Case Name: Gryba v. Moneta Porcupine Mines Ltd. Between Charles Gryba, plaintiff, and Moneta Porcupine Mines Ltd. and Rhoderick Whyte, defendants

Transcription

1 Page 1 Case Name: Gryba v. Moneta Porcupine Mines Ltd. Between Charles Gryba, plaintiff, and Moneta Porcupine Mines Ltd. and Rhoderick Whyte, defendants [1998] O.J. No O.T.C A.C.W.S. (3d) 784 Court File No. 95-CU Ontario Court of Justice (General Division) K. Swinton J. Heard: October 13 and 15, Judgment: November 17, (36 paras.) Counsel: D. Barry Prentice, for the Plaintiff Francis Yungwirth, for the Defendant Moneta Porcupine Mines Ltd. Reasons for Judgment 1 K. SWINTON J.:-- The plaintiff, Charles Gryba, brought an action for wrongful dismissal against the defendant, Moneta Porcupine Mines Ltd., arising from his dismissal in June, His action against the defendant, Rhoderick Whyte, has been resolved.

2 Page 2 2 Mr. Gryba, now 49 years old, is a mining engineer who joined Moneta Porcupine Mines Ltd. in 1986 as President. At that time, Moneta was a shell company holding mining claims in the Timmins area, owned by Trans-Dominion Energy of Calgary. Moneta had ceased trading on the Toronto Stock Exchange, but was in a position that it could be reactivated. After discussions between Mr. Gryba and Thomas Vukovich, the President of Trans-Dominion, it was agreed that Moneta would be revived and refinanced. Mr. Gryba would be a director, and Trans-Dominion would support him as President. They agreed on a salary for one year of $60, plus stock options, as determined by the board of directors. 3 The company would also take over a patent for Raise Bore mining, a new mining method which Mr. Gryba had developed while employed at his prior place of employment, Pamour Inc., a subsidiary of Noranda. The patenting process required some maintenance fees, and, according to Mr. Gryba, Moneta agreed to pay the ongoing costs of the patenting. In return, if Moneta discovered an ore body where it could use the method, it could do so without paying royalties. Mr. Gryba was of the view that the patent was a benefit to Moneta, as it opened doors in discussions with other companies about joint ventures. In discoveries, John Larche, the current President, agreed that Moneta had such a potential advantage because of the patent. 4 Mr. Gryba's duties as President included looking for new business opportunities, negotiating for mining properties, raising financing, and ensuring regulatory compliance. Trans-Dominion remained the majority shareholder until it developed financial problems, when the majority position was sold to John Larche about five years ago. Subsequently, the shareholder base was expanded when four million shares were placed in a London fund and Pima Mining's gold assets were acquired through a share issuance. 5 In November, 1988, the board decided that Mr. Gryba and the Vice-President, Frances Yungwirth, would each receive a bonus for their success in securing a financing farm-in agreement with Unocal. The board originally contemplated giving the bonus in the form of shares. However, in order to comply with Toronto Stock Exchange regulations, the bonus was given in the form of an option for each to purchase 109,000 shares at $0.46 a share for a term of three years. The minutes of the board meeting of January 27, 1989 indicate discussion that this bonus was in satisfaction of only the first $10, of the bonus, and a further $40, should be considered as Unocal made further investments. The board's resolution stated that it would consider additional cash bonuses as Unocal spent the last $4 million of its programme and subject to availability of funds. 6 Despite further investments by Unocal and subsequently, by other companies who replaced it, no further bonus was offered. Mr. Gryba testified that there were further discussions about the bonus. In 1989, he received $14, in cash, for which he signed promissory notes dated July 11, 1989 for $9, and August 18, 1989 for $5,000.00, which stated that he promised to pay those amounts plus interest at the rate of "bank deposit". The 1989 financial statements of the company refer to $22, in loans to officers and directors in the form of promissory notes at bank deposit rates. Mr. Gryba subsequently confirmed that he owed the amount of $14, to the

