Supreme Court of Canada
D.H. Howden & Co. v. Sparling, [1970] S.C.R. 883
Date: 1970-04-28
D.H. Howden and Company Limited (Defendant) Appellant;
and
Ronald J. Sparling (Plaintiff) Respondent.
1970: February 10; 1970: April 28.
Present: Abbott, Judson, Hall, Spence and Pigeon JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Contracts—Employment contract—Interpretation—Remuneration—30 per cent of gross profit on all sales credited to employee—Meaning of “gross profit”.
Damages—Wrongful dismissal—Sales manager—Award of about one-third of a year’s earnings.
The plaintiff had been employed by the defendant company upon a hiring of indefinite duration as con-
[Page 884]
tract hardware sales manager. The whole of the contract of employment was contained in a letter dated May 19, 1964, from the general manager of the company’s Builders’ Hardware Department to the plaintiff. It was provided that the plaintiff’s remuneration would be on a commission basis (30 per cent of the gross profit on all sales credited to him) on a guaranteed $12,000 per annum basis. Some two and one-half years later the plaintiff was dismissed for the reason, as found by the trial judge, “that the defendant company, through its officers, could not bully him into signing a new contract that changed his terms of employment in a most significant way and very much against the plaintiff.” The trial judge allowed judgment to the plaintiff for the sum of $18,607.70 on the plaintiff’s claim for unpaid commissions, and a further sum of $7,000 for illegal dismissal. The Court of Appeal confirmed the judgment of the trial judge. The company then appealed to this Court.
Held: The appeal should be allowed in part.
As held by the trial judge, the natural meaning of the words “gross profit” in the letter of May 19, 1964, was the deduction from the net selling price of only the total of the defendant’s incoming invoices and the incoming freight costs to the defendant. However, the trial judge erred in his calculation of the award for unpaid commissions by failing to make any allowance for freight charges. There was in the evidence sufficient proof that a figure of two per cent for such charges was a proper item. Correcting the account accordingly, the amount allowed to the plaintiff for unpaid commissions was reduced from $18,607.70 to $15,165.75.
The award of $7,000 as damages for illegal dismissal, which amount represented about one-third of the plaintiff’s annual earnings, was not disturbed.
Bardal v. The Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140; Johnston v. Northwood Pulp Ltd., [1968] 2 O.R. 521, referred to.
APPEAL from a judgment of the Court of Appeal for Ontario, dismissing an appeal from à judgment of Keith J. Appeal allowed in part.
Albert Edwin Shepherd, Q.C., for the defendant, appellant.
James Robert Caskey, for the plaintiff, respondent.
[Page 885]
The judgment of the Court was delivered by
SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Ontario pronounced on January 23, 1969. By that judgment, the said Court confirmed the judgment of Keith J. at trial pronounced on June 28, 1968. In the latter judgment, Keith J. allowed to the plaintiff (here respondent) judgment for the sum of $18,607.70 on the plaintiff’s claim for unpaid commissions, and a further sum of $7,000 for illegal dismissal.
The learned trial judge held that the plaintiff had been employed by the defendant on May 19, 1964, upon a hiring of indefinite duration as contract hardware sales manager and further that the whole of the contract of employment was contained in Exhibit 1, a letter of that date. I shall set out the letter in full:
H HOWDEN’S
Hardware Distributor
London. Toronto
Division of D.H. Howden & Co. Limited reply to:
P.O. Box 2485, London, Ontario, Canada
May 19th, 1964.
Mr. R. J. Sparling, A.H.C.,
544 Fanshawe Park Road,
London, Ontario.
Re: Future Employment
D.H. Howden & Co. Limited
Dear Ron:
The following will confirm our conversation of Tuesday, May 19th, 1964.
Position—Contract Hardware Sales Manager D.H. Howden & Co. Limited.
Performance Duties—It is the responsibility of the Contract Hardware Sales Manager to develop all. sales programs pertinent to Contract Hardware Sales. All future training programs in the development of future Contract Hardware salesmen will be the responsibility of the Contract Hardware Sales Manager. The Contract Hardware Sales Manager will be responsible for all sales awarded to D.H. Howden & Co. Limited in the Province of Ontario.
[Page 886]
Remuneration—Remuneration will be on a commission basis (30% of the gross profit on all sales credited to Mr. Ron Sparling on a guaranteed $12,000 per annum basis.
