Wallace v. United Grain Growers Ltd.

Wallace v. United Grain Growers Ltd.
Collection
Supreme Court Judgments
Date
1997-10-30
Report
[1997] 3 SCR 701
Case number
24986
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Manitoba
Subjects
Bankruptcy and insolvency
Civil procedure
Labour law
Notes
SCC Case Information: 24986
Decision Content
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701
Jack Wallace Appellant
v.
United Grain Growers Limited Respondent
Indexed as: Wallace v. United Grain Growers Ltd.
File No.: 24986.
1997: May 22; 1997: October 30.
Present: Lamer C.J. and La Forest, L’Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for manitoba
Bankruptcy ‑‑ Property of bankrupt ‑‑ Salary, wages or other remuneration ‑‑ Undischarged bankrupt bringing action for wrongful dismissal ‑‑ Whether damages for wrongful dismissal included in “salary, wages or other remuneration” ‑‑ Bankruptcy Act, R.S.C., 1985, c. B‑3, s. 68(1) .
Civil procedure ‑‑ Wrongful dismissal ‑‑ Undischarged bankrupt seeking damages for wrongful dismissal ‑‑ Whether undischarged bankrupt can bring action for wrongful dismissal in his own name.
Employment law ‑‑ Wrongful dismissal ‑‑ Employee summarily discharged seeking damages for wrongful dismissal -- Trial judge awarding employee damages based on 24‑month notice period and aggravated damages ‑‑ Whether Court of Appeal erred in reducing reasonable notice period to 15 months ‑‑ Whether Court of Appeal erred in overturning aggravated damages award ‑‑ Whether action can be brought for “bad faith discharge” ‑‑ Whether employee entitled to punitive damages.
In 1972 a printing company wholly owned by the respondent decided to update its operations and seek a larger volume of commercial printing work. The appellant, W, met L, the marketing manager of the company’s publishing and printing divisions, to discuss the possibility of employment. W had the type of experience L sought, having worked approximately 25 years for a competitor that used a particular type of press. W explained to L that as he was 45 years of age, if he were to leave his current employer he would require a guarantee of job security. He also sought several assurances from L regarding fair treatment and remuneration. He received such assurances and was told by L that if he performed as expected, he could continue to work for the company until retirement. W was hired and enjoyed great success at the company; he was the top salesperson for each of the years he spent in its employ. In 1986 he was summarily discharged without explanation. W issued a statement of claim alleging wrongful dismissal. In its statement of defence, the respondent alleged that W had been dismissed for cause. This allegation was maintained until the trial commenced. The termination of W’s employment and the allegations of cause created emotional difficulties for him and he was forced to seek psychiatric help. His attempts to find similar employment were largely unsuccessful. Prior to his dismissal, W made a voluntary assignment into personal bankruptcy, and remained an undischarged bankrupt when he commenced his action against the respondent. The trial judge struck out his claim for damages for breach of contract, holding that a claim for damages for wrongful dismissal based on lack of notice vests in the trustee in bankruptcy, and concluded that the action in that regard was a nullity from the outset. W’s attempt to appeal the trial judge’s ruling was stayed by the Court of Appeal pending completion of the trial. The trial resumed and subject to the outcome of the appeal on the bankruptcy issue, W was awarded damages for wrongful dismissal based on a 24‑month notice period and $15,000 in aggravated damages resulting from mental distress in both tort and contract. The trial judge refused to award punitive damages. The Court of Appeal reversed the trial judge’s findings with respect to W’s capacity to maintain an action for breach of contract, concluding that W had the right to continue his action for wrongful dismissal in his own name in the absence of the trustee. It also allowed the respondent’s cross‑appeal. It reduced the reasonable notice period to 15 months, on the basis that the trial judge may have allowed an element of aggravated damages to creep into his assessment and that recent awards in such cases had been getting too high, and overturned the award of aggravated damages.
Held (La Forest, L’Heureux‑Dubé and McLachlin JJ. dissenting in part on the appeal): The appeal should be allowed in part and the cross‑appeal dismissed.
