to give notice when notice would not have been accepted by the employer.

7. The learned Trial Judge erred by finding the IAs liable to pay damages of 11.5% of DS's lost profits over a 5 year period in addition to finding the IAs liable for DS's lost profits during the notice period.

Punitive Damages

8. The learned Trial Judge erred by awarding punitive damages or by awarding excessive punitive damages.

[53] They seek these orders:

... that the appeal be allowed and the following orders be made:

a. The Lost Profit Damages be set aside; or

In the alternative, the Lost Profit Damages be set aside and a new trial be ordered; or

In the alternative, the Lost Profit Damages be set aside and replaced by damages equal to Mr. Delamont's branch manager compensation for the period of breach, from June to November 2000; or

In the alternative, the Lost Profit Damages be reduced by 29%, which is the percentage of lost profits attributable to Mr. Delamont's book of business and by the percentage attributable to Mr. Bellomo;

In the alternative, a contingency rate of 50% be applied to DS' future lost profits;

b. The award of damages for notice period losses be set aside;

c. The award of damages for losses incurred as a result of the IAs conduct during the notice period be set aside;

d. The award of punitive damages against each Appellant be set aside, or

In the alternative, the award of punitive damages against each Appellant be reduced.

[54] For its part, DS not only seeks an order that the appeal be dismissed, but also that the cross appeal be allowed to:

(a) increase the award of punitive damages against the departing IA's and Mr. Michaud to the amounts of their respective signing and incentive bonuses;

(b) increase the award of punitive damages against ML to $1 million dollars; and

(c) award damages against the departing IA's equal to the damages awarded against Mr. Delamont with respect to the near destruction of the Cranbrook Branch.

[55] In support of that position, DS says:

73. By way of cross-appeal, DS submits that:

(a) if this Honourable Court is prepared to interfere with the discretion of the learned Trial Judge as to the extent to which punitive damages should be awarded in this case, the punitive damages awarded against the departing IA's should be increased to reflect the signing bonuses paid to them by ML, the punitive damages as against Mr. Michaud should be increased to reflect the bonus paid to him by ML for recruiting the Cranbrook Branch, and the punitive damages awarded against ML should be increased to reflect better the financial status of ML; and

(b) the learned Trial Judge erred in that, having concluded that it is probable that, if the Appellant IA's had provided DS with reasonable notice, most would have been persuaded by DS to stay and not move to ML, the learned Trial Judge concluded that, as a matter of law, this probable consequence of the misconduct of the departing IA's did not give rise to an entitlement to damages on the part of DS.

ANALYSIS

[56] In Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24, Binnie J. remarked:

71 It is difficult to endorse the indignation of the legal titleholders with respect to detention of their aircraft until payment is made for debts due to the service providers. They are sophisticated corporate players well versed in the industry in which they have chosen to invest. The detention remedies do not affect their ultimate title. Lenders who have done their due diligence will recognize that detention remedies have deep roots in the transport business.

[57] What we have here is a respondent who is a sophisticated master. It deliberately chose not to obtain non-competition and non-solicitation clauses from its servants, nor to put a term as to length of notice or a term "you promise if you leave our employment you will not compete unfairly" (I have never seen such a term, whatever it might mean) into its written contract, if any, with any of these servants, including Mr. Delamont.

[58] Had it taken proper care of itself by obtaining such provisions, the appellant advisors might well not have entertained the thought of leaving, either because they felt they should observe express terms of a contract, or out of fear of the consequences of not observing such terms.

(a) The Asserted Obligation "Not to Compete Unfairly"

[59] In paragraph 47, I posed the principal question of law, using that word to include equity, which I understand to arise on the pleas of DS and the learned judge's findings.

[60] I appreciate that in the various authorities there may be some phraseology which one could construe as creating a general duty not to "compete unfairly" after leaving the master's service. I have in mind the reasons for judgment of my colleague, Hall J.A., in Barton Insurance Brokers Ltd. v. Irwin (1999), 63 B.C.L.R. (3d) 215 (B.C.C.A.) at 221-222:

[17] It must, of course, be observed that the problem presented in this case is a rather different one from the one referred to in the cases mentioned above, cases concerning the enforceability of covenants. There was no covenant in this case. However, from that field of the law came the development of the area we are here concerned with: namely, the duties of an employee to a former employer. Absent any express contractual terms, the law has developed to provide that a former employee will not be at liberty to act in an unfair way to a former employer. Whether it be called a fiduciary duty, a duty of good faith or a duty of confidence, the theme running through this whole area of the law is that in appropriate circumstances, a former employee may be found to have breached an enforceable duty owed to a former employer and may be successfully sued for injunctive relief or for damages.

[18] Clearly, an employee has duties to a present employer not to divulge trade secrets or to work against the interests of his or her employer but the duty is not just limited to current employment. After leaving employment, an employee may be obligated not to pursue certain activities to the detriment of the former employer. For instance, it has been usually reckoned to be unfair conduct to permit a former employee to take with him or her customer lists to use for solicitation of business or to divulge trade secrets or to seek to appropriate maturing business opportunities of the former employer. On the other hand, I suppose to avoid what might otherwise be a condition of almost involuntary servitude, it has long been held that an employee is free to compete for custom with a former employer. As usual in human affairs, the difficulty is in the details and it is often difficult to know where to draw the line.

[Emphasis mine.]

[61] As Binnie J. remarked in R. v. Henry, [2005] 3 S.C.R. 609, 49 B.C.L.R. (4th) 1, in a passage as applicable to a judgment of this Court as to a judgment of the Supreme Court of Canada:

[57] ... The notion that each phrase in a judgment of this Court should be treated as if enacted in a statute is not supported by the cases and is inconsistent with the basic fundamental principle that the common law develops by experience.

[62] Lord Reid put the same proposition thus in Cassell & Co. Ltd. v. Broome, [1972] 1 All E.R. 801 (H.L.) (the famous case arising from the publication by the appellant of the work The Destruction of Convoy PQ17, which indicted the respondent naval officer not only of incompetence but, also, more woundingly, of cowardice) at 835-836:

The very full argument which we have had in this case has not caused me to change the views which I held when Rookes v. Barnard [[1964] 1 All E.R. 367, [1964] A.C. 1129], was decided or to disagree with any of Lord Devlin's main conclusions. But it has convinced me that I and my colleagues made a mistake in simply concurring with Lord Devlin's speech. With the passage of time I have come more and more firmly to the conclusion that it is never wise to have only one speech in this House dealing with an important question of law. My main reason is that experience has shown that those who have to apply the decision to other cases and still more those who wish to criticise it seem to find it difficult to avoid treating sentences and phrases in a single speech as if they were provisions in an Act of Parliament. They do not seem to realise that it is not the function of noble and learned Lords or indeed of any judges to frame definitions or to lay down hard and fast rules. It is their function to enunciate principles and much that they say is intended to be illustrative or explanatory and not to be definitive.

[63] Many authorities have been cited in this case, and I have read many more, but I can find no authority warranting an affirmative answer to the question.

[64] As to the passage which I have quoted from the judgment of Hall J.A. in Barton Insurance, it is obiter dicta, for he was affirming a judgment dismissing an employer's action against a departing employee who had used the telephone directory to create a list of customers for her new employer. The ratio of the decision will be found in paragraph 39:

[39] In the case at bar, I am of the respectful view that the conclusions of the learned trial judge were soundly based in law and fact. Absent an enforceable agreement to refrain from soliciting former customers, I am not of the view that any duty, fiduciary or otherwise, should have been found to prevent Ms. Irwin from canvassing former clients. In cases involving activity by key or senior former employees, or by directors in situations disclosing manifest unfairness, such as found in Palmer [57134 Manitoba Ltd. v. Palmer (1989), 37 B.C.L.R. (2d) 50 (C.A.)] or Tree Savers International Ltd. [v. Savoy (1991), 81 Alta. L.R. (2d) 325 (Alta. Q.B.), aff'd on point (1992), 87 D.L.R. (4th) 202 (Alta. C.A.)], a court may be persuaded to grant injunctive relief or to award damages against former employees. However, the general interest of the public in free competition and the consideration that in general citizens should be free to pursue new opportunities, in my opinion, requires courts to exercise caution in imposing restrictive duties on former employees in less than clear circumstances. Generally speaking, as I noted from the earlier authorities referred to, the law favours the granting of freedom to individuals to pursue economic advantage through mobility in employment. To find liability against the defendants on the facts of this case would, in my view, not be appropriate.

