[1] The appellant was employed with the Canadian Wheat Board (the "Board") for over 10 years as a commissioner. At the time of his appointment on September 14, 1988, he was entitled to hold office during good behaviour until he reached the age of 70. Unfortunately for him, his employment was terminated effective December 31, 1998, by reason of a legislative restructuring of the Board. Upon termination of his office, the appellant received compensation in the sum of $350,079.36, of which $282,000 represented two (2) years of salary.

[2] The issue in this appeal is whether Martineau J. of the Federal Court, in his decision cited 2004 FC 193 and dated February 6, 2004, erred in concluding that the terms and conditions of the appellant's employment with the Board constituted a complete "exit compensation package" and that, as a result, the appellant had been fully compensated for the loss of his employment by payment to him, inter alia, of two (2) years of salary.

[3] In addition to the provisions contained in the Canadian Wheat Board Act, R.S.C. 1985, c. C-24 (the "Act"), as it read at the time the appellant was appointed to the office of Commissioner, the terms and conditions of his employment with the Board were set out in a document entitled "Terms and Conditions Applicable to Current Chief Commissioner or Commissioners of the Canadian Wheat Board (Appointed prior to December 31, 1994)" (the "Terms and Conditions").

[4] Although the Terms and Conditions were only approved by Treasury Board in 1995, there is no dispute between the parties that they formed part of the bargain reached by the appellant and the Board in 1988.

[5] I should also point out that the appellant was subject to the Government's "Conflict of Interest and Post-Employment Code for Public Officeholders" (the "Conflict Code"). More particularly, he was subject to clause 30 thereof, which prohibits former officeholders, for a period of one year, from accepting an appointment "to a board of directors or employment with an entity with which they had direct and significant official dealings" during the year preceding their loss of office.

The Reasons Below:

[6] The issue before Martineau J. was whether the payment of two-years of salary made to the appellant was, as the respondent contended, compensation for the termination of his office or, as the appellant contended, consideration for his undertaking not to compete for a period of two years.

[7] Martineau J. rejected the appellant's submissions and dismissed his action. In his view, the respondent had fully discharged its contractual obligations towards the appellant when it paid him, inter alia, the sum of $282,000 upon termination of his office.

[8] The learned judge reached that conclusion on the following basis. Firstly, relying on the Supreme Court of Canada's decision in Wells v. Newfoundland, [1999] 3 S.C.R. 199, he concluded that the appellant's relationship with his employer was contractual in nature and that, consequently, it was necessary for him to determine the respondent's obligations under the contract.

[9] The judge then turned to the appellant's terms and conditions of employment. He found the relevant terms to be those contained in the Terms and Conditions. There is no dispute with respect to this finding. The dispute is in regard to the judge's interpretation of clause 7 of the Terms and Conditions. The judge then reproduced clauses 5, 6, 7 and 11 thereof, which I also reproduce for ease of reference:

5. RETIRING ALLOWANCE

• One (1) week salary for each completed year of continuous employment upon retirement.

• Prior to August 1, 1988 sick leave plan grandfathered unused sick leave. The payment upon retirement is 60% of unused sick days times the ratio of unused days to total days earned times the average salary for the six (6) consecutive years of highest paid pensionable service.

6. LONG SERVICE ALLOWANCE

• With ten (10) or more years of service, one-half (½) week's salary for each year of continuous employment to a maximum of thirteen (13) weeks' salary upon termination or voluntary resignations.

7. LOSS OF OFFICE PAYMENT

• Two (2) years' salary after three (3) years of continuous Board service.

• This benefit is paid upon termination, voluntary resignation or retirement.

• A Commissioner is prohibited from accepting employment in a commercial grain marketing organization for up to two (2) years after leaving the Board.

...

11. COMPANY AUTOMOBILE

• Any standard size fully equipped automobile, except luxury models such as Cadillacs, Mercedes, Continentals, etc.

• The replacement period of this vehicle is two (2) years or 50,000 kilometres.

• Upon retirement or resignation, while in good standing, a Commissioner may purchase the automobile he or she is driving from the Board, at its depreciated value.

