Leong & Associates v. Watt et al.

2003BCSC1885

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Leong & Associates v. Watt et al., 2003 BCSC 1885 Date: 20031216 Docket: C994042 Registry: Vancouver Between: Leong & Associates Actuaries and Consultants Inc. Plaintiff And: William J. Watt and Whistler Benefit Plans Ltd. Defendants And: Julian Leong Defendant by Counterclaim Before: The Honourable Mr. Justice Sigurdson Reasons for Judgment Counsel for the Plaintiff: H.S. Delaney Counsel for the Defendants: K. Loo A. Nathanson, Articled Student Date and Place of Trial: June 9-13, 16, 2003 Vancouver, B.C.

INTRODUCTION [1] The central issue in this case is whether the parties reached a binding agreement. [2] Leong & Associates contends that in June 1995 the parties agreed that Mr. Watt would become an employee of Leong & Associates Actuaries and Consultants Inc. ("Leong & Associates")and transfer the shares of his company, Whistler Benefit Plans Ltd. ("Whistler Benefit"), to the plaintiff for shares in the plaintiff company. Mr. Watt, while acknowledging that he became an employee of Leong & Associates, disputes that an oral agreement to sell the Whistler Benefit shares was ever reached, even though he says that the parties proceeded for a long time on the expectation that they would reach agreement. [3] Leong & Associates claims damages for breach of contract and conversion. In the alternative, if I find there was no concluded agreement for Leong & Associates to acquire the shares of Whistler Benefit, it seeks recovery of monies it expended on the basis of unjust enrichment or mistake. [4] Similarly, the defendants, Whistler Benefit and Mr. Watt, seek recovery of monies from the plaintiff on the basis of unjust enrichment or mistake, if there is found to be no binding agreement. Mr. Watt also makes a claim for damages for wrongful dismissal, including a claim for a bonus and unpaid wages.

ISSUES [5] The issues are as follows: 1. Did the principals of the two corporate parties reach a binding oral agreement under which Leong & Associates would acquire the shares of Whistler Benefit?

2. If a binding agreement was reached, was the defendant Mr. Watt in breach, and, if so, to what damages is Leong & Associates entitled?

3. If there was no binding agreement for the purchase and sale of the shares, is either party entitled to recover monies on the basis of unjust enrichment or mistake?

4. Was Mr. Watt wrongfully dismissed and, if so, to what damages is he entitled? Is Mr. Watt entitled to a bonus for 1998 (the year ending January 31, 1999) and is he entitled to unpaid wages?

FACTS [6] Julian Leong is an actuary. William Watt is a chartered financial planner. [7] In 1989, Mr. Leong started Leong & Associates, an actuarial company that provides actuarial and pension services. By 1995, the shareholders were Mr. Leong, who was the major shareholder, his wife Lori Leong, his family through a family trust, and a related holding company, J. Leong & Associates. [8] Mr. Watt is a university graduate who has worked generally in the group and life insurance business. [9] Mr. Leong and Mr. Watt became business acquaintances in the 1980s and over time became casual friends. Their lines of work were different but they occasionally referred business to each other and kept in contact. [10] In the 1990s, Mr. Watt was living in Whistler. Mr. Watt had set up Whistler Benefit as a group insurance benefits company in the early 1990s, after having worked with life insurance and financial investment firms. [11] In January 1995, Mr. Watt's wife suffered a stroke and was severely brain injured. She required care in Vancouver and Mr. Watt wanted to move to Vancouver. [12] Mr. Watt called Mr. Leong for dinner in May 1995 to discuss the possibility of working together. Mr. Watt explained his wife's medical condition and said that he was looking to move to Vancouver. Mr. Leong's firm, Leong & Associates, a small but successful group of actuaries, was not looking for a

marketer, which was Mr. Watt's particular line of interest. At the first meeting, they did not discuss the acquisition of Whistler Benefit but agreed that they would mull over what Mr. Watt had mentioned and talk again. [13] A second discussion took place on June 12, 1995. Mr. Leong and Mr. Watt met again for dinner at the same Greek restaurant on Robson Street. [14] This is the key meeting. It is where the plaintiff alleges a binding oral contract was made for Leong & Associates to acquire the shares of Whistler Benefit. [15] The meeting began with Mr. Watt telling Mr. Leong of his wife's condition. [16] The conversation turned to the topic of working together. Mr. Watt suggested that he would do marketing services and that he would bring the Whistler Benefit clients to Leong & Associates. Mr. Watt said that he wanted to be a shareholder as he felt he had equity in his company. Mr. Leong testified that Mr. Watt wanted to be one of the senior people and a shareholder employee. Mr. Leong testified that Mr. Watt knew that he had a vision that the senior actuaries could be shareholder employees and could acquire up to 9.8% of the company over four years. [17] Mr. Leong testified that when he considered different permutations on how they might come together, he had never thought of the possibility of Mr. Watt becoming a shareholder before Mr. Watt brought it up at the second

meeting; when new people join Leong & Associates, they normally just bring their business in. [18] Mr. Leong testified that during this discussion, in response to Mr. Watt's comment about becoming a shareholder, he did the "mathematics in (his) head" about the business risk of Mr. Watt joining Leong & Associates. He testified that he considered that if Mr. Watt came aboard with his business, it lessened his business risk. [19] During the dinner discussion Mr. Watt and Mr. Leong talked about Mr. Watt's income expectations. Mr. Watt said that he needed $65,000 a year to live on. Mr. Watt testified that he knew that the bonuses paid by Leong & Associates were large. There is a dispute about whether there was additional discussion about Mr. Watt's future income expectations. [20] Mr. Leong testified that he told Mr. Watt that he would give him equity in Leong & Associates because he was bringing Whistler Benefit into the company, which he testified Mr. Watt said had about $40,000 to $50,000 of annual commission income. [21] Mr. Leong testified that he said he would provide to Mr. Watt, by way of equity, shares on the basis of a formula of one times earnings, something which had been done in the past for a couple of employees, including, in fact, one who was recently hired. Mr. Leong testified that Mr. Watt said that one times earnings was fair. Mr. Leong said that for reasons he

cannot recall and commission timing issues, it was not appropriate or feasible to use Whistler Benefit's last year or the period from August 1, 1995 for valuation. They decided, he said, that it would be best to use for the revenue comparison the period of November 1, 1995 to October 31, 1996, the fiscal year end of Whistler Benefit. Mr. Leong said that the revenue for Whistler Benefit for that time period compared to the combined revenue of Whistler Benefit and Leong & Associates would represent the percentage interest Mr. Watt received in the shares of Leong & Associates. [22] Mr. Leong testified that Mr. Watt did not understand the fee for service business of Leong & Associates. Mr. Leong explained that his firm charged out on an hourly basis. [23] Mr. Leong testified that at some point, although he could not remember the precise words, they either said "Let's do it" or "It's a deal"; he testified: "Bill was the one who initiate[sic] -- extended the hand out, and I accepted it, and we had an arranged agreement". Mr. Leong also testified, "we shook hands because we had come to an agreement". [24] Mr. Leong said that outside the restaurant they shook hands again and both were happy they had come to an arrangement. He said that it was agreed Mr. Watt would start August 1, 1995 at a salary of $65,000 per year. Mr. Leong said there had been some discussion about bonuses and that

they were paid at his discretion. Mr. Leong testified that they were going to determine the results of the formula on October 31, 1996 or shortly thereafter when they had the numbers for Whistler Benefit and Leong & Associates and as Mr. Leong testified, "to instruct legal counsel to effect the share of [sic] transfers ". [25] Mr. Watt was a little vague about the meetings. He testified that at the second meeting they discussed him joining Leong & Associates as an employee at $65,000 a year but said that when the meeting concluded it was still subject to the approval of the senior staff of Leong & Associates. He agreed that he said it would be fun working together. [26] Mr. Watt testified that he does not recall saying "Let's do it". When asked if he shook hands with Mr. Leong in the Greek restaurant he said he shook hands every time he saw Mr. Leong and every time he said goodbye to him, something he does with all his friends. [27] There clearly was discussion at the second meeting about the firms merging and Mr. Watt becoming a shareholder of Leong & Associates. Mr. Watt characterized the discussion as an agreement to look at putting the companies together. In terms of the price for Whistler Benefit, Mr. Watt said that various methods of valuing the companies were discussed and that one times earnings was one of the things that Mr. Leong talked about. He could not remember