[65] In my opinion, there is no such thing on the part of a servant, upon leaving his master's employ, as an obligation not to compete "unfairly". Such a broad open-ended legal duty, whether treated as an implied term of a contract of service or as some obligation outside the contract but imposed by law, would be dependent for its scope on the length of any particular judge's foot. To put it another way, the allegation in paragraph 28 of the statement of claim, which is echoed in paragraphs 33 and 34, does not assert an ingredient of any cause of action known to me.

[66] This is not the place to engage in a disquisition on the general principles of implication of terms. But if each of these servants had been asked on entering into the service of DS, "If you leave our employ, do you promise not to compete unfairly?" would he or she have answered, "of course"? I think not. I think, at least if he or she were intelligent, the response would have been, "What does that mean? I have to make a living."

[67] To the extent, therefore, that the judgment below is founded upon an implied obligation not to compete "unfairly", it cannot be sustained. As, in my opinion, that concept loomed large in the learned judge's approach to the issues, its rejection puts in doubt the validity of all the learned judge's ultimate conclusions.

(b) The Claim for Breach of Confidence

[68] What the law does protect is the master's goodwill and other property, by holding that the servant may not take away confidential documents and trade secrets.

[69] Although there are no trade secrets at issue in the case at bar, this passage from Morison v. Moat (1851), 9 Hare 241 at 255, 68 E.R. 492 at 498 [a case about a secret recipe for a medicine], a judgment of Turner V.-C., is apposite:

The Plaintiff's case was rested in argument upon the ground that the Defendant had obtained this secret by breach of faith or of contract on the part of Thomas Moat. ... The true question is whether, under the circumstances of this case, the Court ought to interpose by injunction, upon the ground of breach of faith or of contract.

That the Court has exercised jurisdiction in cases of this nature does not, I think, admit of any question. Different grounds have indeed been assigned for the exercise of that jurisdiction. In some cases it has been referred to property, in others to contract, and in others, again, it has been treated as founded upon trust or confidence, meaning, as I conceive, that the Court fastens the obligation on the conscience of the party, and enforces it against him in the same manner as it enforces against a party to whom a benefit is given the obligation of performing a promise on the faith of which the benefit has been conferred; but, upon whatever grounds the jurisdiction is founded, the authorities leave no doubt as to the exercise of it.

[Emphasis mine.]

[70] To the same effect as to the foundation of an action for breach of confidence, is the judgment of Sopinka J. in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574 at 615.

[71] Whether any particular piece of information should be considered "confidential" depends upon its nature. Some information within that rubric is of the "nothing very special" variety. See the judgment of Binnie J. in Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 ¶ 65-66, although it is not a case of master and servant.

[72] I have found very considerable assistance in considering the issues arising from the allegations in paragraph 35 of the statement of claim, certain passages in the judgment of Sir Donald Nicholls, then the Vice-Chancellor and now Lord Nicholls, in Universal Thermosensors Ltd. v. Hibben, [1992] 3 All E.R. 257 (Ch.), the only other case of a mass departure which I have come across and which does not appear to have been cited to the learned trial judge. I need not set out the conduct of the servants before their departure. It is sufficient to say that it might be thought to be more egregious than that which took place here. It is important to note, however, that the individual defendants may have given sufficient notice of their impending departure so that they were not actually in breach of their obligation to give reasonable notice.

[73] Lord Nicholls said, in part, at 266-267:

Save on one point the underlying applicable legal principles were not in dispute. The contracts of employment between the plaintiff and the three individual defendants did not include any provision restricting their activities after their employment ended. So when they left they were free to set up at once a directly competing business in the immediate locality. Further, they were entitled to approach the plaintiff's customers, and seek and accept orders from them. Still further, they were entitled to use for their own purposes any information they carried in their heads regarding the identity of the plaintiff's customers, or customer contacts, or the nature of the customers' product requirements, or the plaintiff's pricing policies, provided they had acquired the information honestly in the ordinary course of their employment and had not, for instance, deliberately sought to memorise lists of names for the purposes of their own business. What the defendants were not entitled to do was to steal documents belonging to the plaintiff, or to use for their own purposes information, which can sensibly be regarded as confidential information, contained in such documents regarding the plaintiff's customers or customer contacts or customer requirements or the prices charged. Nor were they entitled to copy such information onto scraps of paper and take these away and then use the information in their own business.

The one point of disagreement on the law concerned a contention by the plaintiff to the effect that once it is shown that the defendants had stolen documents containing confidential information, and that they had used those documents in soliciting orders, there arises an irrebuttable presumption that any business resulting from the orders derives from the wrongful use of the confidential information and that the defendants are liable in damages accordingly. The court will not inquire at all into whether the defendants knew the name of the particular customer or contact anyway. I am not able to accept a proposition expressed in such comprehensive and rigid terms. In assessing and awarding damages here the object of the law is to award fair compensation to a plaintiff for the wrong done to him by a defendant's misuse of his confidential information. Whether particular business obtained by a defendant was obtained as a result of misuse by him of a plaintiff's confidential information is essentially a question of fact in each case. In seeking to answer that question, the court will inquire into the facts and surrounding circumstances as much in this case as in any other. In doing so, of course, a court will not take leave of common sense. It will view with considerable circumspection, even scepticism, a contention by a defendant who has chosen to use a list, that he already carried some of the information in his own head and that looking at the list for any particular name or names was quite superfluous and unnecessary. Moreover, any doubts and obscurities arising from the evidence are likely to be resolved against the defendant. So, in practice, such a defendant will have a difficult row to hoe. But this approach by the court is far removed from saying that in no circumstances will the court look further once user of the list is proved. That would be altogether too sweeping, and it could easily result in a plaintiff being awarded more than fair compensation for the loss suffered by him from the misuse of his confidential information. I do not understand Nourse LJ to have said otherwise in Roger Bullivant Ltd. v. Ellis, [1987] ICR 464 at 475, when he observed that, having made deliberate and unlawful use of the plaintiff's property, a defendant cannot complain if he finds that the eye of the law is unable to distinguish between the potential customers whom, had he so chosen, he could have contacted lawfully and those whom he could not.

[Emphasis mine.]

[As I discuss in paragraphs 80-83 infra, I am of the opinion that in the context of this case, the concluding words of the first paragraph are too all-encompassing.]

[74] Before the court in that case were two issues: the plaintiff's claim for damages for misuse of confidential information, and the defendants' claim for damages on the plaintiff's undertaking as to damages upon an interlocutory injunction which was conceded apparently by the plaintiff to have been far too wide. As for the plaintiff's claim, the learned judge said, at 268:

Nor can it be right to infer any damage to the plaintiff's goodwill, with consequent loss in trade, flowing from TPL's unsuccessful canvassing of orders from other customers (TPL [the competing business set up by the defendants] was in touch with 121 of the 218 customers whose names are in the schedule to Warner J's order of 9 July 1990). There was no evidence before me to suggest that the defendants indulged in any denigration of the plaintiff to such customers or at all. The plaintiff placed much reliance on the award of general damages made by Hawkins J in Robb v. Green [1895] 2 QB 1 at 19-20, but that was a very different case. TPL has ceased trading. The identity of each of the customers who dealt with TPL is known and in this case, unlike in Robb v. Green, the circumstances in which each of the plaintiff's customers began to trade with TPL were investigated with a fine toothcomb. The only exceptions were Ricardo (whose business was minimal) and Tempcontrol.

The overall result is that, in substance, the plaintiff's claim for damages based on loss of profits fails. I do not find this surprising. The reverse in the plaintiff's trading fortunes in 1990 may well be explicable by a combination of factors for which in law the defendants are not liable: internal disorganisation following the loss of many employees, trade recession, and (quite possibly) the loss to TPL of some orders which TPL obtained otherwise than by the misuse of confidential information.

[Emphasis mine.]

[75] As to the defendants' claim on the undertaking, he said, at 269-270, that the injunction had been far too wide:

In my view this contention is well founded. In July 1990 the plaintiff was entitled to be protected, by means of an injunction, against any further misuse by the defendants of the plaintiff's confidential information. For instance, they must no longer use the item 3 list. An injunction in those terms would be without limit in point of time. For the future TPL must obtain from independent sources any information it needed about potential customers and contacts. It must search through directories, and it must then make sustained efforts over the telephone to reach the appropriate personnel. In aid of this injunction the plaintiff was entitled to have documents such as the item 3 list delivered up.

The matter stands quite differently regarding misuse which had already occurred before July 1990. By this date TPL had already made contact with many of the plaintiff's customers. In respect of such past misuse the clock could not be put back. The plaintiff was entitled to appropriate financial recompense, by way of damages or restitutionary relief such as an account of profits. In my view, however, in respect of misuse which had already occurred the plaintiff was not entitled to more. In particular, if by misuse of confidential information TPL had already made contact with a customer and had received an order from him, an injunction to restrain TPL from fulfilling that order or any future order would go too far. An injunction in such a form would not be aimed at preventing further misuse of confidential information. The misuse occurred when the plaintiff's customer and contact were approached. Fulfilling outstanding or future orders would not be a further misuse of confidential information by TPL.