3 Page 3 company in a letter to Coopers & Lybrand dated April 8, In fact, the loan was treated as interest-free, and the value of the interest was included in his T-4 form issued by the company and treated as a taxable benefit, which Mr. Gryba declared for income tax purposes. Mr. Gryba testified that he assumed that the loan would be forgiven, either as a bonus after the joint venture partners made the requisite amount of investment, or if he left the company. However, Mr. Larche made it clear in his testimony that he was opposed to cash bonuses for officers and employees. 8 Mr. Gryba also purchased two computers through the company, for which he signed an agreement dated September 30, 1994 to repay the principal of $5, with interest at the bank prime interest rate plus 1.75% (that is, 7.25%). Payments were to be made through payroll deductions of $ each month for 36 payments. 9 Mr. Gryba received stock options when he joined the company, and on subsequent occasions when the board allocated options. On April 18, 1989, the board passed a resolution to cancel the earlier stock options (which included those held by the plaintiff) and replace them with new stock option at a lower price, subject to shareholder approval. On May 22, 1989, the Annual General Meeting approved the company's Incentive Stock Option Plan. It provided that the board "in its discretion" may grant options to employees, directors and officers and others providing services. The board could set the term for the options, with five years the maximum term. Article 5 is of importance, as it deals with the effect of termination of employment or death: 5.2 If an optionee ceases to be employed by the Corporation for cause or if an optionee is removed from office as a director or becomes disqualified from being a director by law, any option or the unexercised portion thereof granted to such optionee shall terminate forthwith. If an optionee ceases to be employed by the Corporation otherwise than by reason of death or termination for cause, or if an optionee ceases to be a director other than by reason of death, removal or disqualification, any option of unexercised portion thereof held by such optionee at the effective date may be exercised in whole or in part for a period of thirty (30) days thereafter. 10 Stock options were voted in 1990, 1993, 1994, and 1995 by the board. In the first three years, the recipients were identified and the number of options for each specified. In June, 1995, in contrast, a decision was made to grant stock options, but no decision was made about their precise allocation before the Annual General Meeting. 11 At the time of dismissal, Mr. Gryba held 260,000 stock options. He testified that he had exercised his options on two occasions, in 1993 at a value of $2, and in 1995 for $24, Otherwise, he indicated that the share price had historically been too low to make it worthwhile to exercise the options.

4 Page 4 12 Mr. Gryba testified that he had had disagreements with Rhoderick Whyte, a director, over a number of issues in the months before his dismissal, especially a proposal of Mr. Whyte's that Moneta invest in an Alaska venture, to which Mr. Gryba was opposed. Nevertheless, he had received no indication of dissatisfaction with his performance from the shareholders until the board meeting of June 19, He received no notice of that meeting, which preceded the Annual General Meeting by one day. He had anticipated being re-elected as a director at the annual meeting, as he was on the proposed slate. 13 At the board meeting, Mr. Whyte indicated that he had talked to a number of dissatisfied shareholders who thought that the administration of the company was too costly. Therefore, they had decided to terminate all the employees, including Mr. Gryba. The other employees would be offered work under contract, but not Mr. Gryba. While Mr. Gryba offered to resign as President if offered a suitable package, and to stay as a director without compensation, he was informed that he was to be terminated as both President and director. Mr. Larche elaborated at trial that he felt that Mr. Gryba was not an asset to the company for a number of reasons, including perceived conflicts of interest. However, these reasons were not voiced at the directors' meeting, and there is no issue here of dismissal for cause. 14 Mr. Gryba was given a proposed package at the meeting, which offered him $6, as pay in lieu of notice plus other outstanding amounts owed for services for a total of $10, In addition, he was offered forgiveness of the computer loan ($2,520.79), the outstanding $14, loan plus interest outstanding on it ($23,479.40), and all rights to mining patents initiated by Mr. Gryba (Raise Bore and a second, Double Post Mining) for which Moneta claimed to have spent $19, Moneta also offered to extend the period for the exercise of the stock options to December 31, Mr. Gryba refused the offer. The next day, he went to the Annual General Meeting, where he was defeated in the vote for the board of directors because the main shareholders, John and Dolores Larche and Mr. Whyte on behalf of Pima Mining, voted against him. That day, he also received a letter signed by Mr. Whyte, notifying him that at the Annual General Meeting, the shareholders had voted to terminate the employment of all employees, effective immediately. He received a payment of $12, in lieu of notice. 16 After his dismissal, Mr. Gryba made a number of efforts to secure employment. He continued attending gold shows and mining conventions to network and look for jobs. He made trips to Toronto to visit large and medium size mining companies. In addition, he sought business opportunities for the Double Post Mining method which he had developed and which eventually was patented. On his dismissal, Mr. Yungwirth had written a letter indicating that Mr. Gryba had assumed all of Moneta's involvement in Double Post Mining, although Mr. Gryba testified that the patent is still in another company's name under Mr. Larche's control and, therefore, not within his immediate control. He also investigated the possibility of starting another junior mining company, which led him to investigate mineral properties and to stake claims in Taylor Township.