Per Lamer C.J. and Sopinka, Gonthier, Cory, Iacobucci and Major JJ.: W can maintain an action for wrongful dismissal in his own name. While under the Bankruptcy Act, an undischarged bankrupt has no capacity to deal with his or her property and no distinction is made with respect to whether that property was acquired before or after the assignment in bankruptcy, s. 68(1) carves out an exception to this general rule where the property in question can be characterized as “salary, wages or other remuneration”. To remain true to the spirit of the Act, this exception must include an award of damages for wrongful dismissal. The measure of such damages is the salary that the employee would have earned had the employee worked during the period of notice to which he or she was entitled. The fact that this sum is awarded as damages at trial in no way alters the fundamental character of the money. Several courts have interpreted the phrase “salary, wages or other remuneration” broadly. The public policy considerations that inform the section offer further support for interpreting it broadly.
The trial judge’s award of damages in the amount of 24 months’ salary in lieu of notice should be restored. In light of W's advanced age, his 14‑year tenure as the company's top salesman and his limited prospects for re‑employment, a lengthy period of notice is warranted. Another factor to be considered is whether the dismissed employee was induced to leave previous secure employment. Although the trial judge did not make specific reference to the inducement factor in his analysis of reasonable notice, in the circumstances of this case the inducements made, in particular the guarantee of job security, are factors which support his decision to award damages at the high end of the scale.
Bad faith conduct in the manner of dismissal is another factor that is properly compensated for by an addition to the notice period. The contract of employment has many characteristics that set it apart from the ordinary commercial contract. Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure. This power imbalance is not limited to the employment contract itself, but informs virtually all facets of the employment relationship. The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal. To ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, breach of which will be compensated for by adding to the length of the notice period. While the obligation of good faith and fair dealing is incapable of precise definition, at a minimum in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.
While a dismissed employee is not entitled to compensation for injuries flowing from the fact of the dismissal itself, where an employee can establish that an employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries such as humiliation, embarrassment and damage to one’s sense of self‑worth and self‑esteem might all be worthy of compensation depending upon the circumstances of the case. Often the intangible injuries caused by bad faith conduct or unfair dealing on dismissal will lead to difficulties in finding alternative employment, a tangible loss which the Court of Appeal rightly recognized as warranting an addition to the notice period. However, the intangible injuries are sufficient to merit compensation in and of themselves. Bad faith conduct which affects employment prospects may be worthy of considerably more compensation than that which does not, but in both cases damage has resulted that should be compensable. The trial judge documented several examples of bad faith conduct on the part of the respondent. While the award of the equivalent of 24 months’ salary in lieu of notice is at the high end of the scale, it is not unreasonable when all the relevant factors are taken into account and there is accordingly no reason to interfere.
There is no reason to interfere with the conclusion of the courts below that there was insufficient evidence to support W’s claim that he had a fixed‑term contract for employment until retirement.
With respect to damages for mental distress, the Court of Appeal was correct in concluding that there was insufficient evidence to support a finding that the respondent’s actions constituted a separate actionable wrong either in tort or in contract. In circumstances where the manner of dismissal has caused mental distress but falls short of an independent actionable wrong, however, the employee is not without recourse. The trial judge has discretion in such circumstances to extend the period of reasonable notice to which an employee is entitled.
W is unable to sue in either tort or contract for “bad faith discharge”. The Court should not imply into the employment contract a term that the employee would not be fired except for cause or legitimate business reasons. The law has long recognized the mutual right of both employers and employees to terminate an employment contract at any time provided there are no express provisions to the contrary. A requirement of “good faith” reasons for dismissal would be overly intrusive and inconsistent with established principles of employment law. Similarly, the tort of breach of a good faith and fair dealing obligation with regard to dismissals has not yet been recognized by Canadian courts. Such radical shifts in the law are better left to the legislatures.
The courts below were correct in finding that there is no foundation for an award of punitive damages.
Per La Forest, L’Heureux‑Dubé and McLachlin JJ. (dissenting in part on the appeal): W’s action was not precluded by his bankruptcy. Damages in lieu of reasonable notice constitute “salary, wages or other remuneration” for the purposes of bankruptcy legislation and hence are recoverable. Moreover, damages for breach of the implied obligation of good faith are recoverable because of the personal nature of the cause of action.