the other ways of valuing the companies that may have been discussed. [28] Mr. Leong denied discussing other methods of valuation. Although Mr. Leong said they discussed that the one times earnings formula would also apply if Whistler Benefit exited Leong & Associates, Mr. Watt said that this aspect was not discussed. [29] Although Mr. Watt said that a formula of one times earnings was one of the things that was discussed and the only one he could remember, he described the discussion on that topic as pretty vague, that one times revenue for the year ending October 31, 1996 was not discussed, and that the meeting ended with them agreeing to get together again. [30] However, Mr. Watt agreed that he said that he would not come on board unless he had an equity position. Mr. Watt testified on cross-examination that he knew that the future revenue of Whistler Benefit would go to Leong & Associates but he qualified that to say that it would occur when they finalized and got the deal organized. [31] It appears that the question of dividends for shareholders of Leong & Associates was not discussed at the June 12 meeting. Mr. Leong's position at trial was that shareholders of Leong & Associates were not entitled to dividends but that they may be entitled to bonuses as employees and if so, could take those bonuses as dividends. This policy apparently ensured that non-active shareholders

would not receive dividends. The evidence indicates that this qualified right of shareholders to dividends was not discussed at the June 12, 1995 meeting. [32] No draft agreement in connection with the share transaction was prepared and no confirming letter was sent by either party. No memorandum was made of the June 12, 1995 meeting and exchanged. No note of this crucial meeting was produced by either side. [33] Mr. Leong and Mr. Watt met subsequently. [34] The third meeting likely took place on July 5, 1995 at the Beach House Restaurant in Stanley Park. Mr. Watt in his testimony was confused as to the content and location of some of the meetings. [35] Mr. Watt agrees that at the third meeting he asked to be paid his $65,000 a year until the end of 1995 as a consulting fee from Whistler Benefit and that Mr. Leong agreed. Mr. Leong said they went over the one times revenue formula to make sure Mr. Watt understood it. Mr. Watt disagreed that they discussed a settled formula and said that one times revenue and other "generic value things" were discussed. At one point during his testimony, he said they talked of values, revenues, and profitability. [36] No correspondence or any written document confirming an agreement was prepared and exchanged after the meeting. [37] On August 1, 1995 Mr. Watt started work as an employee of Leong & Associates. He had an office in the premises of

Leong & Associates. The two businesses, for many practical purposes, merged. However, no draft documents to complete or settle the terms of the share transaction among Mr. Watt, Whistler Benefit, Leong & Associates, and Mr. Leong were prepared either by Mr. Watt or Mr. Leong. [38] Mr. Watt, while working for Leong & Associates, was paid a consulting fee from Whistler Benefit until the end of 1995. Thereafter, he was paid a salary by Leong & Associates in accordance with the June 12, 1995 discussion at the Greek restaurant. [39] Both parties represented in correspondence to various third parties that Whistler Benefit was now a subsidiary of Leong & Associates. In August 1995, Mr. Leong wrote a memo to all insurance company clients of Leong & Associates directing the payment of commissions to "our licensed entity Whistler Benefit Plans Ltd.". Leong & Associates cancelled their license and thereafter simply used the insurance license of Whistler Benefit. Mr. Watt wrote letters, for example a letter of August 2, 1996, to Mutual Life stating that, "Effective August 1, 1995 all commissions and bonuses credited to Leong & Associates were to be made payable to Whistler Benefit Plans Ltd., our licensed subsidiary, for our entire block of business". [40] Mr. Leong introduced Mr. Watt to the employees of Leong & Associates as an employee and a shareholder. [41] Generally the expenses of

Whistler Benefit were paid by Leong & Associates. Whistler Benefit did not pay rent. Leong & Associates took over both the bookkeeping and the banking for Whistler Benefit. Mr. Leong's wife, Lori Leong, took responsibility for the Whistler Benefit books and the payment of the bills relating to Whistler's business. Mrs. Leong became a signatory to the bank accounts of Whistler Benefit at the credit union. [42] By a document dated November 1, 1996, signed by Mr. Watt and Mr. Leong, Mr. Leong became a director of Whistler Benefit. (By resolution of December 13, 1996 the shares of Suzanne Watt, Mr. Watt's wife, were transferred to William Watt and cancelled, and new shares in Whistler Benefit were issued in Mr. Watt's name.) Mr. Leong said there was no discussion with Mr. Watt about why these shares were not transferred to Leong & Associates. [43] Mr. Watt suggested a confidentiality agreement for employees of Leong & Associates. He signed one on April 3, 1996. According to Mr. Leong, the agreement was amended, and signed by Mr. Watt to provide that the non-disclosure obligation relates to the employer, Leong & Associates, and its subsidiaries, Leong Crouse Dorgan Partners Inc. and Whistler Benefit, and its network affiliate Crouse Dorgan Consultants Inc. [44] However, the determination of the shares that Mr. Watt would receive, or the implementation of the formula, and the

transfer of the shares, were slow in coming. [45] The question of the finalization of the share transaction came up from time to time, there being a dispute as to the frequency of such discussions. It appears that over about four years, it was raised on a number of occasions in passing. The evidence indicated that there were three specific occasions where the discussion between Mr. Leong and Mr. Watt was of sufficient duration that it might have focussed specifically on the implementation or existence of a formula for the shares Mr. Watt might receive. I will discuss those occasions later when I discuss whether the parties in fact reached an agreement. [46] Let me turn to some of the significant financial transactions between the parties. This is relevant to whether there was a binding contract and to the appropriate remedy if I conclude that there was no binding contract between the parties. [47] Although Mr. Watt received a consulting fee paid out of Whistler Benefit for the balance of 1995, after January 1996, his salary and benefits were paid by Leong & Associates. The revenues of Whistler Benefit were deposited to an account at the North Shore Credit Union. Mr. Watt worked as an employee of Leong & Associates but also conducted the business of Whistler Benefit. [48] Mr. Watt provided marketing services for Leong & Associates, including running seminars, preparing corporate

brochures, recruiting, and doing business development. He was considered by Mr. Leong to be at least an average employee. [49] Mr. Watt received bonuses from Leong & Associates for its fiscal years ending in 1996 of $5,000, in 1997 of $13,000, and in 1998 of $10,904. January 31 was the fiscal year end for Leong & Associates. [50] Three particular financial transactions are relevant. They are a payment of $39,334 by Mr. Watt to Mr. Leong, a payment of $50,000 (net of taxes $35,908.99) by Mr. Watt to Mr. Leong, and a loan of $20,000 by Whistler Benefit to Mr. Watt. [51] I will describe each of these in turn. (a) In November 1996, Mr. Watt gave to Leong & Associates certain monies and Leong & Associates made a $70,097 contribution to Mr. Watt's pension plan on Mr. Watt's behalf. Part of the monies that Mr. Watt gave to Mr. Leong, that were not attributable to the pension plan, was the sum of $39,334. Mr. Watt said that these were monies for shares which would be worked out in the transaction but Mr. Leong denied this. Mr. Leong testified that this extra cash was available and should go to him because Whistler Benefit was having its expenses paid by Leong & Associates. (b) The second transaction occurred in April 1997, in connection with a dividend paid by Whistler Benefit to Mr. Watt of $50,000. This payment amounted to $35,908.99 after taxes and was paid by Mr. Watt to Mr. Leong.

Mr. Leong said that this was money that Leong & Associates was entitled to, but as Mr. Watt was still shareholder on record, the money would be paid to him, the amount of taxes that he would have to pay would be deducted and remitted and the after-tax portion given to Mr. Leong. Mr. Watt testified, which Mr. Leong disputed, that it was in payment of further purchases in shares of Leong & Associates. (c) The third transaction did not involve money that was paid to Mr. Leong or Leong & Associates, but was a borrowing of $20,000 by Mr. Watt from Whistler Benefit. Mr. Leong said this was to make his RRSP contribution and that Mr. Watt asked Mr. Leong for permission to borrow $20,000 from Whistler Benefit, which he did, and it was repaid. Mr. Watt agreed that although he was entitled to the revenues of Whistler Benefit, he did ask Mr. Leong if he could borrow the money. [52] The relationship between the parties started to sour in 1999. [53] In January 1999, Mr. Watt removed Mr. Leong as a director of Whistler Benefit, something Mr. Leong did not learn about until after Mr. Watt left the employ of Leong & Associates. [54] In early March 1999, Mr. Watt took back the books and records of Whistler Benefits from Mr. and Mrs. Leong purportedly for the purpose of preparing a pre-nuptial agreement with his new wife. [55] On March 19, 1999, Whistler Benefit's account at the credit union had