5 Page 5 17 Until he was hired by his present employer, St. Andrew's Goldfields in April, 1996, his only earnings were $7, from a refund of costs for Double Post Mining from his partner, and $ earned for services at Noranda's expert mining school. When hired as President by St. Andrews, that company wished to acquire his 42 claims, which were valued by a consultant. He was allocated 400,000 shares of the company, then trading at $0.28 per share. His annual salary was set at $120, The Proper Notice Period 18 At the time of the dismissal, Mr. Gryba was earning $84, in salary, plus a benefits package which he valued at about 30% of his salary. As there is no issue of cause for dismissal, the first question to be determined is the notice period to which Mr. Gryba is entitled. The company argued that he was employed on a yearly contract, which expired at the time of the Annual General Meeting. 19 According to Mr. Vukovich, Mr. Gryba's initial hiring was for a year, as Mr. Vukovich did not wish to commit Moneta to a long term employment contract if the company was unable to raise necessary funds. However, after the first year and over the next several years while Mr. Vukovich remained involved in the company, the board did not revisit Mr. Gryba's employment contract each year. Mr. Vukovich testified that in his view, Mr. Gryba was "just there forever". 20 There is no evidence to suggest that Mr. Gryba's employment contract was reconsidered each year. I find that after the first year, the company treated him as if he were on a contract of indefinite duration. It is true that his position as President of the company was revisited each year, but that does not change the nature of his employment contract, which I find to have been of indefinite duration. Therefore, he was entitled to reasonable notice before termination or damages in lieu of notice. Given his age, his position as President of the company, the nine year duration of his employment, and his salary level, he is entitled to notice for at least the period of nine and one half months in which he was out of work. According to his calculation, damages for that period amount to $66, Benefits 21 The plaintiff claims $7, for lost benefits. That figure was based on the estimated cost to the company of employee benefits. No effort was made to detail the benefits to which Mr. Gryba claimed entitlement, so as to determine whether this figure does reflect the loss caused to him by the breach of contract. In cross-examination, he conceded that he was not a member of the company dental plan, so that he is not entitled to damages for the loss of dental plan benefits. No other benefits other than the stock options discussed below were set out during the trial. Absent better evidence of the plaintiff's lost benefits, I find that he has not proven that his loss is properly valued at $7, Therefore, when credit is given for the $12, already paid by the company, a net amount

6 Page 6 of $53, is owing for loss of salary. To this should be added the job search expenses of $12,654.00, which were not challenged, for a total of $66, Stock Options 23 According to the Incentive Stock Option Plan, the options which Mr. Gryba held at the time of dismissal would expire within 30 days after his termination as an employee, if this was without cause, or after he ceased to be a director, if he were not removed or disqualified. While a Corporation Profile Report from the Companies Branch of the Ontario Ministry of Consumer and Commercial Relations dated October 14, 1998 and filed as an exhibit shows Mr. Gryba still to be a director, this must be through inadvertence on the part of the defendant. There is no doubt that he was defeated at the 1995 Annual General Meeting, and he has not been involved in the company since. In neither the 1995 nor 1996 Annual Reports is he mentioned as a director of the company. 24 In argument, both parties focused on the interpretation of the Incentive Stock Option Plan to determine the period within which Mr. Gryba was entitled to exercise his options, so as to determine the damages for the loss of his opportunity to exercise those options. While the plan does provide that a person in Mr. Gryba's position would have 30 days after his termination to exercise his options, this interpretation does not determine his claim for damages. An employee dismissed without notice is entitled to damages for the amounts he would have received from employment had he been given proper notice and allowed to work through his notice period. Had Mr. Gryba been given proper notice, he would have had several months in which to exercise his stock options, not just the 30 days following June 20, The evidence shows that in the notice period, the share price rose through the late fall of 1995 and first few months of By December, 1995, for example, prices rose from the $0.50 to $0.88 level, with prices in the range of $0.80 through February, Mr. Gryba calculated his loss on the basis that the average price of the options was $0.36 and a sale price of $0.60 would be reasonable. He assumed that he would have been in a position to buy and sell some stocks around early January, 1996, starting with a small amount in order to finance further purchases. He also assumed that he would have had to proceed cautiously, given the market for Moneta shares, which traded in the amount of about 1.5 million shares a month, so as not to unduly affect the price. Based on his projections, he could have received a profit of $62, These calculations were not challenged by the company, and an examination of the evidence indicates that his projections are reasonable. Therefore, he is entitled to $62, for the loss of profit on his stock options. 26 Mr. Gryba also claimed a loss of the value of options voted by the directors at the June 19, 1995 meeting but not allocated. He estimated that he would have been entitled to a further 300,000 options. However, the Stock Option Plan confers a discretion on the directors to allocate stock options, and the evidence indicates that he would not have received any options had he been permitted to work out his period of notice. Therefore, this claim is not allowed. Mitigation