To determine the period of reasonable notice in a wrongful dismissal action, the court examines the characteristics of the particular employment relationship relevant to the employee’s prospects of finding a similar position. The manner of dismissal should only be considered where it impacts on the difficulty of finding replacement employment, and absent this connection, damages for the manner of termination must be based on some other cause of action. The fact that some courts in the past have considered factors unrelated to prospects of re‑employment in determining the notice period has rendered the law uncertain and unpredictable. To continue on this path would only increase that uncertainty and unpredictability. The law affords other remedies for employer misconduct in the manner of dismissal not affecting prospects of re‑employment, and has now developed to the point that to these traditional actions may be added breach of an implied contractual term to act in good faith in dismissing an employee. Recognition of an implied term in the employment contract of good faith in relation to the dismissal of employees is supported by previous decisions, academic commentary and related developments in other areas of contract law. To the extent that recognition of such a term may be seen as a new development, it falls within the scope of the incremental step‑by‑step revision approved in Watkins and Salituro.
The trial judge fixed the period of reasonable notice at 24 months on the basis of a careful assessment of W’s prospects of re‑employment, and there is no reason to interfere in his assessment. The trial judge’s award for the damages claimed by W for mental distress and loss of reputation should also be upheld. These are general damages flowing directly from the employer’s breach of the implied term of good faith and fair dealing and are therefore compensable.
There is no reason to interfere with the trial judge’s conclusion that the respondent did not engage in sufficiently harsh, vindictive, reprehensible and malicious conduct to merit an award representing punitive damages.
Cases Cited
By Iacobucci J.
Distinguished: Cohen v. Mitchell (1890), 25 Q.B.D. 262; Neilson v. Vancouver Hockey Club Ltd., [1988] 4 W.W.R. 410, leave to appeal refused, [1988] 2 S.C.R. viii; not followed: Addis v. Gramophone Co., [1909] A.C. 488; Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673; Ansari v. British Columbia Hydro and Power Authority (1986), 2 B.C.L.R. (2d) 33; Wadden v. Guaranty Trust Co. of Canada, [1987] 2 W.W.R. 739; referred to: Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085, aff’g (1984), 9 D.L.R. (4th) 40; Pilon v. Peugeot Canada Ltd. (1980), 114 D.L.R. (3d) 378; Re Holley (1986), 59 C.B.R. (N.S.) 17; Ranch des Prairies Ltée v. Bank of Montreal (1988), 53 Man. R. (2d) 308; Re Pascoe, [1944] 1 Ch. 219; Wyssling (Trustee of) v. Latreille Estate (1990), 78 C.B.R. (N.S.) 114; McNamara v. Pagecorp Inc. (1989), 76 C.B.R. (N.S.) 97; Long v. Brisson, [1992] 5 W.W.R. 185; Bailey v. Thurston & Co., [1903] 1 K.B. 137; Lough v. Digital Equipment of Canada Ltd. (1986), 57 O.R. (2d) 456; Sylvester v. British Columbia, [1997] 2 S.C.R. 315; Re Ali (1987), 62 C.B.R. (N.S.) 64; Re Giroux (1983), 45 C.B.R. (N.S.) 245; Re Greening (1989), 73 C.B.R. (N.S.) 24; Marzetti v. Marzetti, [1994] 2 S.C.R. 765; Jarvis v. Swans Tours Ltd., [1973] 1 Q.B. 233; Farber v. Royal Trust Co., [1997] 1 S.C.R. 846; Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Gillespie v. Bulkley Valley Forest Industries Ltd., [1975] 1 W.W.R. 607; Corbin v. Standard Life Assurance Co. (1995), 15 C.C.E.L. (2d) 71; Bishop v. Carleton Co‑operative Ltd. (1996), 21 C.C.E.L. (2d) 1; Jackson v. Makeup Lab Inc. (1989), 27 C.C.E.L. 317; Murphy v. Rolland Inc. (1991), 39 C.C.E.L. 86; Craig v. Interland Window Mfg. Ltd. (1993), 47 C.C.E.L. 57; Makhija v. Lakefield Research (1983), 14 C.C.E.L. 131, aff’d (1986), 14 C.C.E.L. xxxi; Mutch v. Norman Wade Co. (1987), 17 B.C.L.R. (2d) 185; Robertson v. Weavexx Corp. (1997), 25 C.C.E.L. (2d) 264; Lojstrup v. British Columbia Buildings Corp. (1989), 34 B.C.L.R. (2d) 357; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; Reference Re Public Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313; Eyers v. City Buick Cadillac Ltd. (1984), 6 C.C.E.L. 234, rev’d in part (1986), 13 O.A.C. 66; Jivrag v. City of Calgary (1986), 13 C.C.E.L. 120, rev’d in part (1987), 18 C.C.E.L. xxx; Hudson v. Giant Yellowknife Mines Ltd. (1992), 44 C.C.E.L. 109; Hall v. Giant Yellowknife Mines Ltd. (1992), 44 C.C.E.L. 101; Trask v. Terra Nova Motors Ltd. (1995), 9 C.C.E.L. (2d) 157; MacDonald v. Royal Canadian Legion (1995), 12 C.C.E.L. (2d) 211; Dunning v. Royal Bank (1996), 23 C.C.E.L. (2d) 71; Deildal v. Tod Mountain Development Ltd. (1997), 91 B.C.A.C. 214; Gillman v. Saan Stores Ltd. (1992), 45 C.C.E.L. 9; McCarey v. Associated Newspapers Ltd. (No. 2), [1965] 2 Q.B. 86; Barltrop v. Canadian Broadcasting Corp. (1978), 25 N.S.R. (2d) 637, leave to appeal refused, [1978] 1 S.C.R. vi; Stumpf v. Globe Holdings Ltd. (1982), 22 Alta. L.R. (2d) 55.
