RBC Dominion Securities v. Merrill Lynch Canada et al.,


2003 BCSC 1773

Date: 20031126

Docket: S006308

Registry: Vancouver


RBC Dominion Securities Inc.



Merrill Lynch Canada Inc., James Michaud, Don Delamont, Reginald Bellomo, James Swift,
 John Evin, Dave Neilson, Victor Kravski, Christine Clarke, Alan Duffy, Connie Dodgson,
 Norma Juozaitis, Alison Van Nest Klein, Barbara Daniel and Holly Hale


Before: The Honourable Madam Justice Holmes

Reasons for Judgment

Counsel for the Plaintiff:

M.E. Royce

R. Kirshblum

Counsel for the Defendants:

S.K. Gudmundseth, Q.C.

Date and Place of Trial:

May 26-29, June 2-5,
June 9, 10 & 12, 2003


Vancouver, B.C.




INTRODUCTION AND OVERVIEW................................................ 3

BACKGROUND............................................................... 6

The DS IAs and Administrative Assistants............................... 6

The Recruiting Process................................................. 7

The Move............................................................... 9

The Transfer of Confidential Client Information....................... 11

Contact with Clients About the Move................................... 12

The Aftermath at DS................................................... 13

THE ISSUES.............................................................. 14

ANALYSIS................................................................ 15


The Nature and Consequences of Fiduciary Duty....................... 15

(a)   Were the IAs "Key Employees" with Fiduciary Duties?........... 18

(b)   Did the IAs' Role and DS's Vulnerability Give Rise to a
Fiduciary Relationship?
............................................. 21

(c)   Were the IAs Fiduciaries as "The Whole Show"?................. 22

(d)   Was Mr. Delamont a Fiduciary as Branch Manager?............... 24

2.    Did the Departing Employees Give Reasonable Notice of Their
...................................................... 29

The Requirement to Give Reasonable Notice........................... 29

Is Reasonable Notice the Reciprocal of an Employer’s Notice Period?. 30

Notice – The Industry Custom........................................ 32

Did the IAs Offer to Leave in Stages?............................... 33

Reasonable Notice in the Circumstances.............................. 36

3.    Did the Employees Unfairly Compete with DS?..................... 36

By Using DS’s Confidential Information and Material................. 36

By Otherwise Competing Unfairly..................................... 39

The Effect of the Simultaneous Departures........................... 43

Conclusion.......................................................... 45

4.    Did Mr. Delamont Breach Other Duties to DS?..................... 46

5.    WAS THERE A CONSPIRACY?......................................... 50


7.    IS causation of A loss ESTABLISHED?............................. 52

CONCLUSION.............................................................. 55


[1]            The plaintiff, RBC Dominion Securities Inc. ("DS"), and the defendant Merrill Lynch Canada Inc. ("Merrill Lynch") were both securities and investment dealers doing business throughout Canada and in other countries.  Each had a branch in Cranbrook, British Columbia, that was the other's main competition.  DS's Cranbrook branch also had a smaller sub-branch office in Nelson, British Columbia.  On Monday November 20, 2000, the branch manager and almost the entire sales force of DS's Cranbrook and Nelson offices left to join Merrill Lynch, leaving behind only two very junior investment advisors (IAs), an office administrator, and a receptionist.  Of the nine IAs and five assistants who left DS, one IA returned to DS a short time later.

[2]            The matters for determination concern the extent of fiduciary or other duties of the DS branch manager Don Delamont and of the other IAs and the assistants who left DS, and the responsibility of Merrill Lynch and its regional manager James Michaud in relation to those departures.  DS alleges that Mr. Delamont owed fiduciary duties to DS and violated those and other duties inherent in his employment by leading the group departure and soliciting DS clients away to Merrill Lynch.  As regards the other IAs and their assistants, DS alleges that they shared in Delamont's breaches of fiduciary duty, and that because they left as virtually "the whole show", they in any event owed higher duties to DS than if they had left individually.  DS alleges that Merrill Lynch and Mr. Michaud induced the various breaches by the DS staff and bear direct liability for the breaches, as well as, in Merrill Lynch's case, vicarious liability.

[3]            The defendants deny any fiduciary relationship with DS.  They say that employees are not the captives of the employer, and that, subject to the requirements of notice and to any contractual restrictions, they are entitled to leave their employment at any time and for any reason, regardless of the effect on the employer.  They say that in the securities industry, notice is measured in minutes or hours, and does not increase because of the simultaneous departure of co-employees.  They say that DS, a sophisticated employer, made an eyes-open decision not to expressly stipulate non-competition or non-solicitation terms to apply on the employees' departure, and cannot now ask the court to find such restrictions inherent in the employment relationship.

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

[5]            In addition to other relief, DS seeks punitive or exemplary damages to condemn what it describes as the defendants' calculated and predatory conduct.

[6]            The parties agreed at the outset of the trial that the evidence and submissions would relate primarily to the issues of liability, with evidence and submissions concerning damages to be heard at a later stage in the light of the findings as to liability.


The DS IAs and Administrative Assistants

[7]            At the material time in 2000, DS and Merrill Lynch were the two main securities firms in Cranbrook.  The DS Cranbrook branch (including the Nelson sub-branch) employed eleven IAs, including Mr. Delamont, the branch manager.  All of the IAs were involved in the move to Merrill Lynch, except two junior "rookies", one of whom had recently returned from training to enter the industry.

[8]            A total of seven administrative staff members worked in the two DS offices.  Most of these worked as administrative sales assistants directly with a particular IA.  All except two, one of whom was a receptionist, were involved in the move.

[9]            Most IAs enter the industry as "rookies" without previous experience in the industry.  The recruiting firm trains them, ensures that they pass the qualifying examinations set by the Canadian Securities Institute, and expects them to develop a "book" of clients through their personal connections and contacts and typical sales techniques such as cold calls.  I conclude from the evidence as a whole that many rookies do not survive for long in the industry, but those who develop and maintain a solid client book do extremely well financially in relation to their years of formal education and training.

[10]        Some IAs – about 10-15% of those hired at DS – are "competitive hires", or experienced IAs recruited from another firm.  At the material time, and likely still today, competitive hiring was commonplace and aggressive, and was seen as necessary to securities firms' growth.  Firms provided financial incentives and rewards to IAs who achieved or assisted in bringing in a "competitive recruit".  The value of competitive recruits consists partly in their experience, but primarily in the book of business they bring from the former firm.  At the material time, a competitive recruit could be expected to bring somewhere between 50% and 75% of his or her client book, a senior broker with a long-term clientele potentially bringing as much as 90% of the book.