7 Page 7 27 I find that the plaintiff made reasonable efforts to mitigate his losses in his job search and entrepreneurial efforts. He earned $ in this period, which should be set off against damages. A bad debt for services rendered but not paid for should not be taken into account. 28 The main issue with respect to mitigation is the treatment of the shares transferred to Mr. Gryba by St. Andrews for the claims he had staked while he was unemployed. This sum was not earnings during the notice period which should be deducted from the damages owing. As in Foster v. M.T.I. Canada Inc. (1992), 42 C.C.E.L. 1 (Ont. C.A.) at 3, the sum paid by St. Andrews reflected its view of the possible future value of the claims, but it was not compensation for services rendered by the plaintiff during the period of unemployment, nor a profit earned during that period. Set-Offs 29 The defendant argued that the damages should be reduced to reflect certain amounts owed by Mr. Gryba to the company for loans and patent expenses. The Patents 30 Moneta filed a copy of agreement that it had made with Noranda and Pamour Inc., which provided for the transfer of the Raise Bore mining patent, then in the course of a patent application. That agreement provided that the patent would be regained by Noranda and Pamour if Moneta did not further develop the inventions. Nevertheless, Moneta treated the patent as if it belonged to Mr. Gryba. Indeed, Mr. Vukovich testified that the reason for the agreement was Noranda's desire to transfer the patent to a company rather than to an individual. However, he understood the patent belonged to Mr. Gryba, with Moneta allowed to use it without royalties. He also testified that Moneta was expected to pay the maintenance costs of the patent, as part of the opportunity cost to use the process. Mr. Larche, who testified for Moneta, was not familiar with the early arrangements for the patent, although he agreed that the company received a benefit from this patent and the Double Post Mining method developed later. 31 I find that there was no agreement that the company would hold Mr. Gryba responsible for the patent maintenance costs for either patent. Therefore, he is entitled to the patents without any further payment for the processing. The Loans 32 While Mr. Gryba believed that the loans would be forgiven if he left the company, there is no legal basis for his belief. He signed a document indicating his obligation to pay for the computers through payroll deduction. Counsel for Moneta calculated that figure at $2, at termination, and that amount should be deducted from his damages. 33 With respect to the promissory notes totaling $14,000.00, I find that there was no expectation by the board of directors that Mr. Gryba would pay interest on the loans. After one mention of their

8 Page 8 interest-bearing nature in the company's financial statements, there was no further reference to interest in subsequent annual reports, and the T4 slips indicated that the loan was interest-free and attracted tax liability. 34 While Mr. Gryba argued that the loans should be forgiven because he had, in effect, earned a bonus by attracting financing for mining projects, I do not find such an entitlement. When he received a bonus in 1988, it is clear from the evidence that the board was making a one-time decision, and that further bonuses would not be automatic. Mr. Larche also indicated his reluctance to provide bonuses to officers. Therefore, I find that there was no entitlement to a further bonus, and the company is entitled to set off the loan amount of $14, against the damages owing. Punitive Damages 35 While the plaintiff argued that the company's conduct amounted to bad faith and he should receive punitive damages, I find no basis for such an award. The company never alleged cause for dismissal. As noted in Vorvis v. Insurance Corporation of British Columbia (1989), 58 D.L.R. (4th) 193 (S.C.C.) at 201, 207, punitive damages in wrongful dismissal cases are rare, and the conduct here is not of a harsh, vindictive or reprehensible nature so as to warrant sanction. Conclusion 36 Therefore, there shall be judgment for the plaintiff for $111, plus pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43. If the parties are unable to agree with respect to costs, I may be spoken to. K. SWINTON J. qp/s/np/qlkam/qlafr

9 ---- End of Request ---- Print Request: Current Document: 1 Time Of Request: Wednesday, February 09, :53:10