[10] The judge then summarized the amounts received by the appellant and, in the light of the Terms and Conditions, he found that the appellant had received all that he was entitled to thereunder. In his view, there could be no doubt that the Terms and Conditions, having been fully negotiated, were binding on the appellant and that the most reasonable interpretation thereof and, in particular, of clause 7, was that upon termination of his office, the appellant would become entitled to two years of salary in lieu of damages. The judge's reasoning can be found at paragraph 32 of his Reasons, where he writes:

[32] Coming back to the interpretation and effects of the LOP [Loss of Office Payment] provision, I note that the plaintiff's terms and conditions of employment were negotiated and an agreement was reached. As such, the Terms form a binding contract. The most reasonable interpretation of the plaintiff's contract of employment and acknowledged in the Terms, is that upon "termination", the plaintiff was entitled to receive two years of salary as compensation in lieu of damages. The word "termination" has been defined as being a severance of the relation between employer and employee, whether by deliberate withdrawal (quitting); by involuntary withdrawal owing to illness, accident or disability, or by discharge or lay-off not followed by rehiring (Goguen v. Metro Oil Co., [1989] N.B.J. No. 136 (N.B.C.A.) (Q.L.); Linda P. Collier, Pension Vocabulary (Ottawa, Dept. of Secretary of State of Canada, 1990); and Black's Law Dictionary, 5^th ed.). As such, the word "termination" can be used for both involuntary and voluntary termination of employment.

[11] The judge then dealt with and rejected the appellant's argument that since the payment of two years of salary was simply the quid pro quo for his undertaking not to accept "employment in a commercial grain marketing organization for up to two (2) years after leaving the Board", and not compensation for the termination of his office, he was therefore entitled to further compensation from his employer for the loss of his office. At paragraphs 33 and 34 of his Reasons, the judge explains his view in the following terms:

[33] The plaintiff now argues that there would be an implied contractual obligation to provide further compensation in case of termination without cause. The plaintiff submits that the sum of $282,200.00 he received under the LOP provision is strictly a two years' non-competition agreement. I must reject these propositions, which are contrary to the parties' intention and are not supported by a proper construction of the Terms. Although they are labelled "retiring allowance", "long service allowance" and "loss of office payment", overall, the benefits mentioned in sections 5, 6 and 7 of the Terms are triggered by the same event, namely the termination of appointment. Clearly, they constitute the "exit compensation package" that the commissioners have negotiated and are contractually entitled to receive when they retire or voluntarily resign, or when their appointment with the Board is terminated. In my opinion, the LOP is more akin to a "severance pay"; that is, a payment made by an employer to an employee on separation from employment in recognition of past service and intended to cushion economic hardship in providing some compensation for loss of employment (Mattdocks v. Smith & Stone (1982) Inc., 34 C.C.E.L. 273 at 279 (Ont. Ct. Gen. Div.)). This explains why the Terms provide that there be at least three years of continuous service. The three years requirement is evidently linked to the fact that the qualifying commissioner may have been sufficiently removed from his previous private or public sector position. As such, the two years' salary benefit was evidently considered at the time as fair and reasonable compensation. Indeed, the LOP provision was extremely advantageous for the commissioners, especially at a time where the common law under Reilly, supra, provided for absolutely no loss of office compensation.

[34] Therefore, reading the contract of employment as a whole, I cannot accept the plaintiff's argument that the LOP is merely a non-competition provision and that the LOP of $282,200.00 is merely in consideration of an agreement not to compete during a two-year period. From a contextual perspective, this proposition does not make any sense. The prohibition not to compete already exists as a predetermined condition of employment. All full time Governor in Council appointees, including the plaintiff, must abide by the Code, which already provides for a one year cooling-off period. During this period, unless a reduction is granted, the former appointee is not permitted to accept an appointment to a board of directors or employment with an entity with which he had direct or significant official dealings during the year preceding the end of his mandate. I further note that the obligation not to compete for a period of two years inscribed in the LOP provision, because of the grandfathering of the Terms, only applies to those commissioners who were appointed before December 31, 1994, provided that they have been continuously employed for a period of more than three years. If the LOP provision was truly a non-competition clause why then limit its application in such fashion?

[12] The judge's reading of the Terms and Conditions led him to conclude that there was nothing in the Agreement to support the appellant's submission. He then considered the extrinsic evidence. Specifically, he reviewed the history of the negotiations between the Commissioners and Treasury Board, which took place between 1984 and 1995, when Treasury Board gave its approval to the Terms and Conditions. This review led the judge to make a number of findings, namely:

(i) No Crown corporation employees and, for that matter, no Governor in Council appointees, other than those employed by the Board at the relevant time, were entitled to two years of salary upon resignation or retirement.