By McLachlin J. (dissenting in part on the appeal)
Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085; Brown v. Waterloo Regional Board of Commissioners of Police (1983), 43 O.R. (2d) 113, aff’g in part (1982), 37 O.R. (2d) 277; Addis v. Gramophone Co., [1909] A.C. 488; Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673, aff’g (1965), 56 D.L.R. (2d) 117; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Deildal v. Tod Mountain Development Ltd. (1997), 91 B.C.A.C. 214; Whelan v. Waitaki Meats Ltd., [1991] 2 N.Z.L.R. 74; Ogilvy & Mather (New Zealand) Ltd. v. Turner, [1994] 1 N.Z.L.R. 641; Carrick v. Cooper Canada Ltd. (1983), 2 C.C.E.L. 87; Bernardin v. Alitalia Air Lines (1993), 50 C.C.E.L. 156; Cohnstaedt v. University of Regina, [1989] 1 S.C.R. 1011; Greenberg v. Meffert (1985), 50 O.R. (2d) 755, leave to appeal refused, [1985] 2 S.C.R. ix; Truckers Garage Inc. v. Krell (1993), 3 C.C.E.L. (2d) 157; Doyle v. London Life Insurance Co. (1985), 23 D.L.R. (4th) 443, leave to appeal refused, [1986] 1 S.C.R. x; Shiloff v. R. (1994), 6 C.C.E.L. (2d) 177; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; Watkins v. Olafson, [1989] 2 S.C.R. 750; R. v. Salituro, [1991] 3 S.C.R. 654; Re Holley (1986), 59 C.B.R. (N.S.) 17.
Statutes and Regulations Cited
Bankruptcy Act, R.S.C., 1985, c. B‑3, ss. 2 “property”, 67(1) [am. 1992, c. 27, s. 33], 68(1) [rep. & sub. idem., s. 34], 71(2), 99(1).
Authors Cited
Belobaba, Edward P. “Good Faith in Canadian Contract Law”, in Commercial Law: Recent Developments and Emerging Trends. Don Mills, Ont.: De Boo, 1985, 73.
Christie, Innis, Geoffrey England and Brent Cotter. Employment Law in Canada, 2nd ed. Toronto: Butterworths, 1993.
England, Geoffrey. “Recent Developments in the Law of the Employment Contract: Continuing Tension Between the Rights Paradigm and the Efficiency Paradigm” (1995), 20 Queen’s L.J. 557.
Harris, David. Wrongful Dismissal. Don Mills, Ont.: De Boo, 1989 (loose‑leaf updated 1997, release 4).
Kahn‑Freund's Labour and the Law, 3rd ed. By Paul Davies and Mark Freedland. London: Stevens & Sons, 1983.
O’Byrne, Shannon Kathleen. “Good Faith in Contractual Performance: Recent Developments” (1995), 74 Can. Bar Rev. 70.
Reiter, B. J. “Good Faith in Contracts” (1983), 17 Val. U. L. Rev. 705.
Schai, Randall B. “Aggravated Damages and the Employment Contract” (1991), 55 Sask. L. Rev. 345.
Swan, John. “Extended Damages and Vorvis v. Insurance Corporation of British Columbia” (1990), 16 Can. Bus. L.J. 213.