Travelling Expenses—In the development stages of the Contract Hardware Division it is agreed that Mr. Sparling will be paid .07¢ per travelling mile when the business originates with an architect outside of the City of London. In the event that it may be necessary for Mr. Sparling to remain in an outlying area over night while on Company business, lodging will be paid by D.H. Howden & Co. Limited.
As the Contract Hardware Sales Manager’s position is of a management capacity, it will be necessary for him to take extensive management training programs from time to time. These training programs will be decided by the General Manager of the Builders Hardware Division, or the General Sales Manager of D.H. Howden and Co. Limited. Expenses will be paid by D.H. Howden and Co. Limited on management training meetings as they occur.
Cooperation Within Division—It is the responsibility of the Sales Manager of the Contract Hardware Division to see that he maintains complete harmony both with himself and his staff and all divisions of the Company.
Sincerely,
D.H. Howden and Co. Limited,
(signed) R.T. Foran
R.T. Foran—General Manager,
Builders’ Hardware Department.
RTF: dl
c.c. Mr. D.H. Stewart
Mr. N. McBeth
The learned trial judge, in making this finding, examined the evidence given on behalf of the respondent and also the evidence given on behalf of the appellant, by its officers, and made an express finding of credibility in favour of the respondent and against the officers of the appellant. He then continued:
Having made these findings of fact based solely on the credibility of the witnesses the argument addressed to me on the basis of an estoppel, which I do not think was tenable any way in law, falls to the ground on a factual basis.
[Page 887]
In my view, therefore, the plaintiff was engaged by the defendant company solely on the terms of exhibit 1…
It therefore became the task of the learned trial judge, and it is the task of this Court, to interpret the paragraph in Exhibit 1 which reads:
Remuneration—Remuneration will be on a commission basis (30% of the gross profit on all sales credited to Mr. Ron Sparling on a guaranteed $12,000 per annum basis.
(The commencement of a bracket before the figure 30% is not accompanied in that agreement by any closure of the bracket.)
It was the evidence of the plaintiff that he always understood the words “gross profit” in Exhibit 1 as being the difference between the cost of material and the sale price. The evidence given by officers on the part of the appellant, on the other hand, was that their understanding of the words “gross profit” was the difference between the net selling price as shown in the appellant’s invoices and the “laid-down cost” which they took to be the total of the invoices of the vendors to the appellant company plus a 2 per cent item to cover freight costs and an 8 per cent item to cover something referred to as “overhead” and which will be further delineated hereafter.
The learned trial judge, therefore, with respect, rightly held that it was his duty to interpret the contract and to determine the meaning of the words “gross profit” by giving them their ordinary, natural meaning. The learned trial judge was assisted in this task by one W.E. Suchard, a partner in a very large firm of chartered accountants in charge of their office in London, Ontario. Mr. Suchard, in reply to a question by the respondent’s counsel, answered:
Well, my understanding of the term “gross profit” would be the difference between the selling price of a product and the laid-down cost of that product.
(The italics are my own.)
In cross-examination, Mr. Suchard was asked:
Q. You add to that (the invoice cost to the appellant) the freight that the purchaser has to pay? Is that correct?
A. Yes.
and also
[Page 888]
Q. Then you add to that the handling cost, direct cost, handled cost, to get the inventory to the warehouse, if it is a situation where more movement must take place at the expense of the company from the freight office? Is that correct?
A. I would say, yes.
And the learned trial judge interrupted the re-examination of the witness Suchard to state:
HIS LORDSHIP: NO, no. Surely we are clear on this? What Mr. Suchard has said very clearly, both to you and to Mr. Shepherd, I think, is to arrive at the initial figure of those costs, you take the actual cost of the product—that is, the previous owner’s selling price—you add to that taxes, freight and any other direct charges—such as taking it from the railway storage house to your own warehouse and getting it right there, on the shelf, for sale—to be the charges against the final amount for which the item was sold.
Is that basic gross profit?
A. That is correct.
It will be seen that the learned trial judge in that statement included in “laid-down costs” the invoice of the previous owner plus freight and other direct charges such as taking it from the railway storage house to the appellant’s own warehouse and getting it right there on the shelf and that the expert witness Suchard agreed with that analysis.