The Recruiting Process

[11]        The defendant James Michaud was the regional manager of Merrill Lynch for the territory that included Cranbrook and Nelson.  He had previously been with DS (or its predecessor, Pemberton Securities), which he joined as an IA in 1980.  He rose at DS to become first a branch manager in Abbotsford and then regional manager for a large area of British Columbia and the Yukon.  He left DS in May, 1999, in troubled circumstances which led to litigation, and started with Merrill Lynch in January, 2000.

[12]        Mr. Michaud's recruiting efforts began informally in April, 2000, when as a spouse he attended a DS function in New Orleans for its top producers.  He spoke there to Mr. Delamont (a close and long-time friend and a relative by marriage), to Mr. Bellomo (the top-producing IA at the DS Cranbrook branch), and to others about his new and positive experience with Merrill Lynch.  There was some interest in a possible move, but no formal negotiations. 

[13]        At that time, discontent was brewing among at least the senior IAs at the DS Cranbrook branch.  Its source related mostly, but not exclusively, to what was perceived as increasing domination of DS's securities business by the involvement of DS's banking arm.  Although the discontent found expression in principled objections to various firm policies, it arose largely from concern that the bank's more formal and limited salary structure would over time replace the flexible and generous forms of remuneration available to the IAs. 

[14]        In the months after the April, 2000 function in New Orleans, Mr. Michaud had further conversations with Mr. Delamont, and arranged for him to travel to Vancouver, B.C. and Bellingham, Washington to meet senior Merrill Lynch staff and, in Bellingham, to view Merrill Lynch's advanced technological systems not then available in Canada.  Mr. Delamont took this trip in June, 2000, and DS IAs Reg Bellomo, Ed Murray and Jim Swift followed together with a similar trip shortly afterwards.

[15]        In July, most of the IAs from the DS Cranbrook and Nelson offices, including Mr. Delamont, met in Creston, between Cranbrook and Nelson, to discuss the possibility of moving to Merrill Lynch.

[16]        On November 14, 2000, Mr. Delamont hosted a meeting at his home between Mr. Michaud and most of the DS IAs, at which Mr. Michaud produced contracts for the IAs to sign with Merrill Lynch.

The Move

[17]        I find that it was not until Thursday, November 16, 2000 that senior management at DS became aware of impending departures.  On that day, Mr. Milligan heard from a friend in the industry but outside DS that three IAs, namely Mr. Delamont, Mr. Bellomo and Mr. Murray, planned to leave. 

[18]        After briefly consulting with Lorne Harper, his Divisional Manager at the time, Mr. Milligan telephoned Mr. Delamont, put what he had heard to Mr. Delamont, and asked if the information was true.  Mr. Delamont indicated that it was, and said that if the firm wished, the departing IAs would do everything correctly and would help with the transition of clients.

[19]        In the same conversation, Mr. Milligan asked if there was anything the firm could do to get the IAs to stay, and Mr. Delamont said he thought not.  Mr. Milligan asked if he could get back to Mr. Delamont as to that matter, and Mr. Delamont agreed.  Mr. Milligan still understood that only three IAs, including Mr. Delamont, planned to leave.

[20]        Shortly afterwards, Mr. Milligan asked Mr. Delamont to meet with Mr. Milligan and senior DS managers, to discuss why he was leaving.  Mr. Delamont agreed to do so, and the meeting took place the next day in Calgary.  At the end of the meeting, Mr. Delamont said that he thought he had made a big mistake in deciding to leave DS, and that he would set up a meeting with the other IAs to help change their minds too.  At this point Mr. Milligan learned for the first time that almost all of the branch planned to leave.

[21]        Senior DS management met with the Cranbrook and Nelson IAs on Saturday November 18, 2000, but were unsuccessful in persuading them to stay.  They agreed to defer their decision until Mr. Bellomo, who had not been available for the meeting, had a chance to meet with DS management in Toronto on Monday morning. 

[22]        The Toronto meeting did not change Mr. Bellomo's mind.  Mid-morning on Monday November 20, 2000, Mr. Bellomo so advised the IAs in Cranbrook, and most of those who still remained at DS then left the branch.

[23]        Mr. Delamont, who was still in the DS Cranbrook office, telephoned Mr. Milligan to tell him that the IAs had left.  Mr. Milligan testified, and I accept, that Mr. Delamont asked what Mr. Milligan would like him to do, and that Mr. Milligan told him that he might as well leave, because there was nothing left for him to do.

The Transfer of Confidential Client Information

[24]        In late October or very early November, a process began by which almost all of DS's client records were secretly removed or copied and sent to Merrill Lynch's Abbotsford office.  The DS employees who planned to leave assisted in or endorsed the surreptitious copying and transfer at DS. 

[25]        A team of Merrill Lynch staff, supplemented by staff from a temporary agency, used the DS records in order to prepare Merrill Lynch documentation for all of the clients in the client books of the nine DS IAs expected to move to Merrill Lynch.  This process was complete well before DS learned of the IAs' plans to move.

[26]        On Friday, November 25, 2000, the Friday after the Monday move, and evidently on the advice of counsel, the DS records were returned, and any copies or material produced from them destroyed.

Contact with Clients About the Move

[27]        Most of the IAs began business at Merrill Lynch on Monday November 20, 2000.  Mr. Bellomo was slightly delayed by his travels.

[28]        Some of the IAs contacted clients before the move, ostensibly to ask whether the clients were supportive of the move.  On Friday November 17, 2000, after DS had heard about the planned move, but before it took place, several of the IAs telephoned clients from the DS offices or arranged for clients to come in to prepare the necessary documents to transfer their accounts to Merrill Lynch.

[29]        It was abundantly clear from the evidence that once the IAs moved from DS to Merrill Lynch on Monday November 20, every effort was made at Merrill Lynch to contact the clients in their book as quickly as possible to advise them of the move and make it possible for them to continue business with the IAs at Merrill Lynch.

The Aftermath at DS

[30]        After the departure of the IAs on November 20, 2000, DS was left almost unable to function.  Not only had nearly all the staff departed, but also at least one staff member who remained (the receptionist in the Nelson office) worked actively against DS's interests by automatically referring clients to Merrill Lynch. 

[31]        Arrangements were quickly made for senior DS staff and management to undertake damage control.  Ms. Cindy Taylor, Assistant Manager in Calgary, worked tirelessly and efficiently over more than two weeks to coordinate the few remaining staff and the staff brought in to assist.  The primary effort was to contact DS's clients to reassure them that the branch would continue to operate and provide capable service.