(ii) Although, prior to Wells, supra, the Government of Canada was under no obligation to pay compensation upon termination of an office holder's position, the Government had decided, as a matter of policy, to negotiate fair compensation, unless the terms of contract contained provisions dealing with the issue.

(iii) The commissioners were strongly opposed - not surprisingly, in my view - to the Government's desire to bring their compensation in line with those of other Crown corporations. They argued, inter alia, that the Terms and Conditions and, more particularly, clause 7, the loss of office provision, were part of the bargain that had been struck when they agreed to take their positions with the Board.

(iv) In 1993, the commissioners had unsuccessfully argued that the two year loss of office provision, which, in their view, was there to compensate them for their undertaking not to compete, was in the Board's commercial strategic interests.

[13] These findings, coupled with his reading of the Terms and Conditions, led Martineau J. to the following conclusion, found at paragraphs 39 and 40 of his Reasons:

[39] In conclusion, I find that the Terms were complete and addressed the fundamental aspects of the employment relationship of the commissioners, including what particular benefits were payable in case of termination. The fact that the word "termination" was specifically used in the Terms would not have been left unnoticed by the commissioners who vigorously sought to defend their terms and conditions of employment. The evidence reveals that the commissioners were astute and capable bargainers. At no point during these negotiations, when the government sought to open up the employment contract and to bring it in line with the framework established by the Treasury Board and the Privy Council, did they raise the fact that the benefits payable in case of termination were not acceptable to them. They treated these benefits as a complete package.

[40] Accordingly, I conclude that the defendant's contractual obligation was fully discharged by the payment of compensation equivalent to two years of salary, together with ancillary compensation payable under the Terms. Therefore, the plaintiff is not entitled to any further compensation and the present action must fail. Costs are to be awarded in favour of the defendant.

The Appellant's Submissions:

[14] The appellant seeks to set aside Martineau J.'s decision. His submission is that the Terms and Conditions do not contain any provision for the termination of his office and, as a result, he is entitled to damages based on his loss of the chance to serve his full term of office and earn the accompanying salary and benefits.

[15] The appellant argues that the sole issue before this Court is whether the learned judge properly interpreted his contract of employment. He says that the judge erred in interpreting the contract so as to deprive him of his right to compensation for the elimination of his tenured office.

[16] The appellant's specific submissions are as follows. Firstly, he makes an argument based on the wording of the Terms and Conditions and says that the inclusion of the loss of office payment (the "LOP") in clause 7 thereof was clear evidence that the parties intended the LOP to be linked to the appellant's undertaking not to accept employment with commercial grain marketing organizations for up to two years after leaving the Board, whether by reason of termination, voluntary resignation or retirement. The appellant says that if the LOP had no connection with his undertaking, its inclusion in clause 7 made no sense.

[17] The appellant further submits that there was no basis for the judge to hold, as he did, that the most reasonable interpretation of the Terms and Conditions was that upon termination, he would receive two years of salary "as compensation in lieu of damages" and that the LOP was akin to "severance pay". The appellant submits that these words cannot be found in the Terms and Conditions and that, as a result, their absence should have led the judge to a different conclusion.

[18] The appellant's second argument is one based on the "surrounding circumstances". He says that because the commissioners had a significant amount of power in negotiating with the Board's service providers and that in order to perform their duties, they were provided with important confidential information, the appellant and the other commissioners were required to divest themselves of a substantial amount of private business interests so as to avoid real or perceived conflict of interest situations while in the performance of their duties on behalf of the Board.

[19] Hence, in the appellant's submission, since the Board had a real interest, after his departure, in ensuring that he would not use the information and knowledge he acquired while employed as a commissioner, it was reasonable to infer that the LOP was made to him in consideration of his agreement not to accept employment with a commercial grain marketing organization for a period of up to two years after his departure.