* * *

In those circumstances, to grant an injunction to restrain TPL from dealing after July 1990 with customers it had already approached was to put the plaintiff in a better position for the future than if there had been no misuse of information. I can see no justification for that.

[Emphasis mine.]

[76] In the upshot, the plaintiff obtained judgment on its claim for damages for the stealing of confidential information, £186, and the defendants, on their claim on the undertaking, for £20,000.

[77] Of relevance is the passage in which Lord Nicholls says that the defendants were not liable in law for loss of profits from "internal disorganisation following the loss of many employees". I appreciate, however, he does not say why that is so.

[78] The critical point of this judgment is its emphasis on the significance of the investigation into why the various customers, all of whom were known to the plaintiff, had given orders to the defendants.

[79] In the case at bar, there was no true investigation of the circumstances in which the various customers or clients began to trade with Merrill Lynch, so whether the business of a particular client was obtained as a result of misuse of "confidential" information was never determined.

[80] But what should be considered confidential information? In the opening paragraph of these reasons, I asked the question, what weight is to be given to the interests of the clients to whom are owed, by all those engaged in this litigation, duties of competence and honesty?

[81] In my opinion, a client is entitled to know immediately upon his advisor leaving one firm for another where that advisor has gone so that he or she can decide whether to change to the new firm or remain with the old.

[82] Because of that important interest of the client, an advisor should be able, without fear of litigation, to prepare a list of his own book of business from the records of the brokerage house. To hold in the 21st century that an advisor, who usually, by considerable personal diligence, has built up a book of business, must rely on his memory for the full names, addresses, telephone numbers and e-mail addresses of his clients, is not, in my opinion, in the interests of the clients and, therefore, is not in the public interest. I emphasise "his own book of business". He is not entitled to take a list of other advisors' clients. To put it another way, the interests of the brokerage house should not be put ahead of the interests of the clients.

[83] I do not say that an advisor is entitled to take copies of account statements and other papers concerning the client, such as the Know Your Client form. If the client wants to change to the new firm, he or she can give instructions to the old firm to hand over copies of all relevant documents, or give the advisor a copy of his or her own statements, and so forth. For the advisor to take other documents would be quite wrong because the client may consider that parts of those documents are confidential and he or she would not wish them to be in the possession of the new firm. I have in mind, for instance, that a client is obliged to give to an investment firm where he has an account, his social insurance number.

[84] There was here a breach of confidence, but a breach limited in scope. The communication with the clients, in and of itself, was not a breach, but the removing of the various documents was. However, in the absence of evidence as to why any particular client chose to take his or her custom to Merrill Lynch, it cannot be said that there is any causal connection between that breach of confidence and DS losing the client's custom. It is as probable as not that the client wished to remain with the advisor, no matter what brokerage firm the advisor chose as his master. One can, of course, construct a case in which a former servant obtains the custom of a client by, for instance, making derogatory remarks about the former master, but there is nothing of that sort in the evidence in this case. The loss of custom here came, on the evidence, simply from the advisors leaving, as all were entitled to do, whether individually or in concert, subject of course to each having given reasonable notice.

(c) The Failure to Give Reasonable Notice and its Consequence

[85] I do not recall any case in this jurisdiction in which a master has sued a servant for damages for quitting before the expiry of a period of reasonable notice, although the books are replete with cases in which a servant has sued a master for not giving reasonable notice.

[86] But to adopt the words of Lord Evershed, M.R. in Laws v. London Chronicle (Indicator Newspapers), Ltd., [1959] 2 All E.R. 285 (C.A.) at 287, as "a contract of service is but an example of contracts in general, so that the general law of contract will be applicable", the cause of action plainly exists. Implicit, I think, is that during the notice period the master was entitled to the services of the servant and he is entitled to be compensated for that loss.

[87] The measure of the loss may be put as the reasonable and probable consequence of the loss of services during that period. The underlying reason is the rule in Hadley v. Baxendale (1854), 9 Exch. 341, 156 E.R. 145.

[88] If, for instance, a master could only replace the servant by paying a replacement higher wages, then I should think that the measure of loss is the difference between the replacement's pay and the departing servant's pay.

[89] Where, as here, the departing servant is a commissioned salesman, then in my opinion the master is entitled in principle to damages measured by the amount the master would have received from the commissions which the clients would have paid during the period in question, less the salesman's portion of the commissions.

[90] There is, in the case of a master suing a servant, a hidden complexity. The rule in Hadley v. Baxendale, a case of non-delivery of a piece of machinery at the appointed time, speaks of the contemplation of the parties at the time the contract was made. A contract of service is made when the servant is first employed. But what is the appropriate date if over the years the servant's duties have changed? Is the punctum temporis the date of original hiring or some later date? Fortunately, that question need not be answered in this case.

[91] In arriving at my conclusion as to the measure of loss, I have been much assisted by the judgment of Anglin J., later C.J.C., in Sheppard Publishing Co. v. Harkins (1905), 9 O.L.R. 504 (Ont. H.C.J. (Div. Ct.)), a judgment which I do not understand was cited to the learned judge below, although it is mentioned in the judgment of this Court in 57134 Manitoba Ltd. v. Palmer (1989), 37 B.C.L.R. (2d) 50 at 57. As Anglin J. put it at 504:

The plaintiffs sue for an account of profits alleged to have been made by the defendant while employed as their advertising manager by devoting to other enterprises time and labour which he had agreed to give to them, and by engaging as principal in competitive business.

It had been found as a fact that the defendant had engaged to devote his entire time and attention to the interests of the plaintiffs and to engage in no other business.

[92] Anglin J. then said, at 505:

Such being the nature and the terms of their servant's employment, the plaintiffs claim to be entitled to an account of profits made by him by engaging in work in breach of his agreement with them for exclusive service, on the grounds, first, that the time which he so spent was their time and that they are therefore entitled to his earnings or profits made by using it for his own purposes, and second, that as their servant he was bound to refrain from engaging in any competitive business and that to that extent his relation to them was fiduciary and such as would entitle them to an account of profits made by him in breach of such duty.

[93] This passage, at 508, is, I think, of consequence:

The contract of the agent or servant is merely to do his employer's business for his employer's benefit. He may violate his contract, express or implied, not to engage in any other business, or to devote his whole time and attention to his master's work, by undertaking other employment, but it is quite another thing to say that he must be deemed to have agreed that if he does other business than that of his employer it shall be on his employer's account or for his benefit. The right of the employer to the earnings or profits derived from such extraneous employment of his servant must, if it exists, rest upon something other than such an implied agreement on the part of the servant.

[94] Having put aside, then, the expenditure of spare time in non-competitive business, Anglin J. said, at 509-511:

... two questions remain for solution. If the servant, without his employer's consent, devotes to his own purposes time which he should, under his agreement fairly construed, have given to the service of his employer, is the latter entitled to earnings or profits so acquired? If the servant devotes only his spare time to a rival or competitive business, is the master entitled to an account of the earnings or profits which he so makes?

If the master is so entitled, in the former case, it must be because the time and labour expended by the servant is to be regarded as the master's property, and the earnings and profits as the value or proceeds of that property, converted by the servant to his own use and sold for money which in his hands is to be deemed money had and received to the use of his master.

* * *

I am unable to distinguish profits made by the servant by working on his own account from wages earned by him in the service of another. Neither one nor the other may represent any real damage sustained by the master. As such neither one nor the other can be recoverable by him. As money obtained by the servant by the sale of time and labour which belonged to his master, and, therefore, in contemplation of law, the proceeds of the master's property, his right to follow and demand them may be upheld: Taylor v. Plumer (1815), 3 M. & S. 562. I am bound, I think, to hold profits so made by a servant to be in his hands the property of his master for which the servant must account to him.

and later, at 513:

... I think that we should not hesitate to declare it to be law that no servant can be permitted to retain as against his employer profits acquired by engaging, during his term of employment, without his master's consent, in any business which gives him an interest conflicting with his duty to that employer.

[95] In the case at bar, the learned judge did make such awards, which we were told amount in total to about $40,000.00. I would uphold those awards.

[96] But the awards against the departing staff, to the extent they are founded on the "loss of profits for some years to come" approach which the learned judge adopted, must be set aside.

[97] Should, however, the respondent be entitled to damages against Mr. Delamont for the breach which the learned judge found him to have committed and, if so, what is the proper measure?