[32]        DS's application for injunctive relief was unsuccessful, on the basis that any harm done by improper solicitation or competition would be compensable by damages.

[33]        A large proportion of clients followed the IAs to Merrill Lynch.  As noted above, counsel agreed that the matter of damages would be addressed in separate proceedings.  The evidence in this area was therefore not precise, and did not for example indicate when the clients who transferred their accounts to Merrill Lynch did so.


[34]        The positions of the parties raise the following issues:

1.    Did the IAs, including Mr. Delamont, owe a fiduciary duty to DS?  In particular:

(a)   Were the IAs, including Mr. Delamont, beyond the class of ordinary employees as "key employees" with fiduciary duties to DS?

(b)   Did the IAs' role and DS's vulnerability give rise to a fiduciary relationship?

(c)   Were the IAs, including Mr. Delamont, fiduciaries because they were "the whole show" at the branch?

(d)   Did Mr. Delamont owe fiduciary duties to DS arising from his role and conduct as branch manager?

(e)   If so, are the other IAs to be fixed with any breaches of his fiduciary duty?

2.    Did the departing employees give reasonable notice of their departure?

3.    Did the departing employees compete unfairly with DS?

4.    Did Mr. Delamont breach other duties to DS?

5.    Did the defendants' conduct amount to a conspiracy?

6.    Is Merrill Lynch directly, as well as vicariously, liable for the various breaches?

7.    Is DS required to establish that the defendants' breaches caused a loss, and if so, has DS done so?



The Nature and Consequences of Fiduciary Duty

[35]        Every employee, whether or not in a fiduciary relationship to the employer, owes a duty of fidelity or good faith to the employer which is not limited to current employment.  This general duty includes a duty not to compete unfairly against the employer during or after the employment arrangement, and in turn a duty not to make use of the employer's confidential information and material to compete with the employer:  Barton Insurance Brokers Ltd. v. Irwin et al. (1999), 170 D.L.R. (4th) 69, 1999 BCCA 73 at ¶17-18 and ¶29, Delta Play Company v. International Play Company Inc. (4 May 1999) Vancouver Registry, C991871 (B.C.S.C.).  However, unless bound by a non-competition clause in the employment contract, an employee is entitled to compete fairly with the employer. 

[36]        A former employee is more restricted if he or she stands in a fiduciary relationship to the employer.  Like a non-fiduciary employee, he or she may compete fairly against the former employer.  However, he or she must not directly solicit the former employers' clients:

Absent an enforceable contractual restriction to the contrary, a fiduciary may compete with his former employer.  However, a fiduciary may not make unfair use of confidential information, directly solicit the business of customers or suppliers, or take any business advantage or opportunities belonging to the employer. (Delta Play, supra, at ¶20)

[37]        Wilson J. in Frame v. Smith, [1987] 2 S.C.R. 99, S.C.J. No. 49 (Q.L.), at ¶60, set out the key features of a fiduciary relationship in the following oft-cited passage:

Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:

(1)   The fiduciary has scope for the exercise of some discretion or power.

(2)   The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.

(3)   The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[38]        In Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. (1996), 39 Alta. L.R. (3d) 411, [1996] A.J. No. 475 (C.A.) at ¶24, Mr. Justice O'Leary for the court spoke of the principle underlying the enlarged and more exacting duty that endures after termination to prohibit a departing fiduciary employee from actively soliciting his former employer's clients:

Direct solicitation of the former employer's clients by the departing or departed employee is not acceptable where the employee is a fiduciary of the employer.  Having been vested with a high degree of trust and confidence, the indicia of a fiduciary relationship, a key employee is not then at liberty to betray the trust by soliciting the employer's clients for his own account or for someone else to his indirect benefit.  To suggest otherwise would be to weaken the strong sense of duty and obligation which the term fiduciary connotes.

[39]        With these general principles in mind, I turn to consider the various bases on which the IAs and Mr. Delamont are said to have stood in a fiduciary relationship to DS.

(a)    Were the IAs "Key Employees" with Fiduciary Duties?

[40]        The IAs were "key" to the operation of the Cranbrook branch in the sense that they cultivated the client base and effected the client transactions which generated the branch's revenue.  DS submits that, even if not in formal positions of authority in an organization, employees who are key to its operation for that reason stand in a fiduciary relationship to the organization.  DS relies, for this proposition, on three authorities:  Merrill Lynch Canada Inc. v. Pastro, 2000 BCSC 1889, [2000] B.C.J. No. 2042 (Q.L.), leave to appeal denied 2000 BCCA 243, [2000] B.C.J. No. 703 (Q.L.); CIBC World Markets Inc. v. MacDonald, 2000 BCSC 503, [2000] B.C.J. No. 1560 (Q.L.)(S.C.); and Hudson's Bay Co. v. McClocklin Hearing Aid Centre (1986), 42 Man. R. (2d) 283, 11 C.P.R. (3d) 523 (Q.B.).

[41]        Merrill Lynch v. Pastro involved the departure of two IAs, who managed about one-third of the asset base of the Trail, B.C. office of Merrill Lynch and generated about one-third of the office's annual revenue, in similar professional circumstances to the IAs here.  Merrill Lynch was successful in obtaining an injunction to enforce non-competition and non-solicitation terms of the defendants' employment contracts.  At ¶49, Drost J. described the two IAs as having fiduciary responsibilities toward Merrill Lynch:

... I find that the defendants were key employees of the Merrill Lynch Trail office.  I have referred to the nature of their employment, their relationship with clients and the extent of their contribution to the business of the Trail office.  Those factors in my view take them out of the class of ordinary employees and they therefore have fiduciary responsibilities towards their former employer.

[42]        The discussion of fiduciary responsibilities in Merrill Lynch v. Pastro took place in the context of the application of the first branch of the test for the issuance of an injunction, in the assessment of whether there was a serious question to be tried.  As Mr. Justice Hall noted in his reasons denying leave to appeal at ¶5 and ¶7,  Drost J.'s conclusion went only so far as to find a strong prima facie case for the plaintiffs, and rested throughout on the restrictive covenants prohibiting the defendants from the conduct sought to be enjoined.

[43]        Similar observations apply in relation to the decision in CIBC World Markets v. MacDonald, where Madam Justice Loo issued injunctive relief to restrain the activities of a former producing manager and others.  In that case, a two-year non-solicitation clause applied to business referred to the defendant by the plaintiff bank.