a balance of $133,590.08. [56] In 1999, Mr. Leong was considering the possibility of instituting something called a phantom share plan for Leong & Associates. Mr. Leong's concern was that young actuaries employed by his firm could easily be drawn away by competitors. Important employees could be retained by Leong & Associates by the incentive of having a notional share interest in the event of the sale of the company over a certain price. [57] Mr. Leong, Mr. Watt, and Mr. Latter, an employee of Leong & Associates who was also a shareholder, met in March 1999 to discuss the "phantom share" issue. Mr. Leong described it as only a preliminary concept and said that Mr. Latter and Mr. Watt would still have their deals. [58] Mr. Watt remarried, and after his honeymoon and Mr. Leong's vacation, he met Mr. Leong again on May 12, 1999. After the meeting, Mr. Leong, concerned that Mr. Watt had taken control of the Whistler Benefit bank account, asked Mr. Watt what he had done with Whistler Benefit's money. Mr. Watt indicated that they didn't have a deal. [59] On May 12, 1999, Mr. Watt began to profess to be upset about the phantom share plan and Mr. Leong was now taking steps to secure his position that there was a binding contract to acquire Whistler Benefit's shares. [60] On the morning of May 14, 1999, Mr. Leong and Mr. Watt met in the offices of Leong & Associates to discuss the

phantom share plan. Mr. Doug Moore, the accountant for Whistler Benefit, came to the meeting. Mr. Leong brought Ian Muirhead, the corporate solicitor for Leong & Associates. [61] Mr. Leong wanted to complete the share transaction. Mr. Watt said he wanted an explanation of the phantom share plan. [62] It was at this time, and for the first time, that Leong & Associates expressly stated what Mr. Watt's shareholding interest was. Mr. Leong wrote on a board the figures that showed the 3.71% interest. See paragraph 73 of these reasons for that calculation. [63] Mr. Leong then erased the numbers on the board and continued to explain the phantom share plan to Mr. Watt. The explanation indicated that if there were a sale, the first $2.8 million would go to the shareholders, the next $2.8 million would go to the employees, and the residuary would be split 50/50. [64] Later that day, Mr. Watt took ill and was taken to hospital. [65] Later in the afternoon of Friday, May 14, 1999, Mr. Watt's wife came to the office of Leong & Associates to pick up his paycheque. Mr. Leong put her off by saying that his wife had the cheques and was not there. [66] When Mr. Watt came into the office the next week for his paycheque, Mr. Leong asked for the chequebook and accounting records of Whistler Benefit and said that the paycheque was tied with the share issue, something which Mr. Watt indicated he did

not wish to discuss. [67] The parties exchanged correspondence in which they stated the positions that they have taken throughout this litigation. [68] On May 20, 1999, Mr. Watt wrote to Mr. Leong and said in part as follows: On Wednesday when I asked you for my cheque you told me that you were holding on to it until we resolved the matter regarding the merger of our two companies. Under these circumstances, I consider that you have repudiated my contract of employment by refusing to pay me. In effect, you have fired me. In consideration of this, and based on our meetings of Wednesday May 12 and Friday May 14, I have decided not to sell my company, Whistler Benefit Plans Ltd. to your company, Leong & Associates Actuaries and Consultants Inc. This combination of events has confirmed my belief that we would not have been able to come to an agreement on the terms that would have been satisfactory to both parties. [69] Mr. Leong responded on May 25, 1999. He expressed distress at Mr. Watt's letter and said that Mr. Watt was not living up to his obligations and agreements. He noted: I am not going to recite my version of all the discussions and events surrounding our relationship, except to confirm that we agreed, back in 1995 and before you moved here from Whistler, that Leong & Associates owns 100% of Whistler Benefit and you own a pro-rata interest in Leong & Associates, based on

the respective values of the two companies. There are so many facts and events that are consistent with this view that there can be no doubt that this is the case. [70] Leong & Associates then purported to accept the repudiation by Mr. Watt. [71] Mr. Leong's position was also that Mr. Watt was not entitled to a bonus because he was not employed at the time of the bonus payment, a requirement that was introduced after Mr. Watt commenced his employment with Leong & Associates. PARTIES' GENERAL POSITIONS The Plaintiff's Position [72] The plaintiff's general position is that its principal, Mr. Leong, entered into an oral agreement with Mr. Watt under which Mr. Watt, the principal of Whistler Benefit, agreed to become employed by Leong and Associates, transfer Whistler Benefit's business portfolio to Leong & Associates, and receive a representative proportion of shares of Leong & Associates based on a comparison of the revenues of Leong & Associates' companies to the revenues of Whistler Benefit over a certain period of time. The plaintiff asserts that the agreed formula was a ratio of one times earnings at the 1996 year end of Whistler Benefit compared to the earnings over the same period for Leong & Associates. [73] At trial the plaintiff presented a document called "Recreation of % Calculation", which shows what the plaintiff says is the percentage of shares that Mr. Watt was entitled to in Leong & Associates based on what it says was the agreed formula of one times earnings: Whistler - year ending October/96 commission income only $67,941.00 Crouse Dorgan - year ending September/96 gross $46,414 -50% portion $23,207.00 Leong & Associates Feb 1 - October/96 - $1,207.891 1/2 October + November/95 - $116,237 December/95 - $267,737 Jan/96 - $147,600 $1,739,465

TOTAL $1,830,613 Whistler/TOTAL $67,941.00/$1,830,613 = 3.71% [74] Although nothing was reduced to writing, the plaintiff contends that the objective evidence, including the subsequent conduct of the parties, shows that there was a concluded agreement on June 12, 1995. This conduct is said to include the subsequent oral amendment as to how Mr. Watt would be paid, Leong & Associates' payment of expenses for Whistler Benefit as if it owned the business, Mr. Leong's appointment as a director of Whistler Benefit, and Mr. Watt's numerous representations to third parties that Whistler Benefit was a subsidiary of Leong & Associates and that he was a shareholder of Leong & Associates. The plaintiff says that the performance of the contract did not complete for a number of legitimate reasons, unrelated to the question of its validity. [75] Ultimately Mr. Watt took back the Whistler Benefit bank records, the funds in the Whistler Benefit bank account, and, the plaintiff says, ultimately repudiated the agreement on May 20, 1999, almost four years after it was made. [76] For breach of contract, the plaintiff claims the lost revenue of Whistler Benefit up to the date of the alleged repudiation, which it says is just under $200,000. [77] If there was no binding agreement, the plaintiff seeks recovery of monies paid, on the basis of mistake or unjust enrichment, for the salary of Mr. Watt and

the costs for fronting Whistler Benefit, which it says total the net amount of about $300,000. These monies would not have been paid, Leong & Associates claims, if it did not own the shares and the business of Whistler Benefit. [78] The plaintiff says that Mr. Watt repudiated the share agreement upon which his employment was predicated, and that, if he was dismissed, it was for lawful cause. The Defendant's Position [79] Mr. Watt's and Whistler Benefit's position is that, although Mr. Watt became an employee of Leong & Associates and expected to reach an agreement to transfer the shares of his company to Leong & Associates, no binding agreement, oral or otherwise, for the purchase and sale of Whistler Benefit's shares was ever reached. In particular, Mr. Watt says that no agreement was reached on June 12, 1995, the date the plaintiff alleges an oral agreement was made. [80] Mr. Watt says that when Leong & Associates refused to pay him his outstanding wages in May 1999, he was wrongfully dismissed. He seeks unpaid wages and damages in lieu of reasonable notice, which notice he limits to 2 1/2 months because he found other employment. Mr. Watt seeks an order for his entitlement to a bonus for 1998, and that he be repaid by Mr. Leong the sum of $75,242.99, which he says were monies paid by Mr. Watt to Mr. Leong in the expectation that there would be a contract for the sale of

shares. The defendants' counsel agreed that there should be repayment of $16,836.25 of insurance commissions of Leong & Associates that Whistler Benefit received on its behalf. The defendants also say that there should be a deduction for the amount of Mr. Watt's salary, rent and a legal bill and any other proven costs which were incurred by Leong & Associates for the benefit of Whistler Benefit, during the course of Mr. Watt's employment with Leong & Associates. Issue #1 - Did the principals of the two corporate parties reach a binding oral agreement under which Leong & Associates would acquire the shares of Whistler Benefit Ltd.? [81] The question is whether the parties, at the dinner meetings in 1995, reached an agreement concerning the sale of Whistler Benefit to Leong & Associates or whether there was simply an agreement to reach an agreement in the future. [82] In May & Butcher, Ltd. v. The King, [1934] 2 K.B. 17 (H.L.), Lord Buckmaster stated: [A]n agreement between two parties to enter into an agreement by which some critical part of the contract matter is left to be determined is no contract at all. [83] However, as noted in Hillas & Co., Ltd. v. Arcos, Ltd., [1932] All. E.R. 494 (H.L.),it is a matter of construction whether the parties intended to make a binding contract or simply a basis for future agreement. Lord Tomlin said at 499: ... and the problem for a court of