During his cross-examination, counsel for the appellant had sought to have the witness Suchard agree that other costs such as cataloguing should be included in those direct costs but the witness Suchard refused to do so saying that that was getting down toward a net profit basis. Norman McBeth, the secretary-treasurer of the appellant company, gave evidence on its behalf. He testified that a figure of 2 per cent was added by the appellant to the invoice cost of the goods to cover freight charges which the appellant was required to pay and further that another sum of 8 per cent was added which he described as “overhead” or “laid-down costs”. Mr. McBeth outlined these costs further, in the following words:
…which represented the cost of ordering material, of putting it in the warehouse, of making it ready for shipment, of performing the paperwork necessary
[Page 889]
and the handling, and this calculation was computed by our management at reasonable intervals; and in the case of 1964 was considered to be eight per cent.
It was the respondent’s contention that by attempting to add this type of item to the manufacturer’s invoice in order to get the laid-down cost the appellant was attempting to arrive at an “adjusted gross profit” and that such adjusted gross profit was the interpretation of the contract advanced by the appellant and expressly refused by the learned trial judge.
The learned trial judge, in his reasons for judgment, having determined that the agreement between the plaintiff and the defendant, here appellant and respondent, was set out solely in the terms of Exhibit 1, continued:
and the essential element in those terms is that his commission was to be calculated on gross profit and not on adjusted gross profit and gross profit takes its ordinary and natural meaning, namely, between the selling price of the goods and the cost of those goods or their invoice value.
(The italics are my own.)
The learned trial judge then awarded to the plaintiff, here respondent, the sum of $18,607.70 for commissions wrongfully withheld. He explained that amount in these words:
This figure is calculated by deducting the cost of goods sold in the three relevant years from the net sales for the same three years, these figures being in the first six lines of exhibit 11 and applying the relevant rate of 30 per cent against the difference thus determined. From the total figure so calculated the annual drawings of the plaintiff which appear at the bottom of exhibit 11 are adjusted for that part of these payments which are reimbursement of travelling expenses gives one the necessary result.
With respect, I am of the opinion that the learned trial judge fell into error when he made this calculation. Mr. Suchard had already agreed that gross profit should be calculated by taking the difference between the net selling price of the goods and their “laid-down cost” and that the
[Page 890]
“laid-down cost” consisted of the vendor’s invoice price plus incoming freight charges paid by the purchaser, i.e., Howden, plus an amount to compensate Howden for charges between the railway station and when the goods landed on Howden’s shelves ready to be sold. It will be seen that the learned trial judge failed to make any allowance for either freight charges or these direct handling costs after he had agreed with Mr. Suchard they were proper items. I am convinced that the learned trial judge was not ready to allow the many kinds of charges which were included in the eight per cent which Mr. McBeth testified should be added to the invoice cost. There is in the evidence sufficient proof that the two per cent for freight charges is a proper item and the account may be corrected by adding this two per cent to the invoice cost to the appellant. There is not, however, in the evidence any statement as to what is a proper addition for such direct cost as the learned trial judge, with respect, properly would have been ready to allow. As I have said, there was an eight per cent addition which covered many other types of charges which the appellant incurred but which both Mr. Suchard and, in my view, the learned trial judge regarded as items of overhead which could not be taken into calculation in figuring gross profit.
The learned trial judge used, for the purpose of his calculation, Exhibit 11. That exhibit shows that the net sales by the appellant for the period June to December 1964 and the whole of 1965 and 1966 were $744,118 and that the invoice cost of the goods sold by the respondent during that period was $578,659 and 30 per cent of that was $49,637.70. The learned trial judge then deducted for drawings taken during the period by the respondent less such amounts as were paid to him for expense items for which he was entitled to reimbursement the sum of $31,000 and awarded the respondent, as I have said, $18,607.70. In my opinion, the learned trial judge should have added to the figure of $578,659 an item of 2 per cent thereof to cover the freight charges to which I have referred. Such 2 per cent addition to the appellant’s incoming invoices would have brought that figure to $590,232.18 and deducting that amount from the net selling
[Page 891]
prices of the appellant would have left a gross profit of $153,885.82. Thirty per cent of that latter figure is $46,165.75 and deducting from that latter figure the same amount for adjusted drawings as had been used by the learned trial judge, i.e., $31,000, leaves the amount of unpaid commissions for which the plaintiff was entitled to judgment at $15,165.75. I therefore would vary the judgment awarded to the respondent to award that sum rather than the sum of $18,607.70 as awarded by the learned trial judge on this claim.