[44]        The finding of a fiduciary relationship in Hudson's Bay v. McClocklin was similarly based on the "strong prima facie case" branch of the test for injunctive relief.  The former manager of the hearing aid department of the store was key to the functioning of the department, having had a long and personal association with the customers, their records, and their needs.  I find nothing analogous to the present situation in the brief outline of the facts in that case, beyond the simple fact that the defendant was an employee of the plaintiff engaged in offering service to the public.  In particular, I do not conclude from the decision that every employee who may be described as "key" to the ongoing functioning of an organization is necessarily in a fiduciary relationship to the organization.  Also, to the extent that the finding of a fiduciary relationship rested on the circumstances of the defendant's departure, it appears to be inconsistent with authorities such as Barton, supra, which assess the character of the employment relationship during its currency.

[45]        I therefore do not find a basis in law for the broad proposition DS asserts, that because the IAs were key to the functioning of the branch, they were for that reason alone in a fiduciary relationship with DS.  To characterize as a fiduciary every employee who is necessary to an operation and who is difficult to replace would be, in my view, to extend the reach of the fiduciary relationship beyond its proper scope as contemplated in Frame v. Smith, supra.

(b)    Did the IAs' Role and DS's Vulnerability Give Rise to a Fiduciary Relationship?

[46]        I reach a similar conclusion in relation to other aspects of the IAs' role and DS's vulnerability to the manner of its exercise, non-exercise, or termination. 

[47]        As noted above, a fiduciary relationship is founded in the inherent vulnerability of the beneficiary's position.  It is clear that the financial success of the Cranbrook branch was heavily dependant on the performance and retention of its IAs.  While DS may therefore have been vulnerable in that sense, I cannot conclude that it was susceptible to the type of exploitation against which the fiduciary relationship protects. 

[48]        Views differ as to whether clients are clients of the IA or of the firm.  However, it is common ground that an IA's client book grows from the IA's personal sales skills and extensive efforts, and is of considerable value to both the IA and the firm.  Central to the relationship between the IA and the firm is the implicit acknowledgement that a departing IA will carry a large portion of that book with him or her to the firm's serious detriment. 

[49]        The vulnerability inherent in a fiduciary relationship requires the fiduciary to place the beneficiary's interests before his or her own, even after the end of the employment relationship.  Such a result as between the IAs and DS would, in my view, run counter to the parties' expectations and intentions, and would disregard what they themselves acknowledge as their both shared and competing financial interest in the clients.

(c)    Were the IAs Fiduciaries as "The Whole Show"?

[50]        DS submits that even if a departing employee would not normally be fixed with a fiduciary duty to his or her employer, such a duty will attach if the departing employee or employees is or are the "whole show", in the sense of representing all or substantially all of a particular department or branch of the employer.  DS relies on Barton, supra, at ¶28 which in turn relies on Hudson's Bay, supra, at 5-7.  There is passing reference to this proposition in Ebco Industries Ltd. v. Kaltech Manufacturing Ltd., [1999] B.C.J. No. 2350 (Q.L.) (S.C.) at ¶25, but it does not appear to be material to the court's decision to grant injunctive relief.

[51]        In Barton at ¶28, Hall J.A. addressed the proposition, and the decision in Hudson's Bay, in these words:

Unless a defendant is found to be a key employee or director or as perhaps was found to be the situation in the Manitoba case of Hudson's Bay Co. v. McClocklin (1986), 42 Man. R. (2d) 283 (Q.B.), when an employee is in effect "the whole show", a fiduciary duty preventing solicitation of former customers will not usually be found to exist.

[emphasis added]

I do not read Hall J.A.'s comments as an affirmative pronouncement that employees leaving as "the whole show" will necessarily stand in a fiduciary relationship to the former employer. 

[52]        I therefore find no binding authority to support DS's position that when an employee's departure coincides with that of another or other employees, the essential character of the employee's relationship with the employer therefore takes on a fiduciary quality which may otherwise be absent from the relationship.

[53]        The departure of the IAs and their assistants as virtually the "whole show" therefore did not imbue them with fiduciary status. 

(d)    Was Mr. Delamont a Fiduciary as Branch Manager?

[54]        I turn to consider whether Mr. Delamont, as branch manager, carried duties and status over and above those of the IAs that brought him into a fiduciary relationship with DS.

[55]        As branch manager, Mr. Delamont was responsible for running the day-to-day operations of the Cranbrook branch, for hiring, coaching IAs, supervising and disciplining employees, ensuring compliance with regulatory requirements, representing the firm in the local community, arranging for local advertising, and (subject to some constraints discussed below) setting the budget for the branch.  He was privy to the confidential information of all of the clients of the branch.  He was the highly-regarded leader of the branch, and was a role model, coach, and mentor to many of the IAs.

[56]        The defendants submit that Mr. Delamont's situation as branch manager was close to that of the branch manager in Barton, supra, which the court found not to involve a fiduciary relationship.  The defendant in Barton was involved in planning, organizational structure, budget, staff direction, hours of operation, marketing, advertising, hiring and firing, dealing with complaints, and liaison with insurance companies.  However, she had no role in the organizational structure of the company outside the branch, had no regional or inter-branch responsibilities, and did not supervise the accounting employees at the branch.  Her involvement in budget preparation was, much like Mr. Delamont's, limited to filling out a prescribed form and providing a budget forecast.  Her autonomous spending was limited to $1,000.  Hall J.A. noted at ¶4 that she was better described as an "office administrator or supervisor" than as a branch manager.

[57]        Mr. Delamont's role and duties bring him closer to a fiduciary position than those of the defendant in Barton brought her.  Unlike the defendant there, Mr. Delamont was compensated specifically for his functions as branch manager.  The Cranbrook branch was one of DS's smallest branches, and Mr. Delamont was accordingly entitled to act as a producer, as well as a manager.  About 25-30% of his time was spent in his branch management function, which was proportionately far more than the 5-10% in Barton where the defendant otherwise worked as a producing salesperson.  Mr. Delamont had larger supervisory responsibilities, both informally as the leader and mentor of the branch, and formally through the regulatory regime, under which he had a specific duty to supervise the IAs and could be liable for financial penalties for failing to do so.

[58]        However, I am unable to conclude that Mr. Delamont's larger role and responsibilities were sufficient to imbue him with fiduciary status.

[59]        As a branch manager, Mr. Delamont was eligible to be an officer of DS, but did not complete the necessary examination set by the Investment Dealers Association.  Had he done so, he would have been one of almost seven hundred officers of DS.  He was not a director.