Swinton, Katherine. "Contract Law and the Employment Relationship: The Proper Forum for Reform". In Barry J. Reiter and John Swan, eds., Studies in Contract Law. Toronto: Butterworths, 1980, 357.
Waddams, S. M. The Law of Damages, 3rd ed. Toronto: Canada Law Book, 1997.
APPEAL and CROSS‑APPEAL from a judgment of the Manitoba Court of Appeal (1995), 102 Man. R. (2d) 161, 93 W.A.C. 161, [1995] 9 W.W.R. 153, 34 C.B.R. (3d) 153, 14 C.C.E.L. (2d) 41, 95 C.L.L.C. ¶210‑046, [1995] M.J. No. 344 (QL) and (1995), 107 Man. R. (2d) 227, 109 W.A.C. 227, [1995] M.J. No. 482 (QL), allowing the appeal and cross‑appeal from a decision of the Court of Queen’s Bench (1993), 87 Man. R. (2d) 161, [1993] 7 W.W.R. 525, 49 C.C.E.L. 71, [1993] M.J. No. 365 (QL), which awarded the appellant damages for wrongful dismissal. Appeal allowed in part, La Forest, L’Heureux‑Dubé and McLachlin JJ. dissenting in part. Cross‑appeal dismissed.
Stacey Reginald Ball and George J. Orle, Q.C., for the appellant.
John M. Scurfield, Q.C., and Richard W. Schwartz, for the respondent.
The judgment of Lamer C.J. and Sopinka, Gonthier, Cory, Iacobucci and Major JJ. was delivered by
1 Iacobucci J. -- This case involves both an appeal and a cross-appeal. The appeal is largely concerned with issues of compensation in a wrongful dismissal action, specifically, the existence of a fixed-term contract, the right to damages for mental distress, whether or not one can sue for “bad faith discharge”, and the appropriate length of the period of reasonable notice. The cross-appeal raises an issue of bankruptcy law, namely, whether an undischarged bankrupt can maintain an action for wrongful dismissal in his or her own name.
1. Facts
2 In 1972, Public Press, a wholly owned subsidiary of the respondent, United Grain Growers Ltd. (“UGG”), decided to update its operations and seek a larger volume of commercial printing work. Don Logan was the marketing manager of the company’s publishing and printing divisions at that time. For Logan, the key to achieving this increase in volume was to hire someone with an existing record of sales on a specialized piece of equipment known as a “Web” press.
3 In April 1972, the appellant, Jack Wallace, met Logan to discuss the possibility of employment. Wallace had the type of experience that Logan sought, having worked approximately 25 years for a competitor that used the “Web” press. Wallace had become concerned over the unfair manner in which he and others were being treated by their employer. However, he expressed some reservation about jeopardizing his secure position at the company. Wallace explained to Logan that as he was 45 years of age, if he were to leave his current employer he would require a guarantee of job security. He also sought several assurances from Logan regarding fair treatment and remuneration. He received such assurances and was told by Logan that if he performed as expected, he could continue to work for Public Press until retirement.
4 Wallace commenced employment with Public Press in June of 1972. He enjoyed great success at the company and was the top salesperson for each of the years he spent in its employ.
5 On August 22, 1986, Wallace was summarily discharged by Public Press’s sales manager Leonard Domerecki. Domerecki offered no explanation for his actions. In the days before the dismissal both Domerecki and UGG’s general manager had complimented Wallace on his work.
6 By letter of August 29, 1986, Domerecki advised Wallace that the main reason for his termination was his inability to perform his duties satisfactorily. Wallace’s statement of claim alleging wrongful dismissal was issued on October 23, 1986. In its statement of defence, the respondent alleged that Wallace had been dismissed for cause. This allegation was maintained for over two years and was only withdrawn when the trial commenced on December 12, 1988.
7 At the time of his dismissal Wallace was almost 59 years old. He had been employed by Public Press for 14 years. The termination of his employment and the allegations of cause created emotional difficulties for Wallace and he was forced to seek psychiatric help. His attempts to find similar employment were largely unsuccessful.
8 On September 26, 1985, Wallace made a voluntary assignment into personal bankruptcy. When he commenced his action against the respondent, Wallace remained an undischarged bankrupt. After Wallace had completed his case at trial, UGG moved to amend its statement of defence to assert that as an undischarged bankrupt, Wallace lacked the capacity to commence or continue the proceedings. UGG requested that Wallace’s claim for damages for failure to provide reasonable notice of termination be struck out.