[20] The appellant's third submission pertains to the judge's consideration of extrinsic evidence of the parties' intention. In this regard, the appellant makes two arguments. First, as the Terms and Conditions were clear and unambiguous, the judge was wrong to consider such evidence. Second, in the alternative, the appellant says that if it was proper to consider such evidence, that evidence supported his position. Specifically, he points, inter alia, to a letter dated April 22, 1993, from the then Minister of Agriculture to the Chief Commissioner of the Board, where the Minister, after indicating that he found the LOP unacceptable, states his understanding of the LOP as being that it was inserted in the Terms and Conditions to prevent the commissioners "from taking employment in the grain trade industry during a two-year cooling off period". The appellant goes on to submit that consideration of the evidence as a whole supports the view that the true purpose of the LOP was to compensate the commissioners for their undertaking not to accept employment in the grain trade industries during the two years following their departure from the Board.

The Respondent's Submissions:

[21] The respondent's position is quite straightforward. It says that Martineau J. correctly identified and applied the principles governing the employment relationship between the appellant and the Crown, as enunciated by the Supreme Court in Wells, supra, and that he made no error in interpreting the Terms and Conditions. Moreover, the respondent says that the judge made no palpable and overriding error which could allow this Court to intervene.

Analysis:

[22] I begin, as I must, with the standard of review applicable in the present matter. In Housen v. Nikolaison, [2002] 2 S.C.R. 235, the Supreme Court of Canada dealt with the applicable standard of review which an appellate court was bound to apply with respect to the various issues which arise on an appeal.

[23] Firstly, with respect to pure questions of law, the Court made it clear that the applicable standard was that of correctness. Secondly, the Court reiterated the proposition that with respect to findings of fact, such findings were not to be interfered with unless it could be shown that the trial judge had made a palpable and overriding error. Thirdly, with respect to questions of mixed fact and law, the Court explained that such questions meant applying a legal standard to a set of facts and, as a result, there could be some difficulty in determining the applicable standard of review. At paragraph 36 of their Reasons for the majority, Iacobucci and Major JJ. explained their reasoning with respect to questions of mixed fact and law:

[36] To summarize, a finding of negligence by a trial judge involves applying a legal standard to a set of facts, and thus is a question of mixed fact and law. Matters of mixed fact and law lie along a spectrum. Where, for instance, an error with respect to a finding of negligence, can be attributed to the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle, such an error can be characterized as an error of law, subject to a standard of correctness. Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of "mixed law and fact". Where the legal principle is not readily extricable, then the matter is one of "mixed law and fact" and is subject to a more stringent standard. The general rule, as stated in Jaegli Enterprises, supra, is that, where the issue on appeal involves the trial judge's interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error.

(Emphasis Added]

[24] I am satisfied, and the appellant has not in fact contended otherwise, that Martineau J. made no error of law reviewable on a standard of correctness. In my view, he correctly identified the relevant legal principles governing the employment relationship between the appellant and the respondent, as set out in Wells, supra. In that case, Major J., writing for a unanimous Court, explained the nature of the relationship between the Crown and its employees in the following terms at paragraphs 29 and 30:

29. In my opinion, it is time to remove uncertainty and confirm that the law regarding senior civil servants accords with the contemporary understanding of the state's role and obligations in its dealings with employees. Employment in the civil service is not feudal servitude. The respondent's position was not a form of monarchical patronage. He was employed to carry out an important function on behalf of the citizens of Newfoundland. The government offered him the position, terms were negotiated, and an agreement reached. It was a contract.

30 As Beetz J. clearly observed in Labrecque, supra, the common law views mutually agreed employment relationships through the lens of contract. This undeniably is the way virtually everyone dealing with the Crown sees it. While the terms and conditions of the contract may be dictated, in whole or in part, by statute, the employment relationship remains a contract in substance and the general law of contract will apply unless specifically superceded by explicit terms in the statute or the agreement.

[25] Further, I am satisfied that the judge made no error in legal principle in that he did not apply an incorrect standard or fail to consider a required element in a legal test, or that he made any other error in principle.

[26] The issue before us is whether the judge made an error in the application of the relevant principles to the factual situation before him and, specifically, in interpreting the Terms and Conditions. This is why the appellant submits that the only issue before this Court is one of contractual interpretation. Consequently, in my view, the appellant cannot succeed on this appeal absent a showing that the learned judge made a palpable and overriding error in interpreting the Terms and Conditions. For the reasons that follow, I have not been so persuaded.