[60]        The evidence was differently nuanced as to his authority to hire and fire.  In practice his actions and views were well-respected and therefore determinative most, if not all, of the time.  However, formally he lacked final authority as to these matters (except, possibly, as to the firing of IAs who violated regulatory requirements). 

[61]        Preparation of the branch’s annual budget at DS was conducted according to template parameters issued from head office with a limited amount of local input from the branch manager.  Mr. Delamont had no authority to set salaries or commission structures.  All accounting was done through head office.

[62]        Mr. Delamont had no responsibility for the leasing, renovations, or repairs of the office premises or for furnishing or equipment, and was obliged to submit any requests as to those matters to a separate arm of head office.

[63]        He had authority to make expenditures of amounts up to $500 each, but was required to get approval for any larger expenditures.

[64]        Mr. Delamont had little if any direct involvement in the formulation of DS policy.  He was not on any of the firm's executive committees and was not consulted as to corporate decisions.  Once a year, he attended a several-day meeting in Toronto which was focussed on training, planning, and recruiting.

[65]        Within the scope of his employment, Mr. Delamont's power or authority to affect the economic interests of DS was thus heavily constrained by DS's size and its tight institutional structure.  His activities as branch manager were limited by centrally-established policies and objectives and were scrutinized at a number of higher levels.  I conclude that Mr. Delamont was not in a position through his role as branch manager to affect the economic interests of DS at either its national level or at the level of the Cranbrook branch. 

[66]        I find also that DS and Mr. Delamont did not intend their relationship to have a fiduciary character.  DS was required by the governing regulatory scheme to have a certified manager in the branch, to review client transactions for compliance with the various regulatory requirements.  However, because the Cranbrook branch was one of DS's smallest, its branch manager was a "producing manager", expected also to continue to work as an IA.  In practice Mr. Delamont spent almost three-quarters of his time as a producer, and his production volume was second in the branch only to that of Reg Bellomo.  Albeit with some limited managerial functions, he was primarily an IA in his relationship with DS, a relationship I have found above not to have a fiduciary character, in part because of the acknowledged inevitability of active competition for clients at the relationship's end.

[67]        DS submits also that even if his duties as branch manager did not inherently give rise to a fiduciary relationship, Mr. Delamont's own conduct did, when from the spring of 2000 he failed to report to DS the growing momentum toward a mass departure.  Mr. Royce submitted that in this failure, Mr. Delamont assumed the responsibilities of the higher executive, and thus exercised the role of branch manager in such a way as to become a fiduciary. 

[68]        This submission has a bootstrapping character to it, in that the fiduciary relationship is said, in this alternative postulation, to arise from a failure to properly perform functions which otherwise do not give rise to a fiduciary relationship.  I am not prepared to find a fiduciary relationship that has its basis only in Mr. Delamont's failure to perform some of the key functions of his position, or in his unilateral choice to act inconsistently with the clear requirements of his position. 

[69]        Because I conclude that Mr. Delamont did not stand in a fiduciary relationship to DS, it is unnecessary to consider the fifth question (e), whether the other IAs are to be fixed with any breaches of his fiduciary duties.

2.    Did the Departing Employees Give Reasonable Notice of Their Departure?

The Requirement to Give Reasonable Notice

[70]        It is an implied term of an employment contract that the employee will give reasonable notice of termination:  Sure-Grip Fasteners Ltd. v. Allgrade Bolt & Chain Inc. (1993), 46 C.P.R. (3d) 443, [1993] O.J. No. 193 (Q.L.) (Ont. Ct. (Gen. Div.)) at 449.  This is to allow the employer a reasonable time to find a replacement or to otherwise adapt to the loss:  see Sure-Grip, supra, at 449, and Tree Savers International Ltd. et al. v. Savoy et al. (1992), 87 D.L.R. (4th) 202, [1992] A.J. No. 61 (Q.L.)(C.A.) at 206 and 208.

Is Reasonable Notice the Reciprocal of an Employer’s Notice Period?

[71]        DS submits that reasonable notice is usually the same period as the employer would be required to give to the employee.  Mr. Royce and Ms. Kirshblum refer to the concurring reasons of Madam Justice Southin in Woodlock v. Nova Corp. Int. Consulting Inc. (1990), 48 B.C.L.R. (2d) 1, [1990] B.C.J. No. 1704 (Q.L.)(C.A.) and on the decision of Mr. Justice Burnyeat, following that aspect of those reasons, in Clayburn Industries Ltd. v. Piper (1998), 62 B.C.L.R. (3d) 24, [1998] B.C.J. No. 2831 (Q.L.)(S.C.) at ¶18-20.  DS submits that Mr. Delamont therefore ought to have given at least twelve months’ notice, and that the more junior employees should have given between four and twelve months' notice depending on their seniority.  DS submits that if, alternatively, notice should be measured according to the time required to replace virtually all the staff in a small and isolated location (including by training them and ensuring their licensing qualifications for regulatory purposes), the notice period should be a matter of years.

[72]        Mr. Gudmundseth for the defendants notes in response that Southin J.A. later clarified her reasons in Woodlock in her concurring reasons in Foster v. Kockums Cancar Division Hawker Siddeley Canada Inc. [1993] 8 W.W.R. 477, B.C.J. No. 1884 (Q.L.), at ¶29 and 31:

I agree with his statement of the facts and of the arguments put before us, but find myself intellectually in a quandary because, for the reasons I gave in Woodlock v. Novacorp. Int. (1990), 48 B.C.L.R. (2d) 1 at 5, I consider the law on this question of the calculation of reasonable notice on dismissal in breach of the implied term that reasonable notice shall be given is not rooted in rational principle.

. . .

In my opinion, we have got there because we have chosen not to consider that employment contracts are two-way contracts what employee would think he had to give 22 months' notice to terminate his employment - and because, although Bardal v. The Globe & Mail Ltd., [1960] O.W.N. 253, 24 D.L.R. (2d) 140, is quoted over and over again as warranting these awards, we do not bother to look at its facts nor its conclusion.

[73]        Mr. Gudmundseth also advises that Southin J.A.'s reasons in Foster were not cited to Burnyeat J. in Clayburn.

[74]        He submits that the test in Bardal, cited by Southin J.A. in Foster, is largely unsuited to an employee's voluntary departure, because considerations such the age and length of service of the employee and the availability of similar employment may be of no consequence to the employer.