9 The trial judge granted leave to amend the statement of defence and then struck out Wallace’s claim for damages for breach of contract. He held that the action in that regard was a nullity from the outset. Wallace’s attempt to appeal that ruling was stayed by the Manitoba Court of Appeal pending completion of the trial. The trial resumed and subject to the outcome of the appeal on the bankruptcy issue, Wallace was awarded damages for wrongful dismissal based on a 24-month notice period and aggravated damages.
10 The Manitoba Court of Appeal reversed the findings of the trial judge with respect to the appellant’s capacity to maintain an action for breach of contract. It also allowed the respondent’s cross-appeal, substituting a judgment in favour of the appellant based on a 15-month reasonable notice period, and overturned the award of aggravated damages. This Court granted leave to appeal on May 9, 1996.
2. Relevant Statutory Provisions
11 Bankruptcy Act, R.S.C., 1985, c. B-3
2. In this Act,
. . .
“property” includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, and whether situated in Canada or elsewhere, and includes obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property;
67. (1) The property of a bankrupt divisible among his creditors shall . . . comprise
(c) all property wherever situated of the bankrupt at the date of his bankruptcy or that may be acquired by or devolve on him before his discharge, and
(d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.
68. (1) Notwithstanding subsection 67(1), where a bankrupt
(a) is in receipt of, or is entitled to receive, any money as salary, wages or other remuneration from a person employing the bankrupt. . . .
the trustee may, on the trustee’s own initiative or, if directed by the inspectors or the creditors, shall, make an application to the court for an order directing the payment to the trustee of such part of the money as the court may determine, having regard to the family responsibilities and personal situation of the bankrupt.
99. (1) All transactions by a bankrupt with any person dealing with him in good faith and for value in respect of property acquired by the bankrupt after the bankruptcy, if completed before any intervention by the trustee, are valid against the trustee, and any estate or interest in the property that by virtue of this Act is vested in the trustee shall determine and pass in such manner and to such extent as may be required for giving effect to any such transaction.
3. Judicial History
A. Manitoba Court of Queen’s Bench (1992), 82 Man. R. (2d) 253
12 Lockwood J. granted leave to amend the statement of defence to allow UGG to raise the issue of the appellant’s status as an undischarged bankrupt. After reviewing the relevant authorities, he struck out Wallace’s claim for damages for breach of contract, holding that a claim for damages for wrongful dismissal based on lack of notice vests in the trustee in bankruptcy. He concluded that the action in that regard was a nullity from the outset. Neither party disputed Wallace’s right to maintain his claims for mental distress, loss of reputation and punitive damages. Lockwood J. noted that these claims are personal in nature and do not vest in the trustee.
B. Manitoba Court of Appeal (1993), 85 Man. R. (2d) 40
13 The court stayed the appellant’s appeal concerning Lockwood J.’s interlocutory order pending completion of the trial.
C. Manitoba Court of Queen’s Bench (1993), 87 Man. R. (2d) 161
14 The appellant contended that he had negotiated a fixed-term contract with UGG that guaranteed him security of tenure until retirement, subject only to termination for just cause. Lockwood J. rejected that argument. In his view, the making of a fixed-term contract would occur rarely, if at all. He described such a contract as being special in nature so as to require very explicit terms. He concluded that the evidence about the meeting between Logan and Wallace prior to Wallace’s being hired was not sufficient to merit a finding that the parties had entered a fixed-term contract. Further, he found that in any event, such a contract would be inconsistent with UGG’s employment policy and that any change in company policy would require the endorsement of the personnel manager, the general manager or the president of UGG. A change in the company’s employment policy was neither sought nor granted.
15 In determining the appropriate period of reasonable notice, Lockwood J. took into account a number of factors including the appellant’s length of service, his age, the nature of his employment, the history of the employment relationship, his qualifications, and the availability of similar employment. In addition he noted the difficulty that Wallace was experiencing in finding alternate employment. He attributed that difficulty in large measure to the evidence of word having circulated in the trade that Wallace “must have done something reprehensible” to have been dismissed by UGG. At p. 170 Lockwood J. concluded:
Taking the above factors into account, and particularly the fact that the peremptory dismissal and the subsequent actions of the [respondent] made other employment in [Wallace’s] field virtually unavailable, I conclude that an award at the top of the scale in such cases is warranted. I, therefore, fix 24 months as the period of reasonable notice.
