DONALEE MOULTON
An executive fired for theft
from his company will walk
away with more than a pink slip.
The Ontario Court of Appeal
has ruled that Leonard Rossetto
is entitled to roughly $365,000
in bonuses he was owed by his
former employer.
“The decision clarifies how
the court should approach a
remedy for a breach of fiduciary
duty within an employer/
employee relationship. There is
no automatic remedy in such a
situation. It is discretionary and
depends on the facts of the
case,” said Gregory Sidlofsky, a
partner with Wagner Sidlofsky
LLP in Toronto who represented Rossetto.
The key issue before the
court was how to effectively
remedy the breach of fiduciary
duty that had occurred between
Rossetto, Mady Development
Corp., and its related compan-
ies. Specifically, the court had to
determine whether the one-
time executive should have to
forfeit his entitlement to a
bonus for work he had already
completed after being dismissed
for diverting labour and materi-
als and using company funds to
renovate his house.
was based on the erroneous
principle that, in all circumstances, errant fiduciaries forfeit entitlement to compensation in the form of bonuses,”
Justice Alexandra Hoy wrote in
her 17-page decision.
“Equitable remedies are always
subject to the discretion of the
Simply because an employee breached a fiduciary
duty to his employer does not automatically
disentitle the employee to compensation that is
owed to him during the period of his wrongdoing.
“
Gregory Sidlofsky,
Wagner Sidlofsky LLP
Mady had argued that as a fiduciary in whom the company had
placed its trust, Rossetto was
not entitled, or at least not
necessarily entitled, to his
bonuses. The Superior Court
had agreed with this position.
The appeal court did not.
“The [Superior Court]
judge’s conclusion that Mr.
Rossetto’s breach disentitled
him from receiving his bonuses
court, and a fiduciary’s entitle-
ment to a bonus depends on all of
the facts before the court.”
Ultimately, Sidlofsky said,
the court determined that the
question of entitlement to bonus
compensation is “fluid.”
As well, the appeal court rec-
ognized that there are different
kinds of bonuses. “In this case,
the bonuses were significant
and nondiscretionary,” Justice
Hoy said. “The arbitrator found
they were an integral part of
Mr. Rossetto’s compensation
under the employment con-
tract. He was just as entitled to
the bonus component of his
compensation as he was to his
regular salary.”
The appeal court found that
the arbitrator’s decision
achieved the two goals of fidu-
ciary relief: restitution and
deterrence. The arbitrator had
awarded Mady damages total-
ling $546,452, which effect-
ively ensured restitution, the
appeal court concluded. It also
determined that the arbitra-
tor’s decision accounted for the
goal of deterrence. “It had the
effect of depriving Mr. Rossetto
of the benefit he gained from
his wrongful conduct,” Justice
Hoy said.
Reasons: Mady Development Corp. v.
Rossetto, [2012] O.J. No. 145
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Challenging improper fishing expeditions
Even with a limited familiarity of the Canada Revenue
Agency, it should be no surprise
that the Minister of National
Revenue has very broad investigative powers.
Over the past 10 years these
powers have become increasingly alarming to businesses,
especially if they are compelled
to turn over client information,
which could lead to potentially
negative business consequences. When faced with a
demand for third-party documents, it is important that businesses understand how they
may challenge an improper
fishing expedition.
Sections 231 to 231.5 of the
Income Tax Act govern the
manner in which inquiries or
investigations into taxpayers’
affairs may be carried out. Section 231.1 grants the minister a
broad power to inspect, audit
and examine a taxpayer’s book
and records and any document
that relates to the taxpayer’s
books and records, including
those of a third party. Similarly, under s. 231.2 the minister can demand the production
of any information or document, including those of a
third party.
CHRISTINE
ASHTON
When faced with a
demand for third party
documents, it is
important that
businesses understand
how they may
challenge an improper
fishing expedition.
“
Christine Ashton,
Wilson Vukelich LLP
Unlike s. 231.1, under
s. 231.2, where the information
or document demanded relates
to a third party, the minister
must first obtain judicial author-
ization via an ex parte applica-
tion. In the decision of Redeemer
Foundation v. Canada (National
Revenue), [2008] S.C.J. No. 47,
the Supreme Court of Canada
held that s. 231.2 exists for when
the minister requires informa-
tion about a taxpayer outside
the context of a formal audit.
Sections 288 and 289 of the
Excise Tax Act are respectively
virtually identical to ss. 231.1
and 231.2.
ISTOCKPHOTO.COM
First, is it further to an audit
to determine tax liability, or further to an investigation to
determine penal liability for tax
evasion? In the decision of R. v.
Jarvis, [2002] S.C.J. No. 76,
the Supreme Court of Canada
held that ss. 231.1 and 231.2 are
powers for the administration
of the Act and are unavailable
for the purposes of prosecutorial investigations. When
engaged in a prosecutorial
investigation, the minister
must obtain a warrant
under s. 231.3.
Second, is it a legitimate purpose? In the
recent decision of
Canada (Minister
of National Revenue) v. RBC Life
Insurance Co.,
[2011] F.C.J.
No. 1537 (
involving multiple insurance companies and
currently under appeal
by the Crown to the Federal Court of Appeal), the
Federal Court struck down
a s. 231.2 order requiring
detailed information about the
companies’ 10-8 plans and their
customers. A 10-8 plan is an
See Fishing Page 12