[75]        Mr. Gudmundseth's submissions persuade me that the reasonable notice required of a departing employee is not measured as the reciprocal of that required of the employer.

Notice – The Industry Custom

[76]        What then was reasonable notice of the employees' departures? 

[77]        The evidence indicated that departing IAs customarily give little if any notice.  At best, a manager at the firm may receive in-person notice that the IA will be leaving that day.  Often, a departing IA gives no notice at all.

[78]        When an IA announces that he or she will be leaving for another firm, he or she is usually escorted off the premises immediately, and the locks are changed. 

[79]        I take these abrupt practices to reflect the expectation of fierce competition for the clients who are part of the departing IA's book.

[80]        Mr. Royce made the point, which I accept, that these industry norms do not necessarily indicate a standard of reasonable notice.  The economic and other realities of litigation may lead the firm to forego its right to enforce a notice period against the departing IA. 

Did the IAs Offer to Leave in Stages?

[81]        Mr. Harper testified for DS that had the departing IAs given a period of notice or staggered their departures, DS would have had an opportunity to attempt to meet their concerns, and would have been better able to bring in replacement staff to take over the business of the departing IAs.

[82]        The defendants submit that the IAs offered to leave in stages, and Mr. Milligan for DS rejected that offer; therefore, no consequences can flow from the employees' abrupt departures.

[83]        Mr. Delamont testified that in a telephone call with Mr. Milligan he made an offer that he, Reg Bellomo, and John Evin would stay on with DS for as long as DS needed them to assist with the transition.  He testified that he had his resignation letter in front of him at the time of the phone call and that he repeated orally the offer in the letter.  To Mr. Delamont's knowledge, the resignation letter had not reached Mr. Milligan by the time of the telephone discussion in question.  Mr. Delamont's evidence was hesitant and unclear as to whether this was on November 16, when Mr. Milligan telephoned to ask if the rumours about impending departure were true, or on November 20, shortly before Mr. Delamont finally left the DS office.

[84]        The relevant portion of the resignation letter reads as follows:

In the circumstances, and in order to assist in what will be a transitionary period for DS in Cranbrook and Nelson, Reg, John and myself are prepared to remain in the DS branch for a reasonable period of time.  I will look forward to discussing this with you and remain [etc.].

[85]        Mr. Milligan testified that he was unaware of any offer in the letters about some of the IAs staying through the transitionary period, he had no recollection of Mr. Delamont saying anything about it.

[86]        Mr. Delamont's evidence in this area finds some support in the evidence of IAs Christine Clarke and Alan Duffy.  However, they were privy to only Mr. Delamont's side of the telephone conversation with Mr. Milligan, and were unable to appreciate whether Mr. Milligan received the full import of Mr. Delamont's remarks, which may have carried significance to them, but not, without the appropriate emphasis, to Mr. Milligan. 

[87]        I conclude that any offer Mr. Delamont may have made for some IAs to stay was expressed vaguely and half-heartedly, and was inadequate in the circumstances to interfere with the running of any period of notice otherwise required.

[88]        More fundamentally, by the time any such offer was made, it was unrealistic to expect that it would be accepted.  As is apparent from the terms of the resignation letter, any offer to stay "for a reasonable period of time" was not intended to interfere with the clear intention of the IAs listed in the letter to leave DS for Merrill Lynch immediately.  Their commitment to DS's interests would be, by that fact alone, seriously in question.

[89]        In this regard, it is to be noted that the suggested transition team of Mr. Delamont, Mr. Bellomo, and Mr. Evin, did not include Mr. Delamont's and Mr. Bellamo's associates, Alan Duffy and Dave Neilson, or any of their sales assistants.  Mr. Duffy and Mr. Neilson would move immediately to Merrill Lynch, if they had not moved already, and could be expected to be actively in contact with clients for whom they worked jointly with Mr. Delamont and Mr. Bellomo.

[90]        The evidence that DS later tried to recruit Mr. Delamont back to DS does not alter my conclusions in this area, because success would have entailed a further change of Mr. Delamont's allegiance.  An offer to stay with DS in the face of a declared commitment to the interests of another firm is an entirely different proposition.

Reasonable Notice in the Circumstances

[91]        On the evidence, the significance of a period of notice is in the effect it would have had in preventing the departing employees from immediately competing with DS for the clients.  I therefore prefer to address the appropriate length of any such period in the larger examination of whether the IAs' competition for clients was fair.

3.     Did the Employees Unfairly Compete with DS?

By Using DS’s Confidential Information and Material

[92]        As noted above, a departing employee may not take customer lists with him or her to use for the solicitation of business.

[93]        The defendants acknowledge that the removal of client information was wrong, but submit that no harm was done because the material was returned and all copies destroyed within days of the IAs moving to Merrill Lynch.

[94]        This submission fails to address the full extent of the defendants' misuse of DS's confidential client information.  Merrill Lynch had the information two or three weeks before DS learned that the IAs and assistants planned to leave.  It is only reasonable to suppose that the considerable efforts to reproduce and transfer the records and make use of them at Merrill Lynch were seen as worthwhile in offering a competitive advantage to Merrill Lynch and the IAs at their new firm.

[95]        Several of the defendants attempted to justify their role in the removal of client information as being in the clients' best interests, to enable prompt and seamless service to continue after the IAs’ move.  Mr. Delamont added a notion of agency, although he did not use that term.  He testified that it is inherent in his close relationship with his clients that he will necessarily share their confidential information with those who assist him in his duties, such as his assistant or the governing regulatory authorities, and, by extension, the firm to which he expected to be moving.  He also testified that Mr. Michaud had agreed that the client information would be destroyed if Mr. Delamont decided not to move.

[96]        There are numerous difficulties with the defendants' justifications.  First, client information was removed long before the IAs left DS.  Second, there was no evidence to indicate that the clients then knew of the anticipated moves, far less that they wished to move with the IAs.  Third, a firm is bound by the regulatory regime to transfer client records to any firm to which a client decides to move.  There was no evidence of any defect in industry compliance with this requirement.  Nor was there any convincing evidence of any difficulties arising from a transfer of client information on the client's instruction after an IA's move.  Fourth, it was well known that the IAs would be delayed in their ability to advise or trade at Merrill Lynch by the regulatory requirement that their licences be transferred from DS.  This took, for example, until Monday November 27, in Mr. Bellomo's case, and until mid-December, in Christine Clarke's case.  Delay in continued service by the particular IA was therefore inevitable.  Fifth, the justification pays no heed to DS's interest in the client information.  And sixth, the proposition that Mr. Michaud had agreed to destroy all of Mr. Delamont's client records if Mr. Delamont decided not to move to Merrill Lynch was not put to Mr. Michaud in cross-examination or otherwise mentioned in his evidence.  It did not arise in the evidence of any of the other IAs whose client records had been copied and transferred.  Also, if such an agreement existed, it underscored Mr. Michaud's and Mr. Delamont's awareness that the transfer of records was improper.