[98] I think not. First, the case was not pleaded as a claim against him for breach of duty as branch manager in "masterminding and coordinating, etc." The focus of the action against him, as well as the other advisors, was the assertion of a duty not to compete unfairly.

[99] But, secondly, and of general importance, is the question of the extent of obligation of someone in his position to his employer.

[100] As to what his position was, he gave this evidence:

Q Mr. Delamont, you're 55 years old?

A Yes.

Q And you've been in the industry, the investment advisor industry, for some 16 years?

A Yes.

Q You don't have any post-secondary education?

A No.

Q You grew up in Cranbrook?

A Yes.

Q And your family has been there for some three

generations; is that correct?

A Yes.

Q Your first involvement in the industry was when you joined Pemberton Securities in 1987; is that correct?

A That's correct, yeah.

Q And you joined Pemberton as an investment advisor in Cranbrook; is that right?

A That's correct.

Q And you were made a branch manager of Cranbrook in 1988?

A That's right.

Q And then Pemberton merged with DS or was bought out and taken over by DS in 1989?

A Yes.

Q Now, you were nominated to become a vice-president of DS at one time; is that correct?

A Yes.

Q I believe the record indicated that was in 1995?

A Yes.

Q And what was your response to your nomination as a vice-president?

A I -- I declined it at the time.

Q I take it you never completed the examination to qualify as a vice-president and officer or director of company?

A That's right.

Q And accordingly you have never been a director or officer of the company; is that right?

A Yes. I don't know -- during the interim period there, you're -- you're a vice-president while they're -- while you're waiting to do the exam, but I determined that it wasn't in my interests and told them that I wasn't interested. And my boss at the time, Adrian Koot [phonetic], phoned me and asked if there was any problem, and I just said no, I -- there was no problem, but I just have no interest in pursuing the exam just for the VP title.

Q And as a manager at the Cranbrook time, what was the -- your ‑- what is your estimate of the breakdown of time spent in -- well, you were a producing manager. Let me begin with that.

A Yes, I was a producing manager.

Q Which is to say you had your own book of business and dealt on a day-to-day basis with your own clients?

A Yes. In small branches there's not enough for a manager to do on a full-time basis, so producers are asked to take on some of the management responsibilities.

Q Okay. And how much of your time in the last year or two of your time at the Cranbrook branch was allocated to so-called managerial functions as opposed to your book of business?

A It would vary, but I would say it would probably average 20 to 25 percent.

Q Of your time would be spent in respect of which? Managerial or in -- with respect of your book of business?

A 25 percent -- 20 to 25 percent would be managerial and the balance of my time would be with clients.

Q And of the time spent on managerial duties, how much of that time would be spent on so-called compliance-related matters?

A More than half, probably. You did daily reviews in the morning and compliance would be the largest part of it. I would say probably 50 to 60 percent.

Q Okay. And the servicing of your book of clients, what did that entail on a day-to-day basis? If you could just generally describe what was involved in -- in that.

A Well, you would receive incoming calls from a variety of clients making requests for meetings or raising capital, would be a common occurrence, or issuing cheques to them or to the nominees. That would take up a small part of your time. And then the major part of your time would be doing reviews and setting up appointments for clients to come in and go over those reviews. And then based on those reviews there would be time spent entering orders or changes in client portfolios and then reviewing the actual portfolio itself for individual clients. I usually had a schedule of a number of clients per day that I reviewed.

Q What -- was your principal source of income salary or commissions?

A My principal source of income was commissions.

Q And those were derived from your --

A From the client base.

Q -- client service and your book of business; is that right?

A That's correct, yeah.

Q And as at November 2000, what was the volume of assets that you were looking after as part of your book of business, measured in dollars?

A I was managing approximately $124 million in client assets.

Q And what was your estimate of that as a percentage of the assets in the Cranbrook branch at the time?

A It was probably 35 to 40 percent of the branch.

[101] I appreciate that he gave this evidence:

Q So by this stage in early November, a meeting at your house, it's decided, we are going to go and we're going to go together?

A There's a very high probability at that stage we were going to go, that's correct.

Q And whatever else may be said, sir, you will surely concede that at that point you owed a clear, unequivocal duty to get a hold of Milligan right away and tell him about it?

A Yes. I failed to do that in protecting my own interests. I would agree with that.

Q And you, to put it more clearly, sir, put your own financial and other interests ahead of those of your employer to whom you owed the duty of good faith we've talked about earlier?

A Yes, I would have to say that's true.

Q And you were in clear breach of that duty of good faith and knew you were?

A Yes, I'd have to say I agree with that.

Q Because you decided to put your own self-interests ahead of that of the person or entity to whom you owed that duty of good faith?

A Yes, I would have to agree.

Q And certainly there was no doubt in your mind at that stage, early November, that you had a clear duty, A, to report to Milligan; right?

A Yes.

Q And B, you still owed a duty, sir, to try to stop this thing, didn't you, as branch manager?

A Yes, I would suppose I did, yeah.

[102] But whether there was a breach of contract by him in his capacity as branch manager is to be judged objectively.

[103] The proposition that a servant owes a duty of loyalty to his master is easy to state but its application depends on circumstances.

[104] I know of no authority for the proposition that it is a breach of such obligation, no matter how vital the servant is to the master's business, for the servant to entertain an offer of employment from someone else, including a competitor, or to accept it, even during the continuance of the contract of service. A breach will only occur if the servant departs before the contract of service has expired, either by effluxion of time or by the giving of notice. Nor do I know of any authority for the proposition that a servant is contractually obliged to give his master, by for instance informing him of the terms offered by the new master, an opportunity to retain his services by matching those terms.

[105] If what the learned judge found was indeed an actionable breach, then the question to be posed, founded on Hadley v. Baxendale, is this: At the time the contract was made, i.e. 1995, when he became branch manager, a part-time position, what damages could fairly and reasonably be considered as arising naturally from the asserted breach?

[106] The difficulty with posing the question thus is that neither of the parties to this contract would have ever thought about this sort of alleged breach. It is thus very different from a case in which the promise is to do a certain thing by a certain time. A different way of looking at the problem, although I know of no direct authority for it, is this: If the contract of employment had contained an express term, "You will not encourage any other employee to leave our employ to work for a competitor.", what damages would flow from applying the rule in Hadley v. Baxendale? I do not propose to attempt to answer that question, or indeed to answer the question of whether such a term would be found to be an invalid restraint of trade. As I have said earlier, the focus of this case was not on any asserted breach of special duty on the part of Mr. Delamont to DS. Therefore, I see no foundation for treating Mr. Delamont differently from the rest of the staff.

PUNITIVE DAMAGES

[107] As I indicated at the outset, I see no error in the learned judge's awards of punitive damages and I would not set those awards aside.

CONCLUSION

[108] It follows from all this that I would allow the appeal of the advisors and set aside clauses 3-10 of the judgment of 10th November, 2004, save to the extent that the amounts awarded are for loss of profits during the notice period and punitive damages.

THE CROSS APPEAL

[109] At paragraph 54, supra, I set out the orders sought on the cross appeal.

[110] In my opinion, the awards of punitive damages here were sufficient to the purpose.

[111] As to the award sought of damages "against the departing IA's equal to the damages awarded against Mr. Delamont with respect to the near destruction of the Cranbrook Branch", my conclusion that there was no contractual obligation on the part of the advisors not to compete unfairly after their departure disposes of this claim.

COSTS

[112] As the appellants have been largely successful, I would award them the costs of the appeal and of the cross appeal. I would order that the costs in the Supreme Court of British Columbia be remitted to the trial judge.

“The Honourable Madam Justice Southin”

I agree:

“The Honourable Chief Justice Finch”

Reasons for Judgment of the Honourable Madam Justice Rowles:

I. Introduction

[113] This appeal raises issues concerning the foundation and extent of the damages awarded against a former employee for the breach of an implied duty of good faith in a contract of employment.

[114] The respondent, RBC Dominion Securities Inc. ("DS"), and the appellant Merrill Lynch Canada Inc. ("ML") are both securities and investment dealers doing business in Canada and other countries. In 2000, each had a branch in Cranbrook, British Columbia. DS's Cranbrook branch also had a smaller sub-branch in Nelson, British Columbia. In the Cranbrook and Nelson areas, each firm was the other's main competitor.

[115] On 20 November 2000, Mr. Don Delamont, the branch manager of the Cranbrook and Nelson offices of DS, together with almost the entire sales force of DS's Cranbrook and Nelson offices, left to join ML. Prior to their leaving, the sales staff copied client records and used the records to assist in establishing new accounts for the clients with ML.