In making such a variation of the award for unpaid commissions, I have accepted the learned trial judge’s finding as to credibility and accepted his proposition that the award must be based upon an interpretation of the words of Exhibit 1, the letter of May 19, 1964, and I have also accepted the proposition that such an interpretation must be of the natural meaning of those words. I have accepted what I believe was his finding that that natural meaning was the deduction from the net selling price of only the total of the appellant’s incoming invoices and freight costs to the appellant incoming, and allowed for those freight costs in the aforesaid 2 per cent deduction. I am of the opinion that there was no evidence which would permit a deduction of any amount for other direct costs.
I now turn to the award by the learned trial judge of $7,000 as damages for illegal dismissal of the respondent. The appellant appealed both against making any such award and the amount thereof. Again, the learned trial judge, based on his finding as to credibility, has found that the respondent was illegally dismissed and that the appellant quite failed to give any valid reason which would entitle it to dismiss the respondent, stating:
In my opinion, these accusations against the plaintiff are trumped up and cannot possibly justify his dismissal.
I think the real reason the plaintiff was dismissed was that the defendant company, through its officers, could not bully him into signing a new contract that changed his terms of employment in a most significant way and very much against the plaintiff.
[page 892]
I think he was shabbily treated by the defendant company.
In its factum, the appellant argues that there was simply no evidence which would justify that finding. I am of the opinion that the record reveals evidence which would entitle the learned trial judge to make such a finding and I am further of the opinion that it should not be disturbed in this Court.
The learned trial judge concluded his reasons in reference to the damages for wrongful dismissal in these words:
I think a fair assessment of his damages for wrongful dismissal, and I find that he was wrongfully dismissed, is $7,000 which represents about one-third of a year’s earnings with the defendant company as determined by me.
The appellant, in its factum, made no complaint as to the allowance of about one-third of a year’s earnings as being a reasonable allowance for the illegal termination of an indefinite hiring but did allege that there should be deducted therefrom expenses of earning an income which would reduce the amount that the respondent would actually have earned in the four months represented by the allowance of damages by an amount of about $1,492, i.e., four months at the expense rate of $373 per month. It is not my purpose to examine the validity of this claim for I am of the opinion that no such exactitude should be ascribed to the reasoning of the learned trial judge. I point out the words “…seven thousand dollars which represents about one-third of a year’s earnings…”. As I have said, the respondent was hired to be the contract hardware sales manager of the appellant company and the performance of the duties in Exhibit 1, which I have quoted above, shows that he had a considerable responsibility not only as a salesman but as a manager of other salesmen whom he had to train and direct and that he was responsible for all contract sales made by the company. I also point out that Exhibit 1 itself includes the statement “As the Contract Hardware Sales Manager’s position is of a management capacity…”
The decisions of the Courts in the Province of Ontario in late years dealing with the illegal
[Page 893]
termination of contracts of employment of persons having managerial duties have often held that reasonable notice, and therefore the quantum of damages, was much more than four months. In Bardal v. The Globe & Mail Ltd., McRuer C.J.H.C. allowed to the manager of the advertising department of the newspaper damages equal to twelve months’ remuneration. In Johnston v. Northwood Pulp Ltd., Donnelly J. allowed to the plaintiff, the general manager of a sawmill business, the same one year’s salary as reasonable notice. That judgment was appealed to the Ontario Court of Appeal. The appeal was dismissed and a further appeal to this Court was dismissed. I am of the opinion that an employee occupying the senior position which the respondent did with the appellant company would have been entitled to damages for illegal dismissal of an amount probably in excess of the roughly four months’ salary allowed by the learned trial judge and that therefore when there was no deduction made from the allowance of damages for expenses which would have reduced the respondent’s income if he had remained in the employment of the appellant company that such failure to deduct is probably more than covered by the limitation of the damages to only four months’ remuneration. I, therefore, would not disturb the award of $7,000 damages for illegal dismissal.
In the result, I would allow the appeal to reduce the amount allowed for unpaid commissions from $18,607.70 to $15,165.75 but would not otherwise vary the judgment at trial. The respondent should be entitled to retain his verdict for costs at trial and in the Court of Appeal for Ontario. In view of the fact that the appellant’s success in this Court has been minor, I would simply allow no costs of the appeal to this Court.
Appeal allowed in part.
Solicitors for the defendant, appelant: Shepherd, McKenzie, Plaxton, Little & Jenkins, London.
Solicitors for the plaintiff, respondent: Gillies, Saint, Caskey & O’Donovan, London.
Email this Content