[97]        The improper removal of client records was without justification and allowed the departing employees to compete unfairly with DS. 

By Otherwise Competing Unfairly

[98]        DS submits that the IAs' concerted efforts to move their book of clients to Merrill Lynch also violated their duty not to compete unfairly with DS.

[99]        The defendants respond that DS chose not to require non-solicitation and non-competition covenants as terms of employment, and should not now be permitted to claim their advantage as implied terms.  It was clear from the evidence that to require incoming IAs to enter into such covenants is seen as an impediment to recruiting.

[100]    DS relies on CIBC World Markets v. MacDonald, supra, at ¶46, where Loo J. granted injunctive relief against the defendant who prepared solicitation letters before resigning from the employer firm – as here, a securities firm.  Loo J. held that the defendant "was at the starting line and took off before Wood Gundy knew they were in a competition", and that such a situation "surely cannot be described as a fair race". 

[101]    Mr. Gudmundseth submits that the situation at DS was different for several reasons:  DS had advance warning that the IAs were likely leaving; the IAs were in any event limited in their ability to advise, because the transfer of their licences took time; and the IAs' letters did not solicit, being similar to the letters sent in Investors Group Financial Services Inc. v. Smith, [1994] N.S.J. No. 466 (Q.L.)(S.C.).  For the following reasons, I am unable to accept these submissions.

[102]    As to the first submission, the advance warning of the departures was accidental and minimal.  It allowed for some attempt to dissuade the IAs, but was nowhere near sufficient to allow DS to prepare for the departures and meet the new competition.  The client records had already been sent to Merrill Lynch.  IAs in Nelson began arranging for clients to transfer to Merrill Lynch on Friday November 17, 2000, before they left the DS office and less than 24 hours after Mr. Milligan heard from an outsider that three IAs were rumoured to be leaving. 

[103]    As to the second submission, the licence transfer may have delayed the IAs' ability to effect trades or provide securities advice, but, I find, did not restrict the IAs in their efforts to promote the clients' speedy transfer of their accounts from DS to Merrill Lynch.

[104]    As to the third submission, I do not consider the situation to be similar to that in Investors Group, supra.  There, the IA was found to have "walked a fine line" in relation to a non-solicitation clause, but was not shown to have stepped over the line (¶24).  The IA's brief letter to clients announcing his impending departure did no more than leave open to clients the possibility of contacting him.  His telephone calls to clients were opportunistic and made in the hope and expectation that clients would ask for advice or information, but were not proven to have actually solicited clients to transfer with him.

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

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

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

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

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

[108]    It is unnecessary for me to determine whether the letters went so far as to solicit the DS clients.  The letters themselves may, like the letter in Investors Group, supra, have come up to but not over the line.  However, they clearly provided clients with the ready means to continue their relationship with the IAs at their new firm.  They did so while DS was reeling from the departures and not in a position to even send its own letters to clients, let alone to reassure clients that DS would provide satisfactory replacements for the IAs who had left.

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

The Effect of the Simultaneous Departures

[110]    The simultaneous departure of virtually the entire staff of the Cranbrook branch had a much greater effect on DS than would have had individual departures over a lengthy period of time. It was open to the employees to all leave at the same time, as they did.  However, in my view a planned group departure enhances the limitations, inherent in the notion of fairness, on the departing employees' liberty to compete directly with DS for its clients.

[111]    I find that the departures were coordinated as a group undertaking.  The evidence conflicts in this area.  I find that in the main the inconsistencies in the evidence flow not from any defect of memory or attempt to mislead the court but rather from the witnesses' different perspectives on the possible move. 

[112]    Some of the employees, notably some of the more senior IAs, such as Reg Bellomo and Jim Swift, declared that they intended to make their own decisions without much regard for the decisions of the remaining IAs.  This attitude followed naturally from their more established and secure position in the industry, as well as from, in some cases, their more individualistic personalities.

[113]    Other IAs saw the move as a group undertaking, for reasons of collegial loyalty as well as, I find, their own financial security.  The IAs with a smaller book or who worked primarily with a more senior IA were almost certain to follow the decision of the senior IA. 

[114]    I find that the move was conceived as a group departure possibly long before but certainly by the end of October, 2000, when the client records for each of the nine IAs intending to leave were sent to Merrill Lynch in preparation for their arrival.

[115]    However, the group departure was not inevitably destined as an all-or-none proposition.  At any stage, including in the final days, had a major producer, such as Mr. Delamont or Mr. Bellomo, decided not to move, many and possibly all of the smaller producers would likely have decided to remain with DS. 


[116]    The employees competed unfairly with DS by (1) taking part in the process by which DS's confidential client information was removed or copied and sent to Merrill Lynch, and (2) actively competing for DS's clients from a position that DS could not possibly match.

[117]    I conclude that a departing employee has an obligation to refrain from soliciting the former employer's clients until the former employer has had a reasonable opportunity to contact the clients to reassure them that it is keen and able to continue to service their needs with qualified and capable staff.  The length of time necessary will vary with the circumstances.  Where, as here, the employee gives little or no notice of his or her departure, the period will usually be longer.  Where, as here, the departure of numerous employees is coordinated and destined, though not deliberately designed, to lead to the collapse of the office they leave, the length of time will further increase, to allow time for replacement employees to move in to cover the immediate crisis. 

[118]    The employees left as a group on almost no notice, knowing that their departure would leave the branch virtually unable to function at all for at least several days. I find that they knew that DS would be unable for likely a matter of weeks to settle the situation and provide clients with a semblance of continuity.  Both before and after their departure, they engaged in frenzied efforts to reach the clients before DS could possibly do so.  That course of conduct was plainly unfair competition. 