[116] In the action brought by DS, damages were sought against ML, Mr. James Michaud who was ML’s Regional Manager for the territory that included Cranbrook and Nelson, Mr. Delamont, the Investment Advisors who had left en masse, and some Assistants to the Investment Advisors.

[117] The trial judge found that Mr. Delamont, beginning some six months prior to 20 November 2000, had encouraged and facilitated a coordinated departure of virtually all of the Investment Advisors and Investment Assistants from DS to ML in contravention of his implied duty of good faith in his contract of employment as branch manager. The departure included the copying of client records of DS to facilitate the setting up of new client accounts with ML.

[118] By agreement of counsel, the trial was divided so that liability for damages of the various defendants was determined first with the damage issues to be heard later. The trial judge’s reasons on the liability issues may be found at 2003 BCSC 1773 (“Reasons on liability”) and on the damage issues at 2004 BCSC 1464 (“Reasons on damages”).

[119] The matters for determination on the liability part of the trial concerned the extent of the fiduciary or other duties of Mr. Delamont and the other Investment Advisors and Assistants who left DS on 20 November 2000, and the responsibility of ML and its regional manager, Mr. Michaud, in relation to their departures. DS alleged that Mr. Delamont owed fiduciary duties to DS and violated those and other duties inherent in his employment by leading the group departure and soliciting DS clients away to ML. Against the Investment Advisors and their Assistants, DS alleged that they shared in Mr. Delamont's breaches of fiduciary duty, and that because they left as virtually "the whole show", they owed higher duties to DS than if they had left individually. DS alleged that ML and Mr. Michaud induced the various breaches by the DS staff and therefore bore direct liability for the breaches, as well as, in the case of ML, vicarious liability.

[120] The trial judge concluded that none of the former DS employees stood in a fiduciary relationship with DS but found that each had breached duties to DS “including the duty to provide reasonable notice of termination which in turn contributed to their larger breach of the duty not to compete unfairly with DS after their departure” (Reasons on liability at para. 144). The trial judge found that “Mr. Delamont also breached his duty to faithfully perform the functions of his role as branch manager, in the months before the departures” (Reasons on liability at para. 144) and that his breach caused the “mass departure” of the other Investment Advisors. The compensatory damage award against Mr. Delamont was for $1,483,239.00. The award of damages against the Investment Advisors varied, the highest amount being $65,093. Modest amounts were awarded against the Investment Assistants.

[121] Madam Justice Southin, whose reasons I have read in draft, has concluded that the damage award against Mr. Delamont and the Investment Advisors must be set aside and that the awards against them restricted to the amounts that represent loss of profits during the two-week notice period following their departure from DS’s employ, and punitive damages. I am unable to agree that the award against Mr. Delamont ought to be set aside.

[122] In my opinion, the result my colleague has reached with respect to the damage award against Mr. Delamont does not accord with the law concerning an employee’s implied duty of good faith or with the findings of fact made by the trial judge concerning the extent and effect of the breach by Mr. Delamont of his obligations as the respondent’s branch manager for Cranbrook and Nelson. It is also my view that DS’s pleadings were such that the claim against Mr. Delamont could readily be distinguished from the claim against the Investment Advisors and that the trial judge was not in error in rejecting the appellants’ argument that the pleading on causation in relation to Mr. Delamont was inadequate.

[123] The appellants do not take issue with the judge’s finding that Mr. Delamont breached his implied duty of good faith as DS’s branch manager of its Cranbrook and Nelson offices. Instead, the thrust of the appellants’ argument concerning the award of damages against Mr. Delamont appears in the opening statement of the appellants' factum:

The appeal centres on whether the legal standard necessary to establish causation has been met in the holding that the appellant Delamont was liable for the respondent’s losses over a 5 year period following the resignation of the employees in the respondent’s Cranbrook branch. Further, in calculating damages is the doctrine of minimum performance as it relates to breach of contract claims applicable. That would require that damages be reduced to take into account that the appellant Delamont and other employees could have lawfully resigned on proper notice to the employer….

[124] The following errors in judgment, as set out in the appellants’ factum, are alleged with respect to the award of damages against Mr. Delamont:

Damages Against Mr. Delamont Personally

1. The pleadings do not support the award of damages against Mr. Delamont personally.

2. The learned Trial Judge erred by failing to give proper consideration to the reasonable expectations of the parties to the employment contract.

3. In finding that Mr. Delamont caused DS’s loss, the learned Trial Judge erred by:

a. failing to apply the proper test for causation in contract;

b. making inconsistent findings regarding causation.

4. The learned Trial Judge erred by failing to apply the doctrine of minimum performance.

5. The learned Trial Judge erred by awarding damages without adequate reduction for contingencies.

[Italics in factum.]

[125] As to the assertion that “causation was not pleaded”, the appellants state in their factum at para. 46:

DS did not plead the material fact that Mr. Delamont’s breach of his duties as branch manager caused the IAs to leave or that he caused DS to suffer loss as a result of the IAs’ departures and yet this was the basis for the Trial Judge’s award of $1.4 million against him personally (“Lost Profit Damages”). [Italics in factum.]

[126] For the reasons which follow, I would not give effect to the grounds the appellants put forward on their appeal from the damage award against Mr. Delamont. I would not dissent from the result my colleague has reached with respect to the awards against the Investment Advisors, although my reasons for arriving at that result are not the same as those of my colleague. I would dismiss the cross-appeal.

II. Employment contracts and the implied duty of good faith

[127] In awarding damages against Mr. Delamont, the trial judge found that Mr. Delamont had breached an implied duty of good faith in his contract of employment with DS and, as a result, DS suffered substantial damages. In reaching those conclusions the trial judge considered the nature of Mr. Delamont’s employment duties and the extent and consequences of the breach of his implied duty of good faith in the performance of his duties as DS’s branch manager for the Cranbrook and Nelson offices.

[128] That damages may be awarded for breach of an implied duty of good faith is well established. Mr. Geoffrey England, in Employment Law in Canada, 4th ed., looseleaf (Markham: LexisNexis Canada Inc., 2005) vol. 2 in chapter 11, provides an informative background on the origin of an employee’s obligation of “fidelity”. Portions of that chapter are reproduced below.

§11.2 The dominance of the common law in providing the source of the employee’s obligations springs from the pre-Industrial Revolution era in England. In that neo-feudal culture rights, duties and social roles were largely determined on the basis of status, not free contract. A high degree of subordination to superior authority was expected in all walks of life and absolute loyalty on the part of subordinates was expected, with a reciprocal obligation to care for them being placed on their superiors… Not surprisingly, the courts designed the rules of the employment law to mirror this culture. Thus, the courts implied a standard duty of “fidelity” on the “servant” which rigorously entrenched the “master’s” absolute authority to determine virtually all aspects of the relationship beyond the basic issue of remuneration, which alone was considered suitable for express bargaining. Significantly, the employee’s obligations were imposed by courts as a matter of public policy, as natural incidents of the status of “master” and “servant”, not as the product of mutual agreement through contract…

§11.3 The legacy of this ancient duty of “fidelity” is today’s still relatively extensive set of standard implied obligations considered in this chapter which comprise the employee’s duty of loyalty. Although the Industrial Revolution reformulated many status relationships – including that of employer and employee – with contractual relationships based on free exchange, nonetheless the judges transposed the ancient duty of “fidelity” virtually intact into the modern employment contract…

[Footnotes omitted.]

[129] In his introduction to the implied obligations of an employee, England expands on the duty of fidelity:

§11.54 …Today, this implied duty of “fidelity” remains largely intact, providing an all pervasive, residual obligation to further the interests of the employer which is not capable of exhaustive categorization but which can be relied on by the courts to compel “faithful” service in a myriad of work situations…

[130] At §11.118, England describes the components of an employee’s duty to respect the employer’s trading and business interests, which is part of the duty of fidelity: an employee’s obligation not to make a secret profit from his or her employment, an employer’s presumed right to any inventions or copyrights, an employee’s obligation not to compete, an employee’s obligation not to misuse trade secrets or confidential information of the employer, and an employee’s fiduciary obligation to his or her employer. In his discussion on the employee’s obligation not to appropriate trade secrets and confidential information for his or her own benefit, England states:

§11.142 The implied duty of fidelity under the employment contract prohibits an employee from appropriating for his or her own benefit the employer’s trade secrets, customer lists and other confidential information, both during and after the employment relationship has ended. Even in the absence of such a contractual prohibition, the employer has a proprietary interest in such material which the courts will protect in equity against misappropriation by another party…

§11.143 Furthermore, while the courts have always permitted an employee to compete with a former employer after his or her employment has ceased, this right is subject to the additional proviso that any such competition must not be “unfair”. This appears to blur somewhat the line between regular employees and employees who are in a “fiduciary” relationship with their employer… Nevertheless, the courts have emphasized time and again that the duties owed by a “fiduciary” to a former employer are stricter than those of a regular employee so that the “fairness” proviso will almost certainly not result in the full-scale “fiduciary” obligation being applied to regular employees. However, the "fairness" proviso unquestionably leave[s] the law somewhat uncertain and unpredictable.