construction must always be so to balance matters that, without violation of essential principle, the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains. In Hillas, supra, the Court held that the language of what was written, interpreted in light of the previous course of dealing between the parties, was sufficient to show an intention to be bound and was not merely to provide a basis for future agreement. [84] In The Law of Contract, 4th ed. (Scarborough, Ontario: Carswell, 1999) at 67, Fridman describes the distinction this way: "Instances of an agreement to agree must be differentiated from others where there is a possibility that the parties may have reached a final agreement, even though some additional formality is envisaged". [85] An agreement is not unenforceable simply because it is oral and further documents are contemplated. In Byrne v. Napier (1975), 62 D.L.R. (3d) 589, 10 O.R. (2d) 193 (H.C.J.), the Court considered an oral agreement where the defendant would obtain 40% of the business, an option on an additional part, change locale, and work at an agreed salary and receive 40% of the value of the inventory. Mr. Justice Grange (as he then was) held at 595, citing Von Hatzfeldt-Wildenburg v. Alexander, [1912] 1 Ch. 284 that: ... if the documents or letters relied on as

constituting a contract contemplate the execution of a further contract ..., it is a question of construction whether ... the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. There he said the parties reached a completed agreement. [86] Rummery v. Matthews, 2000 MBQB 67, [2000] M.J. No. 248 (Q.L.), varied as to damages 2001 MBCA 32, [2001] M.J. No. 78 (Q.L.), is also an example of such a situation, where the Court stated at ¶16: To the extent any further agreements were required, they were in furtherance of a commitment already made and were not so essential that it could be said the parties were not ad idem or that the contract was in any way derogated from. [87] Mr. Loo for the defendants relies on this passage from Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 79 D.L.R. (4th) 97, 53 O.A.C. 314 (Ont. C.A.) at 104 which, he says, describes the legal position here that an essential term of the share transaction, namely the formula to determine the price for the Whistler Benefit shares, was not settled or agreed on: However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or

uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself: (Citations deleted) [88] The question, if something is not agreed, is whether it is vital or fundamental to the agreement. Mr. Justice Esson in Boult Enterprises Ltd. v. Bissett (1985), 21 D.L.R. (4th) 730, [1986] 1 W.W.R. 385 (B.C.C.A.), said at ¶13: It cannot be that any unresolved matter, however minor, in a contract of this kind would lead to the conclusion that the parties agreed on nothing. In this case, for instance, the parties might have gone further and stipulated the size and design of the house to be built and stipulated a price, or a method for determining the price, to be paid to Boult for building that house. But almost certainly something would have been left to future agreement. It

might be the colour and quality of paint or carpets, or the type of windows. Would failure to reach agreement on those details result in there being no contract? I think not. It is a question whether the unresolved matter was vital to the arrangement. [89] Was there an essential provision that was not agreed to? [90] There was certainly an agreement under which Mr. Watt would become an employee of Leong & Associates and work for Leong & Associates. The question is whether there was a binding agreement under which Leong & Associates would acquire his shares of Whistler Benefit and Mr. Watt would receive equity in Leong & Associates. The essential term in such an agreement would be a formula by which the equity would be calculated. Did the parties enter into an agreement with a settled formula to determine Mr. Watt's share interest in Leong & Associates or did the parties only enter an agreement to agree in the future on some basis for determining Mr. Watt's interest in Leong & Associates? [91] I did not understand Mr. Watt's counsel to argue that if the parties, on June 12, 1995 or later, orally agreed on a formula to determine Mr. Watt's share interest, that it was not enforceable; rather he argues that there was no agreement on a formula at all. In general terms, the defendant's counsel submits that there was no consensus ad idem, that there is considerable uncertainty as to

the terms and it is improbable in the circumstances that an agreed formula and a binding contract was reached. [92] Conversely, I did not understand the plaintiff to say there was a binding agreement if no formula was agreed to. Rather, I understood the plaintiff's position to be that there is a binding agreement because the parties orally agreed on a formula for determining the share interest of Mr. Watt in Leong & Associates and that formula is certain and capable of implementation. [93] The plaintiff says that this is not an executory contract, but a contract with a settled formula under which the parties operated for several years. The plaintiff says that not only was the formula agreed, but also the subsequent conduct of the parties and the passage of time after the June 12 meeting are strong evidence of a binding contract. [94] I must determine what was said at the dinner meetings in the summer of 1995, particularly at the June 12, 1995 meeting and consider the parties' subsequent conduct to see if the parties' actions and conversations, assessed objectively, establish a concluded agreement in the summer of 1995. [95] The question of Mr. Watt being a shareholder in Leong & Associates arose for the first time over dinner during the second meeting on June 12, 1995. [96] The determination of whether there was an agreement is in part a question of credibility. Mr. Leong says

that a formula was agreed to; Mr. Watt says that it was not. There is nothing in writing directly relevant to the question of the contract. [97] Although I generally prefer Mr. Leong's evidence over Mr. Watt's, I found that both witnesses gave their evidence with the result they sought in mind, either that there was, or was not a binding agreement reached. I find that their memories of events and conversations are affected by their stance in this litigation. I therefore have concerns about the reliability of the parties' reporting of their conversations, particularly the conversation of June 12. I am unable to accept the evidence of either witness completely concerning their discussion about the possible terms of the agreement. [98] On balance, however, the evidence tends to support Mr. Watt's assertion that the discussion of the terms under which he would own shares in Leong & Associates was general and preliminary, rather than specific and concluded. This finding is consistent with the fact that no memorandum of this meeting was apparently ever prepared, or documents in some form exchanged, as might be expected if a concluded agreement was reached. [99] I do not find it surprising that the parties did not document the terms of Mr. Watt's employment with Leong & Associates. However, I find it more improbable that the parties would make a binding agreement on a formula to

determine the interest of Mr. Watt in Leong & Associates and not reduce it to writing, at least in some form. I think that the absence of writing, in these circumstances, indicates that it is unlikely that the parties, during their first discussion on the topic, when the share structure of Leong & Associates was unknown to Mr. Watt, reached a concluded agreement on a formula to determine his share interest. [100] The assertion that there was an agreement of a valuation at one times earnings on a comparative basis, in the absence of any writing, rests entirely on Mr. Leong's assertion that such an agreement was made at the June 12 meeting. I do not accept as reliable Mr. Leong's recollection that there was specific discussion on the comparative earnings formula over dinner and that it was then agreed to. [101] As to the reliability of Mr. Leong's recollection on this aspect, I refer in part to the cross-examination by Mr. Loo, counsel for Mr. Watt, when he asked Mr. Leong about his evidence that he proposed a formula which Mr. Watt then agreed to. On examination for discovery Mr. Leong was asked: Q He didn't ever say that he agreed to the formula that you proposed? A At that particular dialogue, no. I don't remember, but after the dinner, when we finished the discussions, we shook hands and we said we've got a deal. After we're outside, we shook hands again on it. We had a

deal. When he was asked at trial if it was true, Mr. Leong responded: The transcriber realizes that when I'm talking, I should be very careful when I answer questions. When you asked me - the question was, "At that particular dialogue" and I was asking you a question, I said - that should have been a period there. And when you're asking me to answer your question, "No, I don't remember", at that - that dialogue, when we were talking about the one times. But when we - after we had our dinner, it was the agreement that what we had discussed was agreed upon. [102] Mr. Leong agreed that his counsel did not write to advise the defendant's counsel that the transcript was wrong. [103] It is probable that the discussions about the possible formula were preliminary rather than concluded for a number of other reasons. This discussion was the first time the possibility of Mr. Watt having a share interest had been brought up. The determination of the possible impact on Leong & Associates was done by Mr. Leong "in his head". This was not a discussion between two people settling the purchase of a commodity with which they were both familiar. Rather it was the discussion of the purchase price of a business, a somewhat complex matter, with which Mr. Watt, at least, was generally unfamiliar, and with which Mr. Leong, the evidence suggests, did not have great familiarity. [104] Mr. Watt had no

knowledge of the complex share structure of Leong & Associates, nor did he know of the existence of its subsidiary, something which could be relevant for valuation purposes. This absence of knowledge on Mr. Watt's part suggests that it is less likely that the parties would have concluded a formula for his acquisition of an interest in Leong & Associates the first time that the subject was brought up. There are, it turns out, fourteen different classes of shares in Leong & Associates, but Mr. Leong agreed there was no discussion with Mr. Watt about the different classes of shares or the different rights under the classes of shares. The fact that Mr. Watt may have agreed on cross-examination that he ultimately wanted 9.8% of whatever Mr. Leong had is not evidence that at this dinner meeting this significant aspect of the contract was settled. [105] Mr. Leong's position at trial is that shareholders are not entitled to dividends, only to bonuses which they may perhaps take as dividends if they are also employees. This is a significant term. The evidence does not indicate agreement or discussion on it at the summer dinner meetings in 1995. [106] During dinner, there was discussion about how to possibly determine Mr. Watt's interest in Leong & Associates. I find that the parties shook hands at the end of the dinner and in the parking lot. However, I do not think it follows that the