16 In addition to his claim for wages in lieu of notice, Wallace sought damages for mental distress and made claims in both contract and tort. The claim in contract included damages for mental distress, loss of reputation and prestige and punitive damages. Citing Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085, Lockwood J. determined that Wallace’s entitlement to an award under this head of damages turned on whether UGG’s conduct constituted a separate actionable wrong. He noted that although there was no fixed-term contract, Wallace had been given a guarantee of security provided he gave UGG no cause to dismiss him. Relying on Pilon v. Peugeot Canada Ltd. (1980), 114 D.L.R. (3d) 378 (Ont. H.C.), Lockwood J. concluded that it must have been in the contemplation of UGG that if Wallace was dismissed without cause or warning, he would probably suffer mental distress. This was an implied term of the contract and therefore the dismissal constituted a separate actionable wrong worthy of compensation.
17 Regarding the claim in tort, the appellant sought damages for negligence including punitive damages or, alternatively, aggravated damages for wilful or negligent infliction of harassment and oppression. This claim was based on the statements of Anderson J.A. in the British Columbia Court of Appeal in Vorvis (1984), 9 D.L.R. (4th) 40, at pp. 54-55. Lockwood J. began his analysis by reviewing the evidence concerning mental distress and found that although Wallace’s assignment into personal bankruptcy must have caused him an increasing degree of stress, the dismissal itself constituted the “major component” in his depression (at p. 176). Turning to the part of the claim concerning wilful or negligent infliction of harassment, he accepted the evidence of Domerecki that it was UGG’s intention to “play hardball” with Wallace, that UGG did not have any reason to dismiss him and that the reason given in Domerecki’s letter of August 29, 1986 was not true. He also noted the late withdrawal of the allegations of cause. Lockwood J. held that the behaviour of the respondent ought to lead to compensation for mental distress by way of aggravated damages.
18 Lockwood J. was of the view that since the majority of the Supreme Court of Canada in Vorvis failed to comment on the statements of Anderson J.A. in the Court of Appeal regarding the claim in tort, it could be implied that in the proper circumstances, such a claim might qualify as a separate actionable wrong from the breach itself. In his opinion, the requisite circumstances existed in this case. He concluded at p. 177:
I find that it was reasonably foreseeable that mental distress would result from the manner in which the dismissal was handled and also by the decision to play hardball with the [appellant]. That decision resulted in the [respondent] maintaining the plea of just cause for some two years and four months, during which time the [appellant] undoubtedly suffered further mental distress. There was, consequently, a negligent breach of the duty of care warranting compensation by way of aggravated damages.
19 In light of the circumstances and having found that the defendant was liable for aggravated damages resulting from mental distress in both tort and contract, Lockwood J. fixed the award at $15,000.
20 With respect to the appellant’s claim for punitive damages, Lockwood J. relied on the decision in Vorvis, supra, and concluded that conduct warranting an award of such damages would have to be of a “harsh, vindictive, reprehensible and malicious nature” (p. 179). In his view, the conduct complained of in this case was not sufficient to constitute an actionable wrong, nor was it of such an extreme nature as to merit condemnation by an award of such damages in either tort or contract.
D. Manitoba Court of Appeal (1995), 102 Man. R. (2d) 161
21 Having disposed of two issues which do not arise on this appeal, Scott C.J.M., writing for a unanimous court, turned to the question of whether Wallace’s status as an undischarged bankrupt rendered him incapable of bringing an action for breach of contract. Scott C.J.M. began his analysis by reviewing those sections of the Bankruptcy Act (ss. 2, 67 and 71(2)) that provide for the automatic vesting of “property” in the trustee upon bankruptcy. He recognized that one exception to these provisions is s. 68, which continues the historical exemption of wages from property that vests in the trustee. The appellant argued that an action for wrongful dismissal was analogous to “wages or other remuneration” within the meaning of s. 68 and was therefore statutorily exempt property. However, Scott C.J.M. examined the competing case law on this point and found the authorities against Wallace’s position more convincing. He concluded that s. 68 had no application in the circumstances and that as Wallace’s claim for wrongful dismissal constituted property within the meaning of the Act, it came under the control of the trustee.