[Footnotes omitted.]

[131] With regard to customer lists, England states:

§11.153 Regarding the enticement of customers of a former employer, the implied duty of fidelity treats customer lists as a form of “confidential information” in certain circumstances so that an employee will be prohibited from enticing such individuals to do business with him or her even though the period of employment has ended…

[Footnote omitted.]

[132] In terms of the damages recoverable by a former employer for breach of an implied duty of good faith in an employment contract, England states:

§11.163 Where there has been wrongful misuse of confidential information or trade secrets, the employer may also recover damages against the employee for profits it has lost as a consequence of his or her breach of the implied term of the contract of employment, or elect to take the judgment for an account of profits obtained by the employee from the wrongful exploitation of the material in question instead of damages…

§11.165 Also, the employer may be awarded punitive damages if the employee has wilfully and deliberately abused confidential information. Furthermore, if the employee’s misuse of the confidential information takes the form of the tort of conversion…damages may also be assessed on the basis of the principles of the law of tort…

§11.166 In addition to seeking relief against the offending employee, there is ample authority for recovery of damages, as well as an injunction, against third parties who have profited from trade secrets or confidential information improperly divulged by employees, such as a new employer of the employee who makes use of the material as part of its business…

[Footnotes omitted.]

[133] In Employee Obligations in Canada, looseleaf (Aurora: Canada Law Book Inc., 2003), James A. D’Andrea also extensively canvasses the topic of use of confidential information. D’Andrea confirms that there is a duty on the part of employees not to disclose or misuse confidential information of a former employer, and opines that customer lists constitute confidential information. With regard to the remedies available for a breach of this duty, D’Andrea states, at 2:110:

…The traditional remedy for breach of confidence or misuse of confidential information is an accounting of profits or damages. Generally speaking, the plaintiff is to be placed into the same position from a monetary viewpoint that he or she would have been in had the breach not occurred. This can usually be accomplished by an award of damages and consequently a restitutionary remedy would be appropriate. Often, however, an accounting of profits is also available notwithstanding that an accounting is not generally thought to be restitutionary in nature. The measure of damages in that case is governed by the defendant’s gain and not by the defendant’s gain at the plaintiff’s expense…

[134] In Barton Insurance Brokers Ltd. v. Irwin (1999), 170 D.L.R. (4th) 69, 1999 BCCA 73, to which the trial judge in this case referred, Hall J.A., for the Court, considered the duty of good faith as an implied term in employment contracts. In Barton, a claim was made against an insurance broker who had worked with the plaintiff company for 14 years before leaving and starting work for a competing company. After the broker left, she was encouraged by her new employer to go through the phone book and attempt to recall former clients to solicit them to her new company. She did not actually remove confidential customer lists from the plaintiff company. In determining whether the broker breached any duties to her former employer, Hall J.A. made the following general observations about the way in which the law has developed:

[17] …Absent any express contractual terms, the law has developed to provide that a former employee will not be at liberty to act in an unfair way to a former employer. Whether it be called a fiduciary duty, a duty of good faith or a duty of confidence, the theme running through this whole area of the law is that in appropriate circumstances, a former employee may be found to have breached an enforceable duty owed to a former employer and may be successfully sued for injunctive relief or for damages.

[Underlining added.]

[135] In my opinion, what Mr. Justice Hall said in Barton encapsulates the present state of the law.

[136] Madam Justice Southin has considered the question of whether there can be any foundation for an award of damages for “breach of good faith” after employment has ceased and has concluded that there is no implied obligation in a contract of employment that a servant on leaving his master's employ will "compete fairly".

[137] The tag expression “compete unfairly” is imprecise and its use unfortunate. As England points out in 11.143 of his text, quoted above, “the ‘fairness’ proviso unquestionably leave[s] the law somewhat uncertain and unpredictable”. However, the case authorities recognize that, in certain circumstances, an employee, as a consequence of an implied duty of good faith in a contract of employment, may not be free to act in a manner inconsistent with that duty after the employment has come to an end. Whether injunctive relief or damages is available depends very much on the nature of the employee’s duties and the nature of the employee’s breach. Examples of conduct that may attract injunctive relief or damages include appropriation by a former employee of the employer’s trade secrets or unauthorized use of the employer’s confidential information.

[138] What occurred in this case was unusual. What the trial judge found was that Mr. Delamont encouraged and facilitated a coordinated departure of virtually all of the Investment Advisors and Investment Assistants from DS to ML, in breach of his duties as branch manager. In her reasons for judgment on the issue of damages, the trial judge said:

[23] From early on (though not at the outset of Mr. Michaud's recruiting campaign), Mr. Delamont presented the potential move as a coordinated group undertaking involving all of the DS sales staff except the two most junior rookies, subject always to the option of any individual to remain with DS. Over a period of almost six months, he encouraged IAs to consider a move to Merrill Lynch, arranged or hosted meetings with Merrill Lynch representatives, assisted some of the IAs in their contractual negotiations with Merrill Lynch, helped coordinate the transfer of DS client records to Merrill Lynch in the weeks before the expected move, and did so with nary a hint to more senior DS management who would undoubtedly have tried to prevent the mass departure. It was in these unique circumstances flowing from Mr. Delamont's fundamental and extended breach of his duties to DS that momentum for the move developed and reached its climax in the mass departure.

[139] As the trial judge found, the breach by Mr. Delamont of his implied duty of good faith included helping to “coordinate the transfer of DS client records to Merrill Lynch in the weeks before the expected move” (Reasons on damages at para. 23). This was not a simple removal of a list of clients. The information contained in the records that were removed was confidential in two respects. First, it was confidential client information, that is, information that a client of an investment dealer would expect to be held or kept in confidence. Second, it was confidential to DS in that the information contained in the records, which was essential to the operation of its investment business, was not known by its competitors.

[140] In response to the appellants’ arguments, among others, that "it is not uncommon within the securities industry for departing employees to take copies of their employer’s client documents" (Reasons on damages at para. 135), the trial judge said:

[137] Although IAs leaving a firm may take client information or copies of records, this course of conduct is known to be improper; the defendant IAs here were clearly aware that it was so. Moreover, the IAs removed not simply a list or a few records, but rather records (whether originals or copies) of DS's entire client base. The copying and removal took place surreptitiously over several weeks, much of it after business hours when the risk of detection was low. This was a planned, prolonged, secret scheme to arrange a wholesale transfer of information to a competitor.

[138] More than DS's proprietary interest was involved. Most, if not all, of the documents contained clients' financial information, the confidentiality of which DS and the IAs were bound to protect. Without the clients' consent or even knowledge, the defendants transferred detailed and voluminous private information out of DS's protection and to a firm with which the clients may not have wished to deal.

[Underlining added.]

[141] On the facts of this case, it appears to me that, despite the evidence of the acceptance in the investment industry of investment dealers soliciting investment advisors from other companies, injunctive relief would have been available to restrain the use of client records and information that had been copied in preparation for the move and then removed from DS’s business premises in advance of the departure of Mr. Delamont and the Investment Advisors. As it happened, DS’s records were returned, on the advice of counsel, within a few days of the employees leaving, but that does not sanitize or neutralize the misuse of the records in advance of the mass departure or the benefits derived by the appellants from that misuse.

[142] I digress slightly to add that, in my view, the fact that some or all of the client records could have been copied and removed electronically is irrelevant to the question of whether such copying would constitute a breach of an implied duty of good faith in a contract of employment and is irrelevant to the issue of whether injunctive relief or damages would be available. Without doubt, the ability to move and process information has changed dramatically over the past 25 years but no one would suggest that a breach of copyright or a trade secret, for example, would be any less so because it could be accomplished electronically.

[143] While the use of the phrases “to compete fairly” or “not to compete fairly” is unfortunate, I am of the view that the trial judge was not in error in her understanding of the law or in her application of the law to the facts as she found them in relation to the Investment Advisors and the Assistants.

[144] The claim against Mr. Delamont, however, was based on the breach of his implied duty of good faith while still employed as DS's branch manager.

III. The pleadings

[145] Madam Justice Southin has concluded that the damage award against Mr. Delamont must be set aside "save to the extent that the amounts awarded are for loss of profits during the notice period ...." Much of the foundation for my colleague’s conclusion is that the pleadings were inadequate to treat Mr. Delamont differently from the other Investment Advisors. I respectfully disagree with that conclusion.