parties had reached a concluded agreement on the formula under which the new employee would receive a shareholding interest in Leong & Associates, even though the topic was discussed. Rather their discussions, handshakes and expressions of a deal, are consistent with the parties agreeing that Mr. Watt would come on as an employee of Leong & Associates, that he would bring the Whistler Benefit business, and that the parties would ultimately agree on what his shareholding in Leong & Associates would be, or how it would be calculated or determined. [107] Mr. Leong agreed at the third meeting that Mr. Watt could be paid out of Whistler Benefit as a consulting fee; however, I think that this arrangement is as consistent with the transaction that the parties expected to enter into as it is with the contention that the parties had made a binding formula on the share issue. I find that this meeting was still preliminary on the share question and the main part of the meeting was settling the remuneration under Mr. Watt's employment. [108] Turning next to the question of passage of time, courts are reluctant to conclude that there is only an agreement to agree where the parties have acted on their understanding and incurred expense. In Billeter v. Wasty, [1993] B.C.J. No. 2032 (Q.L.)(S.C.), Mr Justice Lander referred to Lord Denning's comments in F. & G. Sykes (Wessex) Ltd. v. Fine Far,

Ltd., [1967] 1 Lloyds L.L.R. 53 (C.A.), at ¶61: ... in a commercial agreement the further the parties have gone on with their contract, the more ready are the courts to apply any reasonable terms so as to give effect to their intentions. When much has been done, the courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when the agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to apply all reasonable terms so as to avoid any uncertainties. [109] From Mr. Leong's perspective, as I understood his evidence, the reason that the transaction had not completed was because there were impediments such as possible sales of Leong & Associates, or the fact that the actual closing of the transaction was not a serious matter between Mr. Leong and Mr. Watt. Mr. Leong testified that he would say, "Remember, we can't do this yet because we've got to wait for the Watson Wyatt or another situation, the Mercers, to finish their acquisition". Although Mr. Watt described the fact that the deal had not completed as a matter of frustration, Mr. Leong disagreed and said that it was always a joke between them, that they would always say, "We've got to get our paperwork done, right, one day?",

"Yeah, that's right". [110] There may be reasons for the delay in completing the deal, however, that are not inconsistent with the existence of a binding contract. [111] As reasons why the transaction did not complete, Mr. Leong pointed to the interest of prospective suitors for Leong & Associates and to the fact that completing the transaction raised concerns over the impact of taxation on Mr. Watt. [112] Mr. Leong testified that in 1996 there was potential interest in Watson Wyatt, a competitor, acquiring his company, and that if there was a transaction he would get Watson Wyatt to buy all the shares on the same terms, something he said Mr. Watt agreed with. The discussions with Wyatt were not fruitful. After January 1997, Mr. Leong did not hear further from them. [113] Mr. Leong explained that William Mercer was a further suitor which expressed interest in acquiring Leong & Associates in October 1997. Although the correspondence with Mercer included client revenues of Leong & Associates for 1995, 1996 and 1997, it appears these documents were not provided to Mr. Watt. By early 1998, Mr. Leong had called off those discussions. [114] Accordingly, it appears that by early 1998, the possibility of a sale to a third party was not a practical impediment to closing the deal between the parties to this litigation if a binding contract was in place, but the share transaction still

did not close. [115] Finally, I will consider Mr. Leong's submission that subsequent conduct indicates that the parties had a binding contract. Evidence of subsequent conduct may be admissible to show whether a final agreement was reached: Bawitko Investments Ltd. v. Kernels Popcorn Ltd., supra. [116] Subsequent conduct may also be admissible as a guide to interpretation: see Mr. Justice Lambert in Re Canadian National Railways v. Canadian Pacific Ltd. (1978), 95 D.L.R. (3d) 242, [1979] 1 W.W.R. 358 (B.C.C.A.), aff'd [1979] 2 S.C.R. 668, at 261-262. [117] I find that the subsequent conduct of the parties is admissible for the purpose of determining whether the parties reached a binding agreement or whether there was simply an agreement to agree. [118] If the parties did not reach an agreement about the terms under which Mr. Watt would become a shareholder of Leong & Associates, the evidence shows that they expected to reach that agreement. When Mr. Watt became an employee, it was their expectation that Leong & Associates would acquire the shares of Whistler Benefit and Mr. Watt would acquire shares in Leong & Associates. [119] Much of the evidence of the parties' subsequent conduct clearly reveals a common intention and expectation that the companies would merge, that Whistler Benefits would become a subsidiary of Leong & Associates, and that Mr. Watt would get shares in Leong

& Associates. Some evidence is consistent with an agreement that Mr. Watt is a shareholder of Leong & Associates and Whistler Benefit was a subsidiary. This evidence includes: representations to insurers, the statement by Mr. Leong to the employees, the fact that Mr. Leong became a director of Whistler Benefit, and Leong & Associates paying Whistler Benefit's expenses. I have also considered the preparation of the cash statement by Doan Raymond, the accounting firm for Mr. Watt. It appears to be for the purposes of a valuation of some sort. The document appears to note that the revenue for the last part of 1995 of $28,979 is to go to Leong & Associates. [120] The question is whether the evidence of subsequent conduct tends to prove that the terms under which that interest would be determined were agreed. Does it tend to show that there was a concluded agreement on the formula for Mr. Watt's share interest or is it simply consistent with an expectation that the parties would reach an agreement? [121] I find that the evidence is at least as consistent with the parties' expectation that they would reach agreement as it is with the contention that there was a concluded agreement on the formula. [122] The financial transactions including the payments of monies by Mr. Watt to Mr. Leong, were made, I find, in the expectation that the companies would merge. I do not accept Mr. Watt's

evidence that any of these payments were made to Mr. Leong specifically on account of additional shares that he intended to acquire in Leong & Associates. However, these transactions do not assist much in revealing whether a settled formula for the share acquisition was reached, other than the logical argument that people would not get their legal affairs so intertwined unless they had a binding contract in all significant respects. [123] Some evidence suggests that while it was the parties' expectation that there would ultimately be a share transaction, the parties had not yet agreed on all of the fundamental terms of that agreement. [124] Almost four years after the alleged oral contract was made, it still had not been documented or performed. One would expect that the parties would discuss the status of their pending or possible transaction from time to time. Do these discussions show that the formula under which Mr. Watt would become a shareholder was agreed? [125] The parties did not work out the interest that Mr. Watt was entitled to, on Mr. Leong's evidence, until the meeting on May 12, 1999 when the plaintiff presented the calculation. The calculation provided by the plaintiff as to Mr. Watt's shareholding interest under the agreement reveals a 3.71% interest in all classes of shares and is based on the revenues as well of a subsidiary, Crouse Dorgan. [126] If a formula

had been agreed in 1995 and the share interest that Mr. Watt was to receive had been resolved, it would have been a relatively simple matter, after October 1996, for the parties, or for Mr. Leong at least, to say that Mr. Watt was entitled to 3.71% of all shares in Leong & Associates. However, that was not done for almost three years after the figures were available, and was only done when the relationship of the parties was collapsing. The failure of the plaintiff to tell Mr. Watt of his precise shareholding interest in Leong & Associates after October 1996 is some evidence that there was not a settled agreement on how his interest would be ascertained. [127] Both parties said that there were discussions. I find that the topic of the incomplete transaction was discussed occasionally and in passing by the parties. I place little weight on the choice of words used by the two main witnesses when talking about having to "paper their deal" or "get together to make their deal" or any variation on those themes. In each case, the main witnesses, Mr. Watt and Mr. Leong, I have found, were tailoring their evidence, perhaps unconsciously, to fit the result that they were seeking in this litigation. [128] Let me turn to the times, other than the discussions in passing at the office of Leong & Associates, when the completion of the transaction was or could have reasonably been the subject