22 Scott C.J.M. acknowledged that Lockwood J. had reached a similar conclusion on this issue. However, in contrast to the opinion of the learned trial judge, he was of the view that this conclusion did not dispose of the question of Wallace’s capacity to bring a claim in contract.
23 The appellant relied on Cohen v. Mitchell (1890), 25 Q.B.D. 262, in which the English Court of Appeal drew a distinction between property owned at the date of bankruptcy and after-acquired property. It was stated that after-acquired property does not automatically vest in the trustee in such a way as to prevent the bankrupt from maintaining an action. Rather, he or she retains the ability to bring the action unless the trustee intervenes. Scott C.J.M. noted that this case has been applied numerous times in Canada. However, he was of the view that Cohen and the cases which have followed it are primarily concerned with preventing third parties from losing property that they purchased from the bankrupt in good faith and for value to the trustee in bankruptcy. Section 99(1) of the Bankruptcy Act, he stated, gives statutory expression to this common law principle, but neither the cases nor the statutory provisions directly address the rights as between the bankrupt and the trustee. At p. 175 he wrote:
As a logical corollary to this it follows, it seems to me, that the third-party beneficiary of such protection [the respondent in the present case] should not be able to set up as against the undischarged bankrupt the title of the trustee when the trustee has not become involved.
24 According to Scott C.J.M., the real issue was simply whether the appellant could maintain his action pertaining to after-acquired property when the trustee failed to take any interest in the litigation. To determine this issue he embarked on a review of the early case law that preceded Cohen and found that the courts have long recognized the authority of a bankrupt to maintain an action to protect property, and that this was later extended to proceedings for damages. However, the bankrupt possessed this power subject to the discretion of the trustee to intervene. Scott C.J.M. noted that the common law had developed this “common sense” principle despite the constant presence of both English and Canadian legislation which provided that all present and future property passed to the assignees (trustees) on bankruptcy. Scott C.J.M. rejected two recent authorities to the contrary, stating that neither involved after-acquired property nor did they make reference to Cohen.
25 In the opinion of Scott C.J.M., Lockwood J. had confused the issues of whether the trustee could maintain the action for wrongful dismissal, which he clearly could, with the bankrupt’s right to do so when the trustee chose not to intervene. Scott C.J.M. concluded as follows at p. 177:
The principle that title to after-acquired property vests in the trustee, but the bankrupt has the power and authority to maintain an action with respect thereto unless and until the trustee intervenes, is so well established it could be argued that the [respondent], as opposed to the trustee, has no status to raise the issue. But this need not be decided; it is sufficient to say that Lockwood, J., was quite wrong in his conclusion. Wallace had the right to continue in his own name his action for wrongful dismissal in the absence of the trustee.
26 Regarding the issue of a fixed-term contract, Scott C.J.M. ruled that the trial judge had been correct in finding that there was no fixed-term contract to the age of retirement. In his view, it is rare that general expressions of inducement such as those found by the trial judge are intended or accepted as sufficient to create a binding legal obligation. In addition, he concurred with Lockwood J.’s view regarding the special nature of such a contract, holding that it would require explicit terms and would most certainly be in writing.
27 In considering the notice period to which the appellant was entitled, Scott C.J.M. acknowledged that the manner of dismissal and the circumstances surrounding it may be relevant in determining the appropriate notice period where the prospects for the dismissed employee’s future employment are affected. However, he doubted that it would be appropriate to consider its impact by way of a separate addition to the appropriate notice period. Rather, he concluded, it is one of the numerous factors to be considered.
28 In light of the indefinite terms of Wallace’s employment, his position and work history with the company as well as his age and prospects for future employment, Scott C.J.M. concurred with the trial judge’s finding that damages ought to be at the high end of the scale. Nevertheless, he held that the award of 24 months was indicative of an element of aggravated damages having crept into the trial judge’s determination. Scott C.J.M. noted the recent tendency for awards to climb beyond the level indicated by previous authorities and concluded that 15 months was the appropriate period of notice.
29 Turning to Wallace’s claim for mental distress, Scott C.J.M. noted that historically, courts have refused to award damages under this head in breach of contract actions. However, he acknowledged that some exceptions have arisen, namely, in cases where either freedom from mental distress or enjoyment was the actual matter contracted for. In his view, the