4.     Did Mr. Delamont Breach Other Duties to DS?

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

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

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

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

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

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

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

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

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

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


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

[130]    In Firemaster Oilfield Services Ltd. v. Safety Bloss (Canada)(1993) Ltd., 2000 ABQB 929 (Q.B.) at ¶100, the court set out the elements of conspiracy in the employment context as follows:

In order to establish a conspiracy by unlawful means, the Plaintiff must demonstrate that:

(a)   two or more persons have combined;

(b)   by unlawful means;

(c)   directed at the Plaintiff;

(d)   in the prevailing circumstances the Defendants knew or should have known that their conduct would cause the injury to the Plaintiff. This was either their predominant purpose or can be found by the Court to be their constructive intent;

(e)   injury does result: Canada Cement Lafarge Ltd. v. B.C. Lightweight Aggregate Ltd. (1983) 47 N.R. 191 (S.C.C.).

[131]    DS does not allege a predominant purpose of injury to it.  However, I find the evidence also insufficient to establish the tort on the alternative basis of constructive intent. 


[132]    I have already indicated my conclusion that the alleged conspiracy is not established.

[133]    DS alleges also that in addition to vicarious liability for the various wrongful acts of Mr. Michaud, Mr. Delamont, and the other IAs and assistants, Merrill Lynch bears direct liability for having induced the employees' breaches of their various duties to DS and for conversion of DS's property. 

[134]    Mr. Michaud coordinated or oversaw with Mr. Delamont the process by which, before the IAs' resignation or departure from DS, virtually all of DS's client records were removed or copied for the use of Merrill Lynch.  Although Mr. Michaud disputed the suggestion that the clients were clients of DS, rather than the individual IAs, he acknowledged that Merrill Lynch took possession of at least some property that DS would regard as its own.

[135]    It was an agreed fact in the trial that the transfer of DS records was coordinated by Davida McNicholl for Merrill Lynch in accordance with the instructions in a Merrill Lynch document entitled "Preparation Guidelines for Receiving a Competitive Recruit".  That document, read as a whole, clearly contemplates that an incoming IA will provide Merrill Lynch with a list and description of his or her client accounts at the former firm and the details of the clients' holdings.

[136]    In all these circumstances, I find Merrill Lynch to bear direct liability for both the conversion of the DS records and for inducing the employees' breaches of their duty not to compete unfairly with DS.

7.     IS causation of A loss ESTABLISHED?

[137]    DS submits that the misconduct in this case brings into play the maxim omnia praesumuntur contra spoliartorem (all is presumed against a despoiler or wrongdoer), because of the nature of the wrong and because the critical facts necessary to establish loss are peculiarly within the defendant's knowledge.  DS says that this principle applies to shift to the defendants the burden of proving that, without Mr. Delamont's and the other IAs' various breaches of duty, he and the other IAs would in any event have moved to Merrill Lynch, and that without those breaches the clients would in any event have moved their accounts to Merrill Lynch.  As I understood DS's submission, it relies on the reverse onus not only for proof of the loss but also for proof of the key facts underlying its extent.

[138]    The reversed onus of proof was established in Hodgkinson v. Simms, [1994] 3 S.C.R. 377, S.C.J. No. 84 (Q.L.), which I will discuss below.  Its underlying reasoning is that where the defendant puts forth a speculative scenario, he bears the legal burden of proving it.  As explained in Prenor Trust Co. of Canada v. Nunn, [1998] 6 W.W.R. 635, A.J. No. 130 (Q.L.)(Q.B.) at ¶14:

If a defendant argues that the plaintiff would have in any event entered into the transaction, albeit on different terms, the defendant sets up a new issue which requires the court to speculate about what would have happened in a hypothetical situation, a situation in which the original contract would not have been formed.  In such a case the defendant, who asks the court to find a transaction whose terms are hypothetical and speculative, bears the burden of proving it.

[139]    In Hodgkinson v. Simms, supra, an accountant tax advisor failed to disclose the material fact of his own involvement in an investment that he recommended to his client, and the client incurred a substantial loss from the investment. 

[140]    The accountant tax advisor argued that the non-disclosure was not the cause of the client's loss, because the client would have entered into the investment in any event.  The court held at ¶76 that "where the plaintiff has made out a case of non-disclosure and the loss occasioned thereby is established, the onus is on the defendant to prove that the innocent victim would have suffered the same loss regardless of the breach". 

[141]    I am unable to conclude that the reverse onus applies in the present case.  Implicit in the court's reasoning in Hodgkinson v. Simms was that the non-disclosure was a causal factor in the plaintiff's decision to enter into the transaction.  Before the reverse onus will be applied, the plaintiff must prove the breach and the loss arising from that breach, that is that the breach caused the loss as the court in Prenor Trust, supra, noted at ¶19:

Even then the plaintiff is not entirely relieved of any obligation of proof.  The plaintiff must prove the breach, be it a negligent misrepresentation or a material non-disclosure, and that the loss he suffered is attributable to that breach.  If the defendant wishes to escape liability, he is then required to prove that the plaintiff would have entered into a transaction on different terms.

[142]    In contrast to the situation in Hodgkinson v. Simms, supra, there is no necessary causal link between the proven breaches of duty to DS, as I have found them, and the facts which are said to give rise to compensable loss, primarily the transfer to Merrill Lynch of large portions of the IAs' client books.  I do not consider the rule in Hodgkinson v. Simms to apply to shift the burden of proof that the defendants' various breaches caused DS a loss, or as to its amount. 

[143]    However, the reverse onus is unnecessary for proof of the simple fact of DS's loss.  Abundant evidence satisfies me that DS suffered a loss as a result of the various breaches I have discussed.  The extent of the loss is however a matter for DS to establish in relation to its proof of damages.


[144]    For the reasons given above, I do not find any of the defendant employees to have stood in a fiduciary relationship to DS.  However, I find them to have breached duties to DS, including the duty to provide reasonable notice of termination which in turn contributed to their larger breach of the duty not to compete unfairly with DS after their departure. 

Mr. Delamont also breached his duty to faithfully perform the functions of his role as branch manager, in the months before the departures.  The defendants acknowledged the conversion and improper use of DS's confidential records.

[145]    Merrill Lynch and Mr. Michaud bear direct liability, in addition to Merrill Lynch's vicarious liability, for the conversion of DS's records and for inducing the DS employees' breaches of the duty not to compete unfairly with DS.

[146]    As noted above, the parties agreed that damages would be addressed at a later stage, in the light of the various findings and conclusions as to the liability of the defendants. 

[147]    The parties did address submissions to whether the court should award punitive damages.  On reflection, and having reviewed the Supreme Court of Canada's decision in Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, I conclude that the determination whether to award punitive damages should be made in the light of the award of compensatory damages.

[148]    The parties may make the necessary arrangements through the court registry for the hearing of further evidence and submissions concerning damages.

“H. Holmes, J.”
The Honourable Madam Justice H. Holmes