of discussion between the two key witnesses. [129] Mr. Leong indicated that there were three discussions relevant to the formula. He said that the first took place in late 1996 in his office when the senior employees reviewed the summaries of revenue that were distributed. Mr. Leong said that he pointed out the numbers and that the figures were there for the calculation of Mr. Watt's interest in Leong & Associates. Mr. Leong acknowledged that the revenue statements were not prepared to show Mr. Watt the calculation of his share interest but were part of a regular distribution to his staff. Mr. Leong did not show Mr. Watt the specific interest as suggested by Leong & Associates until three years later in 1999. [130] The second discussion occurred at Halfmoon Bay in early 1997. Mr. Watt and Mr. Leong went on a fishing trip to refine a client presentation. Mr. Leong said that Mr. Watt asked him about the numbers but that he did not have them because they were at Halfmoon Bay for a different purpose. Mr. Leong said that he had done the calculations and that the percentage came out to somewhere between three and four percent. [131] Mr. Watt's version was that he wanted to discuss what was happening on their deal. He put it that he said, "Let's talk about our deal and what's going on, how are we going to get this finalized?" He said that Mr. Leong talked about revenues and values

again. He acknowledged that there were references to between three and four percent, and said that was the only discussion in substance dealing with the merger of the two companies in 1997. [132] If in fact there was a settled formula, at least in Mr. Leong's mind, it is surprising that he did not at some time that year, 1997, after the fishing trip, advise Mr. Watt of his precise interest in Leong & Associates. The fact that he said Mr. Watt's interest was between three and four percent tends to indicate that there was discussion about an earnings formula on June 12, 1995, but it also tends to show that the formula was not settled, but simply a basis for further discussion. If there was an agreed formula, Mr. Leong would presumably have told Mr. Watt what his interest in the various classes of shares in Leong & Associates was shortly after the fishing trip. [133] The third discussion occurred near the end of the parties' relationship, at a meeting on May 14, 1999, almost four years after the dinner meeting, when the figures that are set out in paragraph 73 of these reasons were placed on a board by Mr. Leong. By that time both parties were taking self-serving steps and acting with litigation in mind. [134] Leong & Associates' position was that it owned Whistler Benefit from August 1, 1995 when Mr. Watt became an employee. Its position was that the interest Mr. Watt received,

existed at that time and its precise amount was dependant on the agreed formula. However, some facts suggest that Leong & Associates did not own, nor was seen by the parties as owning, Whistler Benefit from the outset. For example, the share register of Leong & Associates was never amended to indicate that Mr. Watt owned shares in Leong & Associates. The income tax return for Whistler Benefit that was signed by Mr. Leong indicated that Mr. Watt was the 100% owner of Whistler Benefit and that Whistler Benefit was not associated or related to any other company. [135] Although Mr. Leong's contention was that Mr. Watt was entitled to the same percentage of all shares, presumably including voting shares, he was not asked to execute documents consistent with that ownership at any time up to May 1999. There were wholesale changes to the share categories of Leong & Associates in late 1995 and early 1996, but Mr. Watt was not asked to and did not participate in resolutions changing the share structure. [136] One of the fourteen classes of shares of Leong & Associates were shares of Class FF shares with a redemption value of $438.90 per share. By 1995, if Mr. Watt was a shareholder of Leong & Associates, he ought to have been able to redeem these shares between 1996 and 1999 at a total redemption value of $30,547, given the suggested 3.71% interest. He was never given that opportunity,

nor did he have the knowledge that he was entitled to redeem those shares. Mr. Watt did not receive any dividends from Leong & Associates. [137] The phantom share deal spoke in terms of Mr. Leong's family getting the first $2.8 million of a sale. Mr. Leong told Mr. Watt that he still had his deal. When Mr. Leong was asked on cross-examination about the fact that Mr. Watt was never offered 3.71% of the first $2.8 million of that crystallized value, he said, "Any acquisition of Leong & Associates would be in excess of $2.8 million. He would have been protected. He would have not lost out. ... I told him that he had his agreement". [138] Although the plaintiff asserts that there was a clear agreement on the basis of one times earnings to determine the percentage interest of Mr. Watt in Leong & Associates, I note that Mr. Leong, when Mr. Watt purported to repudiate the agreement in 1999, immediately wrote that Mr. Watt had an interest in Leong & Associates, "based on the respective values of the two companies". That assertion is more consistent with Mr. Watt's evidence that the June 12, 1995 meeting was general discussion about valuation, than it is consistent with there being an agreement on a specific formula. [139] While it appears clear that revenue, or the possibility of one times revenue was discussed, as a possible formula to determine the interest that Mr. Watt might obtain

in Leong & Associates, I think that it is unlikely that the parties intended to reach a concluded agreement at that time, but expected to reach one in due course. [140] Upon a consideration of all of the evidence, I have concluded that during the dinner meetings in summer of 1995, or thereafter, the parties did not agree on all of the fundamental terms under which Mr. Watt would sell Whistler Benefit to Leong & Associates and would become a shareholder of Leong & Associates. They only made an agreement to agree. The parties expected to but never did reach agreement on all of the material terms, most importantly the method of determination of the purchase price. I expect that they intended to reach such an agreement but when unhappiness arose, the reason for which is unclear in the evidence, no such agreement had ever been reached. [141] Accordingly, as I have held that there is no contract for the sale of the shares of Whistler Benefit, the plaintiff's claim for damages for breach of contract must be dismissed. As such, there is no need to discuss the second issue. Issue #3 - If there was no binding agreement for the purchase and sale of the shares, is either party entitled to recover monies on the basis of unjust enrichment or mistake? [142] I turn to the question of unjust enrichment. [143] In Restitution, 2nd ed. (Scarborough, Ontario: Carswell, 1992), Fridman writes at

254-255: Money is sometimes paid by one party to another in pursuance of an agreement which both parties believe is, or anticipate will become a concluded, binding contract. Later, for one of several reasons, no valid, binding contract actually materializes. The contract may contain an unresolved ambiguity, or its terms may remain incomplete ... The questions then arise whether the recipient of the money is obliged to refund what he has received ... Since there is no contract effectively operating between, or binding upon the parties, any remedy given by the courts cannot be contractual. To permit the recipient to retain such money might lead to his being unjustly enriched at the expense of the payer. Recovery on the basis of quasi-contract, unjust enrichment, or restitution would therefore seem to be the most appropriate way of preventing such a result. Most of the cases have involved the performance of work or services by one party in furtherance or contemplation of such a contract ... Cases dealing with the recovery of money transferred from one party to the other are rarer to find. On principle, recovery of such money should be granted, unless there is some valid reason, in law or equity, why the payer should be denied any right to regain what he has paid the other party. [144] Monies paid in anticipation of a legal relationship that does not come to fruition may be ordered

returned on an unjust enrichment basis: Moyen v. Frost (78) Beauty Supply Ltd. (1993), 88 Man.R. (2d) 105, [1993] M.J. No. 402 (Q.L.)(C.A.). [145] Here the financial affairs of the parties have become entangled, perhaps more so than in reported cases that I have seen where monies have been paid in anticipation of a contract that did not come to fruition. However, there is no dispute between the parties that in the event I find, as I do, that there was not a binding agreement for the transfer of shares of Whistler Benefit to Leong & Associates, then the principles of unjust enrichment should be applied and funds should be returned by the party unjustly enriched. [146] Each side takes the position that the other was unjustly enriched by payments made and expenses incurred for the benefit of the other. Plaintiff's Position [147] The plaintiff's position is that but for an agreement, there would have been no salary paid by Leong & Associates to Mr. Watt and no payment of costs for Whistler Benefit. Mr. Delaney argues that, in those circumstances, I must find Whistler Benefit has been enriched to the detriment of Leong & Associates in the amount of $384,831, which is made up of the salary paid to Mr. Watt by Leong & Associates of $231,221 (Mr. Watt in his argument claims he received salary in the amount of $237,543.82), bonuses of $28,904, and the expenses which have been paid for