[146] In my opinion, a review of the Further Amended Statement of Claim (amended 25 April 2003 by consent) demonstrates that the claim against Mr. Delamont was advanced on a broader foundation than the claim against the Investment Advisors.

[147] In the Further Amended Statement of Claim, DS alleged that Mr. Delamont was the branch manager and that as the branch manager he had certain duties, knowledge and responsibilities which were distinct to him. The allegations in which reference was made to Mr. Delamont include the following:

· At para. 4: "... The Defendant Delamont is a former Vice-President and Branch Manager of DS and was solely responsible for the management of the day-to-day operation of the Cranbrook branch of DS until his resignation on November 20, 2000.”

· At para. 20: “Each branch is managed by a Branch Manager who has responsibility for running the day-to-day operations of the branch, hiring, coaching, counselling and supervising employees, ensuring compliance with regulatory requirements, representing the firm in the local community, arranging local advertising and setting the budget for each branch. The Branch Managers also develop, service and maintain clients for DS in the same manner as Investment Advisors.”

· At para. 21: “In addition to the confidential information to which Investment Advisors are privy, as described below in paragraph 25, Branch Managers are privy to additional confidential information of DS, including:

a. the identity of all clients of the branch in question and the investment portfolios, objectives and preferences of those clients;

b. daily revenue information on all branches;

c. specific monthly targets and totals of objectives of all branches;

d. daily trading summaries which show all transactions by account within the branch in question; and

e. controllable cost reports on all branches.

[148] In paragraph 33, DS alleges that a fiduciary duty was owed by Mr. Delamont because he was a “Vice-President and Branch Manager” of DS.

[149] In my opinion, the pleadings were such that the claim made against Mr. Delamont in his role as the branch manager could readily be distinguished from the claim being made against the Investment Advisors in that Mr. Delamont’s implied duty of good faith encompassed obligations distinct from those of the Investment Advisors.

IV. The trial judge’s reasons for finding that Mr. Delamont had breached his implied duty of good faith

[150] The trial judge concluded in her reasons on liability that Mr. Delamont’s position as branch manager was not that of a fiduciary but that, as branch manager, he had a duty of good faith “to perform the functions necessarily inherent to the role”. In that regard the trial judge said:

[119] In his role as branch manager, Mr. Delamont carried a duty, derived from the duty of good faith, to perform the functions necessarily inherent to the role. DS submits that by promoting and coordinating the mass defection to Merrill Lynch, Mr. Delamont seriously breached that duty.

[120] The evidence differed as to the extent of Mr. Delamont's role in promoting or coordinating the departures. The testimony of numerous witnesses indicated him to have taken a key role in coordinating the mass move. His own testimony, and that of Mr. Michaud, in particular, denied or downplayed any such role. I am unable to accept the evidence that minimized his involvement.

[121] Mr. Delamont's demeanour indicated discomfort during his testimony minimizing the extent of his role in relation to the departures. His testimony failed to adequately account for the undisputed facts that he was the first of all the IAs to take the trip to see Merrill Lynch personnel and facilities in Vancouver and Bellingham, and that he hosted meetings at his home for the IAs contemplating departure, including one, on November 14, 2000, with representatives of Merrill Lynch. It failed also to account for the fact, as he and others described it, that the IAs contemplating a move evidently discussed their intentions openly with him, their branch manager, without apparent expectation of either adverse consequences at DS, or that Mr. Delamont would assist them in attempting to negotiate more attractive terms for remaining at DS.

[122] I find that, in the drive to Castlegar with Mr. Milligan, Mr. Delamont made only vague and understated reference to discussions between a few IAs and another firm. The information he provided to Mr. Milligan was wholly inadequate to alert Mr. Milligan to the enormity of the potential consequences to the branch at that time.

[123] Even when confronted by Mr. Milligan on Thursday November 16, 2000, with the rumour of three IAs' planned departure, Mr. Delamont confirmed only that the three would be leaving. He failed to mention that most of the rest of the branch, including himself, also planned to leave. He told Mr. Milligan this only at the end of the Calgary meeting on Friday November 17. It is to be noted that this disclosure coincided with Mr. Delamont's apparent change of heart about leaving, and accorded with his personal interest in having a viable branch with which to remain.

[124] By his own evidence, Mr. Delamont either coordinated or endorsed the surreptitious process of sending copies of DS's client records to Merrill Lynch. Certainly by the end of October 2000, Mr. Delamont had determined to leave DS along with most of the other IAs in the branch, and knowingly allowed the records to be surreptitiously copied and sent to Merrill Lynch in anticipation of the mass move.

[125] Mr. Delamont was generously compensated for acting as branch manager. Unlike non-managerial IAs, Mr. Delamont received no bonuses for recruiting because, as he testified, it was part of his job description. It follows that equally part of his job description was to attempt to retain IAs within DS, and certainly not to promote or coordinate their departure and the departure of the clients they serviced.

[126] His duty of good faith as branch manager also required him to keep his regional manager fully and promptly advised of all significant information relating to the operation of the branch, particularly as to events with the obvious potential of damaging or destroying the very viability of the branch. He was in serious breach of that duty from, at the latest, June, 2000, when he personally visited Merrill Lynch's operations and arranged for others to do likewise, and encouraged or acquiesced in Mr. Michaud's mass recruiting efforts.

V. Pleading on causation

[151] The appellants argue that no facts were alleged that would show how Mr. Delamont’s breach of duty caused loss to the respondent. I am unable to agree with that submission.

[152] As noted above, the pleadings referred to the nature and extent of Mr. Delamont’s duties as branch manager and those duties were readily distinguishable from those of an investment advisor. I am of the view that it was not fatal to DS’s claim that there was no specific pleading that a failure on Mr. Delamont’s part to keep DS informed of ML’s recruiting and the pending departures of the Investment Advisors and Assistants caused a loss to DS.

[153] The trial judge, in her reasons for judgment on liability, specifically addressed the appellants’ argument that Mr. Delamont’s breaches of his employment obligations as branch manager had not been adequately pleaded. As to the submission made by counsel for ML concerning the pleadings in relation to Mr. Delamont’s failure to keep DS informed of the recruiting and impending departure of the Investment Advisors, the trial judge said:

[127] Mr. Gudmundseth [counsel for ML] objected to DS's reliance in submissions on Mr. Delamont's failure to keep DS properly informed of the Merrill Lynch recruiting and the pending departures, on the basis that it was not specifically pleaded. In my view, that failure in his duty as branch manager is comprehended within the general pleading that he failed in his duty to DS, and is incidental to the allegation that he encouraged the IAs to leave and failed to try to persuade them to stay. Mr. Delamont kept DS in the dark because he knew that he was working contrary to DS's interests.

[128] In all these circumstances, it is difficult to conceive of a more fundamental breach of the duty of good faith as branch manager.

[Underlining added.]

[154] In my opinion, the trial judge’s reasons for rejecting ML’s objection to the pleadings should not be disturbed.

[155] I would add that this is not a case in which the appellants can complain about being caught by surprise about a matter not pleaded. Before the trial, counsel agreed that the issues of liability and damages ought to be tried separately. In her reasons for judgment on the issue of damages, the trial judge summarized the findings she had made in her earlier reasons on the breaches of duty of the various defendants, as follows:

[3] I found the following breaches of duties to DS:

· The DS employees (namely Mr. Delamont, the IAs, and the assistants) each breached the implied term in their employment contracts with DS to provide reasonable notice of the termination of their employment.

· The DS employees also breached their larger contractual duty not to compete unfairly with DS by:

o failing to provide reasonable notice of termination (which itself breached an implied contractual duty, as noted above)

o engaging in concerted and vigorous efforts to move clients to Merrill Lynch well before DS was in a position to try to protect its relationship with those clients, and

o removing all DS's confidential client records several weeks before the move in order to facilitate the transfer of DS clients to Merrill Lynch (actions which also constituted the tort of conversion, as noted below).

· Merrill Lynch and Mr. Michaud tortiously induced the DS employees' breaches of their duty not to compete unfairly with DS after they left DS.

[Underlining added.]

[156] During oral argument, appellants’ counsel agreed that the summary was accurate. A review of the expert reports shows that the appellants were well aware of the nature of DS’s damage claim against Mr. Delamont and responded to it through their own expert.

VI. Causation and the assessment of damages

[157] The law implies a duty of good faith in an employment contract. The damages flow from the breach of that duty. The classic tests for causation in contract are that there must be a causal connection between the defendant's breach of contract and the claimant's loss. On the appeal from the damage award against Mr. Delamont, the appellants contend that the trial judge erred by failing to apply the proper test for causation in contract.