[27] Firstly, I cannot subscribe to the appellant's submissions that since the Terms and Conditions were clear and unambiguous, the judge was bound to conclude that the true purpose of the LOP was to compensate him for his undertaking not to accept employment, for a period of two years, with a commercial grain marketing organization.

[28] After, correctly in my view, identifying the legal approach and standard formulated by the Supreme Court in Wells, supra, the judge proceeded to apply these principles to the facts before him. Then, after a careful examination of the Terms and Conditions and, more particularly, of sections 5, 6, 7 and 11 thereof, the judge stated that these provisions revealed, in a precise and comprehensive manner, the obligations which the respondent had agreed to be bound by in its contractual dealings with the appellant. This led him to the view that the Terms and Conditions constituted a complete "exit compensation package" in the event of termination, voluntary resignation, or retirement. This, in his opinion, distinguished the appellant's situation from that of Mr. Wells. As a result, the judge declared himself satisfied that the appellant could not claim further compensation.

[29] In so concluding, the judge rejected the appellant's submission that the LOP was inserted in the Terms and Conditions in consideration only of his undertaking not to take employment with grain marketing organizations. In his view, that submission, in light of all the contextual factors, was unreasonable. In formulating this view, the judge considered the fact that, apart from his undertaking, the appellant was bound by the Conflict Code which prevented him, for a period of one year from his departure from the Board, from accepting an appointment to a board of directors or accepting employment with an organization with which he had dealings in the year preceding his departure. He also considered the fact that appellant's undertaking did not apply to commissioners appointed after December 31, 1994.

[30] The judge then turned his attention to extrinsic evidence provided, in great part, by Wayne McCutcheon, the Director General and Senior Personnel Secretary in the Privy Council, which led him to make a number of findings which I have already set out in paragraph 12 of these Reasons. In these findings, the judge found support for his interpretation of the Terms and Conditions and, more particularly, that his interpretation was the most reasonable one in all of the circumstances.

[31] I have given serious consideration to the various submissions put forward by the appellant in light of all of the evidence, including the oral evidence, and I have not been persuaded that the judge made an overriding and palpable error which could allow us to intervene.

[32] I would simply add that it is difficult, in my view, to quarrel with the judge's interpretation of clause 7 of the Terms and Conditions, considering the express wording of the clause which provides that upon, inter alia, termination of a commissioner's position after at least three years of continuous service with the Board, the commissioner will be entitled to two years of salary. In view of the wording of the clause, I have great difficulty with the proposition that such payment was to be made in consideration only of the commissioner's undertaking not to seek employment with a grain organization. This proposition, in my view, flies directly in the face of the LOP.

[33] My reading of Martineau J.'s decision leaves me in no doubt that he carefully examined all of the evidence before him and that it cannot be said that he considered irrelevant evidence nor that he ignored relevant evidence in interpreting the Terms and Conditions and in reaching his ultimate conclusion.

[34] What the appellant is asking us to do is to reassess the evidence so as to arrive at a different interpretation of the Terms and Conditions. Unfortunately for him, as he has not been able to convince me that the judge made an overriding and palpable error, we cannot reassess the evidence in the manner that he proposes.

[35] For these reasons, I would therefore dismiss the appeal with costs.

"M. Nadon"

J.A.

"I agree.

K. Sharlow J.A."

"I agree.

B. Malone J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-112-04

(APPEAL FROM A JUDGMENT OF MARTINEAU J. OF THE FEDERAL COURT IN FILE T-2100-01, DATED FEBRUARY 6, 2005)

STYLE OF CAUSE: KLASSEN v. H.M.Q.

PLACE OF HEARING: Winnipeg, Manitoba

DATE OF HEARING: February 15, 2005

REASONS FOR JUDGMENT: NADON J.A.

CONCURRED IN BY: SHARLOW J.A.

MALONE J.A.

DATED: July 05, 2005

APPEARANCES:

E.W. Olson, Q.C.

R. McFadyen

FOR THE APPELLANT

D.J. Rennie

R. Rothsch ild

FOR THE RESPONDENT

SOLICITORS OF RECORD:

Thompson Dorfman Sweatman LLP

Winnipeg, MB

FOR THE APPELLANT

John H. Simms, Q.C.

FOR THE RESPONDENT

Deputy Attorney General of Canada

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Klassen v. Canada, 2005 FCA 251

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2005 FCA 251