Whistler Benefit, which it says totals $124,706. [148] In addition, Leong & Associates claims the sum of $16,836.25, which are the premiums received by Whistler Benefit which it is agreed were received for the benefit of Leong & Associates. The plaintiff acknowledges that there should be a deduction of $75,242.99 being monies paid to Mr. Leong's benefit by Whistler Benefit or Mr. Watt. This leaves a net claim of (Leong & Associates' counsel argues) $292,670.75. However, by my calculation, the plaintiff is claiming $384,831 (salary, bonuses and expenses) plus $16,836.25 (premiums), less $75,242.99 (received by Mr. Leong from Mr. Watt) which equals $326,424.26. In any event, the plaintiff claims approximately $300,000, or more, on the basis of unjust enrichment, because the share agreement did not materialize. Defendant's Position [149] The defendant's position is that an application of unjust enrichment principles leads to quite a different result. Mr. Loo submits that monies should be paid by Leong & Associates to Mr. Watt and to Whistler Benefit. Although Whistler Benefit retained the monies that it earned during the time of Mr. Watt's employment with Leong & Associates, Mr. Loo argues that Mr. Watt should recover $75,242.99, as those are amounts paid to Mr. Leong by him during the course of his employment with Leong & Associates in the expectation that the share agreement

would be finalized. [150] Mr. Loo submits that Mr. Watt should also receive his outstanding wages, damages for wrongful dismissal, and a 1998 bonus. [151] From these amounts Mr. Loo says should be subtracted the sum of $40,602.23, which Mr. Loo argues represents the appropriate percentage of Mr. Watt's wages, bonus and rent paid by Leong & Associates, that should be repaid because it is attributable to Mr. Watt's work for Whistler Benefit while employed at Leong & Associates. He argues that 12.6% of Mr. Watt's work was done for Whistler Benefit, and the balance for Leong & Associates. The defendant calculates the amount that should be reimbursed to Leong & Associates on the following basis: 12.6% of his wages and bonuses (12.6% x $266,448 = $33,572), 12.6% of rent attributable to Mr. Watt (12.6% x $11,000/yr for 3.5 years = $4,851) and in addition reimbursement for a legal services bill of Mr. Watt's that was paid for by Leong & Associates of $2,178.23. Discussion [152] The evidence indicates that the payments by Mr. Watt to Mr. Leong of $39,334 and $35,908.99, totalling $75,242.99, were made in anticipation of the share transaction that did not come about and ought to be returned by Mr. Leong. [153] Mr. Loo also agrees that $16,836.25, being the insurance premiums that were received by Whistler Benefit on behalf of Leong & Associates, should also be repaid. There was some

suggestion at trial that there might be further insurance premiums that were received by Whistler Benefit. If that is the case, I find they ought to be returned as well. [154] The most significant areas of dispute are the amount of the wages and bonuses paid by Leong & Associates to Mr. Watt that are attributable to his Whistler Benefit work and ought to be repaid, and the expenses for the Whistler Benefit business that were paid by Leong & Associates that ought to be repaid. [155] I make the following findings. [156] Monies and services were exchanged by the parties in the anticipation that there would be a concluded share purchase agreement that never came to fruition. [157] Mr. Watt's contract of employment with Leong & Associates was connected to the possible share transaction, but I find that the services that Mr. Watt performed for Leong & Associates were sufficiently distinct and identifiable that a reasonable assessment of the amount of his time and effort spent on Leong & Associates business, as compared to the business of Whistler Benefit, can be made. I find that the contract of employment is severable from the agreement to agree in connection with the shares. Mr. Watt was an employee of Leong & Associates and, I find, he performed reasonably satisfactorily in that position. He properly earned and received from Leong & Associates a salary, and bonuses as well, in the

time that he was employed there. [158] Leong & Associates took care of the books and banking for Whistler Benefit for most of the time that Mr. Watt worked there and paid most of its expenses. [159] Although the plaintiff argued that all monies paid in salary to Mr. Watt should be reimbursed, I do not think that is appropriate. To do so would create an unjust enrichment in favour of the plaintiff. Mr. Watt worked as an employee of Leong & Associates, and was by Mr. Leong's admission a satisfactory employee. [160] To avoid an unjust enrichment, it is appropriate to make an order that Mr. Watt reimburse Leong & Associates for that part of his time, while employed in the office of Leong & Associates, that he spent working on Whistler Benefit's business. It is impossible for a precise figure to be ascertained. [161] The amount of time spent by Mr. Watt on Whistler Benefit business rather than Leong & Associates business can only be approximated. However, Mr. Watt was required to keep time records while he was employed at Leong & Associates. Although Mr. Leong said that he thought that the allocation of expenses was virtually impossible, I find that the time sheets, properly explained, are at least a general guide to the time Mr. Watt spent on Whistler Benefit as opposed to Leong & Associates' business. [162] Based on his review of time sheets, Mr. Watt initially testified that he

spent 11% of his time on Whistler Benefit work. Certain inaccuracies were established on cross-examination by Mr. Delaney, such as inclusion of holiday and vacation time. Mr. Leong did not offer an estimate of the time that Mr. Watt spent on the business of Whistler Benefit while he was employed at Leong & Associates. [163] Mr. Loo, after Mr. Watt's cross-examination, said that after adjusting for vacation taken by Mr. Watt and increasing the estimate of time spent on Whistler Benefit business, the percentage is more in the range of 12.6%. I think that the more appropriate percentage is 15%. The converse of this finding is that Mr. Watt spent about 85% of his time on the affairs and business of Leong & Associates. [164] Based on a consideration of all of the evidence at trial, that is the most reasonable determination that I can make. [165] Based on the plaintiff's figures for Mr. Watt's wages, 15% of Mr. Watt's total salary (including bonuses) at Leong & Associates of $266,448.69 ($237,543.82 + $28,904.87), equals $39,967.30. That is some guide to the income and bonuses paid by Leong & Associates to Mr. Watt from 1995 to 1999 while he worked on Whistler Benefit business. In addition, consideration should be given to Leong & Associates' payment of his rent for approximately 3 1/2 years (15% x $11,000 x 3.5 years = $5,775). The sum of $45,742.30 is some guide to the salary and

rental cost that Mr. Watt benefited from Leong & Associates which engaged on Whistler Benefit business. I think that $45,000 is a reasonable assessment for the amount of these items. [166] Mr. Delaney says that a restitutionary order should reimburse Leong & Associates for increased revenues of Whistler Benefit arising from the benefit that it received from the marketing efforts and advice of Leong & Associates. I think that there were mutual benefits that both Whistler Benefit and Leong & Associates received beyond the monies that I direct be paid in this part of the judgment, and to a large degree these benefits balance each other off. [167] I now turn to the other most significant aspect of the unjust enrichment claim: the appropriate adjustment or payment for the expenses of Whistler Benefit that were paid for by Leong & Associates. There seems to be no dispute that it would be unjust if Whistler Benefit did not repay to Leong & Associates the Whistler Benefit expenses that were paid by Leong & Associates during Mr. Watt's employment. Whistler Benefit earned significant income and was able to do so because Leong & Associates paid the expenses Whistler Benefit incurred while Mr. Watt was employed at Leong & Associates. The difficult question is the amount. [168] After Mr. Watt joined Leong & Associates, the books were kept by Mrs. Leong. She did not testify at trial.

Although the corporate expenses of Whistler Benefit were paid by Leong & Associates, there is, surprisingly, a serious difference between the parties as to the extent of those payments or benefits. [169] The plaintiff's position is that the determination of the amount paid by Leong & Associates is difficult to quantify because Whistler Benefit's overhead expense is simply absorbed by Leong & Associates. According to its counsel, the best guide to the amount is to compare the expenses of Whistler Benefit for 1995 and 1994, before the parties worked together and in 1999, after the parties separated, with the expenses for 1996, 1997 and 1998, the years when Leong & Associates paid the expenses. This, Mr. Delaney argues, will demonstrate the amount of the expenses benefit conferred by Leong & Associates on Whistler Benefit. According to Mr. Delaney, the amount should be $124,706, which is made up of $30,385 in 1996, $46,532 in 1997, and $47,789 in 1998. (These amounts are calculated by Leong & Associates' counsel averaging Whistler Benefit's expenses for 1994 and 1995 and deducting salary and expenses actually paid by Whistler Benefit itself.) [170] Whistler Benefit's position is dramatically different. Mr. Loo argues that the reduction in Whistler Benefit's expenses between 1994 and later years does not accurately indicate the extent that Whistler Benefit was enriched by Leong &

Associates' payment of most of its expenses. Mr. Watt suggested that the Whistler Benefit phone bill was higher in Whistler, for example, than it was in Vancouver when Leong & Associates paid the expenses. He also said that at Whistler, in the early years, there were start-up costs and then restart-up costs when the parties separated. He argues that Whistler Benefit's expenses were less because Mr. Watt was spending most of his time working for Leong & Associates. [171] Mr. Loo also argues that payment to Leong & Associates should be limited to salary, rent and specifically proven amounts which were paid on Whistler Benefit's behalf. As Leong & Associates kept the records and made payments, he argues, it should easily be able to demonstrate with some particularity the benefit that was received by Whistler Benefit. [172] The burden is on the plaintiff to prove the costs that it incurred on behalf of Whistler Benefit if it seeks to recover those costs on an unjust enrichment basis. [173] I recognize that some of the overhead costs of Whistler Benefit paid by Leong & Associates may not be easily or separately identified; nevertheless the expenses of Whistler Benefit that were paid separately by Leong & Associates could easily have been proven. [174] Doing the best I can on the evidence at trial, I conclude that during the relevant time, Leong & Associates incurred the expenses of

Whistler Benefit in operating its business. I find that the expenses of Whistler Benefit were somewhat less, during the period in question, than they were earlier. I also conclude that some overhead expenses were not identifiable by Leong & Associates but were nevertheless incurred for Whistler Benefit's benefit. [175] The plaintiff suggests that apart from the salary that it paid, the annual expenses of Whistler Benefit that it paid were in the range of $38,000 to $44,000. Making the best assessment I can, on the evidence, I think that it is more reasonable to conclude that Leong & Associates' payment of the costs of Whistler Benefit was approximately $25,000 per year. This is in addition to the amount of Leong & Associates' payment of Mr. Watt's salary and rent for his time devoted to Whistler Benefit's business. I think using a 3 1/2 year time period, as Mr. Loo suggests, is reasonable in the circumstances. [176] I have concluded that Whistler Benefit should repay $87,500 ($25,000 x 3.5 years) for expenses Leong & Associates paid. [177] Accordingly, I have concluded that to avoid an unjust enrichment, the parties should reimburse one another as follows: Leong & Associates/Mr. Leong to Whistler Benefit/Mr. Watt - for payments made by Mr. Watt to Mr. Leong in the amounts of $35,908.99 and $39,334: $75,242.99 $75,242.99 Whistler Benefit/Mr. Watt to Leong & Associates/Mr.