[158] At trial, DS argued that “the virtual collapse of the branch was a direct and almost inevitable consequence of Mr. Delamont's breach of his duty of fidelity as branch manager, in promoting and coordinating the defection to the competition of almost all the sales staff” (Reasons on damages at para. 15). DS further argued that the nature of Mr. Delamont's breach allowed “the court to presume that it caused the virtual collapse of the branch that undeniably followed” (Reasons on damages at para. 15). In making that submission, DS relied on the proposition that where a defendant's own wrong prevents the proof of whether the wrong caused a loss, the court may presume a loss unless the defendant proves the contrary: Roe, McNeill & Co. v. McNeill, [1994] B.C.J. No. 1187 (S.C.), per Boyd J. at ¶ 63 whose approach in that regard was upheld by this Court, (1998) 45 B.C.L.R. (3d) 35.

[159] The appellants submitted that the legal test for causation involves an assessment of whether the breach of contract was the "effective" or "dominant" cause of the loss. It was the appellants’ submission that the Investment Advisors were discontented at DS and would have left in any event and, as a result, Mr. Delamont's facilitating role in relation to their departures did not rise to the level of causation at law.

[160] The trial judge did not disagree with the appellants’ proposition that the breach had to be the effective or dominant cause of the loss. The appellants’ argument failed at trial because of the view that the trial judge took of the evidence.

[161] A review of the arguments on appeal shows that the appellants’ real complaints concern the trial judge’s findings of fact. The appellants contend that the judge’s findings are inconsistent and are not in accord with the evidence.

[162] Mr. Delamont was DS’s branch manager for both the Cranbrook and Nelson offices and as the manager he received an annual salary of $187,000. The trial judge found that between June and November 2000, Mr. Delamont was in breach of his contract of employment as DS’s branch manager. That he was in breach of his obligations as branch manager was acknowledged by Mr. Delamont in the following testimony he gave at trial:

Q So by this stage in early November, a meeting at your house, it's decided, we are going to go and we're going to go together?

A There's a very high probability at that stage we were going to go, that's correct.

Q And whatever else may be said, sir, you will surely concede that at that point you owed a clear, unequivocal duty to get a hold of Milligan right away and tell him about it?

A Yes. I failed to do that in protecting my own interests. I would agree with that.

Q And you, to put it more clearly, sir, put your own financial and other interests ahead of those of your employer to whom you owed the duty of good faith we've talked about earlier?

A Yes, I would have to say that's true.

Q And you were in clear breach of that duty of good faith and knew you were?

A Yes, I'd have to say I agree with that.

Q Because you decided to put your own self-interests ahead of that of the person or entity to whom you owed that duty of good faith?

A Yes, I would have to agree.

Q And certainly there was no doubt in your mind at that stage, early November, that you had a clear duty, A, to report to Milligan; right?

A Yes.

Q And B, you still owed a duty, sir, to try to stop this thing, didn't you, as branch manager?

A Yes, I would suppose I did, yeah.

[163] In determining whether he had breached his employment obligations, the trial judge outlined in her reasons for judgment on liability, the functions that Mr. Delamont was expected to perform in his role as branch manager. The trial judge went on to find that Mr. Delamont’s role as branch manager with DS “carried a duty, derived from the duty of good faith, to perform the functions necessarily inherent to the role” (para. 119) and that he had breached that duty, to which I have already referred in para. 150 of these reasons.

[164] The trial judge specifically addressed the question of whether the necessary causal connection had been shown and concluded on the evidence that it had. In that regard, the trial judge said, in part, in the reasons on damages:

[22] It is true that each IA made an autonomous decision to leave, based on the state of affairs as he or she saw it at the time. However, the state of affairs at the time was in large part a function of Mr. Delamont's breach.

[24] This is not to say that in no circumstances other than those that arose would one or more of the IAs have left DS for Merrill Lynch. As I discussed in my reasons as to liability, recruiting within the industry at the time was aggressive and moves were sudden and not infrequent. IAs, especially those with a client base developed through personal contact and service, enjoyed a relatively strong bargaining position. A certain turnover in the branch's sales staff, and consequent rises and falls in the branch's profits, could be expected as normal contingencies of operation. The coordinated mass departure here, however, was of an entirely different nature and scale.

[25] I found that by the end of October 2000, and possibly long before, the exodus was contemplated as a coordinated group departure, but was not inevitably destined as all-or-none: it was open to any individual IA or IAs to determine to stay at any time. However, once the move was conceived as a group move, certain distinct pressures applied. In particular, IAs giving thought to remaining would need to be confident that a viable DS branch would survive to support them. Junior IAs, or those working in association with particular senior IAs, would almost inevitably follow the senior IAs with established client books.

[165] The standard to be applied on appellate review does not leave room for this Court to interfere with findings of fact made by the trial judge, absent palpable and overriding error. In my opinion, the appellants’ complaints of inconsistency in the findings are overstated and, in any event, do not undermine the findings of fact that are material to her conclusions. As a result, I am of the view that the trial judge’s findings of fact concerning the nature and extent of Mr. Delamont’s breach of his duty of good faith and the effect that it had in encouraging and facilitating the mass departure of the Investment Advisors must stand.

VII. Application of the doctrine of minimum performance and the adequacy of the reduction for contingencies

[166] I would not give effect to the last two grounds of appeal.

[167] In her reasons for judgment on damages, at paragraphs 88 through 99, the trial judge set out the competing opinions of the expert witnesses as to the method of valuing the near-collapse of the Cranbrook branch, that is, the business valuation approach or the loss of profits approach. The trial judge preferred the loss of profits approach, as the appellants had urged, as the appropriate method for the calculation of the loss. Consideration was then given to the question of what equivalent business or group of businesses could appropriately be used as a guide to how DS’s branch profits would have continued had the breaches not occurred. After making that determination, the trial judge then made adjustments to take into account her finding that Mr. Delamont’s breach did not cause the departure of two of the Investment Advisors and her conclusion that the loss of profits could not be projected into the indefinite future.

[168] The trial judge took into account the highly competitive nature of the securities industry, the mobility that Investment Advisors within it enjoy, and the fact that the careers of Investment Advisors, even when successful, are relatively short-lived. She also considered the difficulties of recruiting senior Investment Advisors for the Cranbrook branch and the process and prospects for re-growth of the branch. The trial judge concluded that the appropriate period over which to project the loss was five years, but also concluded that the projection had to be subject to “an appreciable discount for contingencies” (Reasons on damages at para. 118). The discount for contingencies was made on the increasing percentage rate over the five-year period.

[169] There was evidence before the trial judge from which she could draw to arrive at both the length of time over which to project the loss and the extent of the discount. In my view, no error in principle has been shown.

VIII. Summary and Conclusion

[170] For the reasons stated I would dismiss the appeal against the award made against Mr. Delamont.

[171] With respect to the damage awards against the Investment Advisors, the trial judge found that, by engaging in unfair competition with their former employer when they used DS’s customer lists, they had breached the implied term of their employment contract that they owed their employer a duty of good faith. To support her conclusion, the trial judge referred to Barton and Delta Play Company v. International Play Company Inc. (4 May 1999), Vancouver C991871 (B.C.S.C.), for the general proposition that the duty of fidelity or good faith, which all employees owe to their employer, “includes a duty not to compete unfairly against the employer during or after the employment arrangement, and in turn a duty not to make use of the employer's confidential information and material to compete with the employer” (Reasons on liability at para. 35).

[172] In my view, the trial judge did not err in principle in concluding that an award of damages could be made against the Investment Advisors and their Assistants for the breach of their duty of good faith in copying the records before their departure and in using them in order to be in a position to open new accounts for clients at ML. However, I am also of the view that the trial judge, when assessing the damages against the Investment Advisors and their Assistants, did not give effect to the principle that those employees were not constrained from competing with DS after their departure. Instead, what they were constrained from doing was using the records from DS which they had improperly copied. As noted earlier, the records were returned within a few days of the departure on the advice of counsel.

[173] In the circumstances, I would not dissent from the result my colleague reached in restricting the damage awards against the Investment Advisors and the Assistants in the manner she has stated.

[174] I would dismiss the cross-appeal for the reasons stated by Madam Justice Southin.

“The Honourable Madam Justice Rowles”

Corrigendum to the Written Reasons of Madam Justice Southin:

5 April 2007

The Honourable Madam Justice Southin:

[1] The second sentence of paragraph 112 of my reasons for judgment released 12^th January, 2007, is corrected to read, “I would order that the costs in the Supreme Court of British Columbia be remitted to the trial judge.”

“The Honourable Madam Justice Southin”

Citation:	RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al,
	2007 BCCA 22