Leong - for premiums received by Whistler Benefit for the benefit of Leong & Associates: $16,836.25 - for salary and bonuses paid to Mr. Watt which are attributable to Whistler Benefit business and for its share of rent: $45,000.00 - for Whistler Benefit's share of expenses paid by Leong & Associates: $87,500.00 $149,336.25 Therefore, to avoid an unjust enrichment Mr. Watt and Whistler Benefit should pay to Mr. Leong and Leong & Associates $74,093.26, as well as any other insurance premiums received by Whistler Benefit. If there is an issue between the parties as to the payor and the recipient of these amounts they are at liberty to speak to that issue before the order is entered. Issue #4 - Was Mr. Watt wrongfully dismissed and, if so, to what damages is he entitled? Is Mr. Watt entitled to a bonus for 1998 (the year ending January 31, 1999) and is he entitled to unpaid wages? [178] I now turn to the defendant's claim for damages for wrongful dismissal. [179] The defendant has earned and is entitled to payment of his outstanding wages of $2,708.33. [180] The issue is whether Mr. Watt was wrongfully dismissed; if so, what was the appropriate period of reasonable notice and whether the defendant met his duty to mitigate; and, if not, whether his damages should be reduced. [181] I will deal with the question of wrongful dismissal first. [182] Mr. Watt's counsel says that

non-payment of his wages for the period May 1-15, 1999, was a fundamental breach of contract which the defendant, on May 20, 1999, by letter, treated as a repudiation. Mr. Watt's position is that the plaintiff was not entitled to withhold his paycheque on the ground that it was intertwined with the issue of the books and records of Whistler Benefit or related to the unsettled share agreement. [183] The plaintiff's position is that if there was a dismissal, there was just cause, because Mr. Watt secretly removed the Whistler Benefit revenues from the care and control of Leong & Associates. The plaintiff says that the defendant was a senior executive with a fiduciary duty to the company and relies on Christensen v. McDougall (2001), 14 C.C.E.L. (3d) 44, [2001] O.J. No. 3698 (Q.L.)(Sup. Ct. Just.), where it was held that a top management person who secretly opened a bank account and deposited company funds for the primary purpose of discharging a company loan and as well his liability as a guarantor could be dismissed for cause. [184] Here the circumstances are different. As of May 1999, the defendant, while employed by the plaintiff, was still the owner of all of the shares of Whistler Benefit. Given my conclusion that there was no agreement reached on the formula for the share purchase by Leong & Associates, and therefore no binding agreement, Mr. Watt, as the sole shareholder,

was entitled to hold the books and the revenues of Whistler Benefit. [185] However, there was an employment contract between Mr. Watt and Leong & Associates. Mr. Watt was entitled to be paid his wages in a timely way for services that he had rendered. [186] Was the defendant wrongfully dismissed? Two cases in the British Columbia Court of Appeal, Poole v. Tomenson Saunders Whitehead Ltd. (1987), 43 D.L.R. (4th) 56, 16 B.C.L.R. (2d) 349 (C.A.), and Farqhuar v. Butler Brothers Supplies Ltd. (1988), 23 B.C.L.R. (2d) 89, [1998] 3 W.W.R. 347 (C.A.), considered the question of constructive dismissal for non-payment of remuneration. Poole concerned the non-payment of a bonus; Farqhuar considered reduction of salary. [187] In Farquhar, the Court of Appeal said at 92: A constructive dismissal occurs when the employer commits either a present breach or an anticipatory breach of a fundamental term of a contract of employment, thereby giving the employee a right, but not an obligation, to treat the employment contract as being at an end. [188] In Employment Law in Canada, 3rd ed. Vol. 2 (Markham, Ontario: Butterworths, 1998, updated to 2003), Geoffrey England and Roderick Wood state at ¶13:32: The employer is impliedly (if not expressly) bound to continue paying the remuneration due under the contract, and any wage reductions or unilateral modifications to the pay structure (including

reducing the number of working days per week) will establish a constructive dismissal. So, too, if the employer withholds previously earned compensation that is due and owing to the employee. [189] I find that the failure to pay Mr. Watt his paycheque when due, and making payment of it dependent on resolution of the share issue, was in the circumstances, a fundamental breach that was accepted by the defendant. [190] The remaining issues are the question of reasonable notice and the issue of a bonus. [191] The defendant claims damages for lack of reasonable notice. He seeks damages for a period of 2 1/2 months because he found work after that time. I conclude that applying the principles in Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140, [1960] O.W.N. 253 (Ont. H.C.J.), and Ansari v. British Columbia Hydro & Power Authority (1986), 2 B.C.L.R. (2d) 33, 13 C.C.E.L. 238 (C.A.), the defendant would have been entitled to a period of reasonable notice much longer than the 2 1/2 months that Mr. Watt claims. However, the plaintiff says that his damages for wrongful dismissal should be based on a shorter period given that he failed, the plaintiff says, to mitigate his damages. [192] The employer has the burden to show, on a balance of probabilities, that the employee failed in his duty of mitigation. Here the plaintiff demonstrated that the employee did not look for work at all

until 2 1/2 months later when he found alternate employment. The defendant has shown that the plaintiff did not make reasonable efforts to find employment. I recognize that in some circumstances a period of adjustment and recovery is appropriate for a dismissed employee, but in these particular circumstances, and from the speed with which the defendant found employment when he looked, I find that his damages should be reduced and assessed as if he found employment after two months notice. [193] The final issue is the question of the bonus. [194] The claim for a bonus is for the year ending January 1999, during which year Mr. Watt was employed by Leong & Associates. I am satisfied, on the evidence, that if Mr. Watt were employed at the time of the determination of the bonuses by Mr. Leong, he would have received a bonus. The employer says that there was a rule, initiated after the defendant became employed, that in order to receive a bonus, an employee must be employed at the time bonuses are given out. Because the evidence shows that the bonuses were determined during what would otherwise have been the period of reasonable notice, if Mr. Watt's employment was properly terminated, I do not think that I have to consider whether that rule applies in the circumstances to Mr. Watt. [195] Making adjustments for the amount of a bonus that represents time and effort working for Whistler Benefit rather than Leong & Associates, I order that Mr. Watt is also entitled to a bonus of $10,000.

SUMMARY [196] I find that there was no binding agreement reached between the parties for the sale of the shares in Whistler Benefit Plans Ltd. to Leong & Associates Actuaries and Consultants Inc. [197] To avoid an unjust enrichment, I order the following monies be paid. [198] Leong & Associates and Mr. Leong will reimburse Mr. Watt and Whistler Benefits for the sum of $75,242.99. [199] I direct that Mr. Watt and Whistler Benefit reimburse Mr. Leong and Leong & Associates for the sum of $149,336.25 for unjust enrichment, as set out at paragraph 177 of my reasons herein. [200] Setting these amounts off, Whistler Benefit and Mr. Watt shall pay Leong & Associates the sum of $74,093.26. [201] If there are any other insurance premiums received by Whistler Benefit, those shall also be reimbursed to Leong & Associates. [202] Mr. Watt shall also reimburse Leong & Associates for Mr. Watt's legal services bill of $2,178.23 which was paid by Leong & Associates. [203] Mr. Watt is also entitled to his outstanding wages in the sum of $2,708.33, $10,833 in lieu of two months notice and $10,000 for his bonus. [204] The parties will have liberty to make submissions as to costs. "J.S. Sigurdson, J." The Honourable Mr. Justice J.S. Sigurdson