Pyrrhic victory results from failure to bring evidence of damages for breach of fiduciary duty

In Glionna v. Stiller, 2015 ONSC 2431, the corporate plaintiff successfully sued a former director for breach of fiduciary duty, but recovered only $12,600 in damages after a five day trial.

Glionna and Stiller together as friends formed the corporate plaintiff, Theraputix - The Wellness Centre Inc., a rehabilitation and wellness centre. They were, from the outset, 50-50 shareholders in the corporate plaintiff and that remained the case at trial. They were its only two directors. Glionna handled the business side and Stiller provided the therapeutic treatments.

After their relationship broke down, the parties planned for Stiller to buy out Glionna, but they were unable to reach an agreement on key terms such as price. Stiller’s new business associate incorporated a new company, Aim 2 Walk Inc., in preparation for the planned acquisition of Theraputix. When Glionna withheld Stiller’s share of a commission to force an agreement, Stiller walked out with some of Theraputix’s equipment. Aim2Walk opened shortly after at a different location and became a direct competitor of Theraputix. Stiller provided massage services, helped to set up the business and gave direction regarding the business, but he was not a co-founder or shareholder, officer or director.

The trial judge applied Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592, and found that Stiller breached his fiduciary duty to Theraputix by:

(a) in the few months prior to resigning, participating in some marketing for Aim2Walk., communicating with a potential client on behalf of Aim2Walk when that person would have been an appropriate client of Theraputix, and leaving abruptly and taking equipment with him; and

(b) in the period following his departure, assisting Aim2Walk, a competitor, in setting up its clinic.

The trial judge outlined the principles that apply in determining the appropriate remedy for a breach of fiduciary duty:

[90] The principles that apply to determining the appropriate remedy for a breach of fiduciary duty are well-established: “Fiduciary relief is equitable in nature. The remedies for breach of fiduciary duty are discretionary. They are dependent on all the facts before the court, and designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships”: Mady Development Corp. v. Rossetto, 2012 ONCA 31 (CanLII), at para. 18, citing McBride Metal Fabricating Corp. v. H.W. Sales Company Inc. (2002), 2002 CanLII 41899 (ON CA), 59 O.R. (3d) 97 (C.A.) at para. 30.

[91] As summarized in Mady at para. 19: “Fiduciary relief is aimed at two goals: restitution and deterrence. Restitution is aimed at returning a beneficiary to the position he would have been in but for the fiduciary’s breach. The goal of deterrence, or as it is sometimes referred to, the prophylactic purpose, is to prevent fiduciaries from benefitting from their wrongdoing and maintain the integrity of the fiduciary relationship. A remedy for breach of fiduciary duty can be aimed at one or both of these purposes. The role each one plays is a function of the particular facts of the case.”

Theraputix elected to seek its lost profits rather than a disgorgement of profits of Aim2Walk. It sought $164,000 in damages: $84,000 for business losses and $80,000 for lost profits. It did not bring any expert evidence, and failed to establish that Stiller solicited clients away from Theraputix. The trial judge found that the evidence fell far short of what would be required to demonstrate and quantify any lost profits caused by the defendant’s breaches of fiduciary duty as opposed to the many other actual and potential reasons for those losses. The trial judge stated:

[102] The plaintiffs ask me to conclude that but for the defendant’s breaches of fiduciary duty, Theraputix’s profits would have increased by about $40,000. They do so because in the prior year, profits increased by about that amount. This “back of the envelope” approach is completely unsatisfactory. The profits of Theraputix could have been affected by too many factors. Nor does this optimistic picture of the business accord with the problems with the clinic quite apart from the specific breaches of fiduciary duty that I have found here.

The trial judge agreed with the general observation that lost business profits are never possible to ascertain with arithmetical precision, but held that “…it does not relieve the plaintiffs of their obligation to prove lost profits on a balance of probabilities.” He stated further:

[105] The deficiency in the plaintiffs’ case is not a matter of failing to prove lost profits with “arithmetical precision”. They have failed to prove even basic components required to demonstrate that any lost profits were caused by the defendant’s breaches of fiduciary duty. Similarly, it is insufficient to simply say that equipment ordinarily used at the clinic was taken and therefore there must have been lost profits. The plaintiffs have failed to prove that any services were actually affected by the absence of that equipment, let alone any impact on profits.

The trial judge concluded that there should be some damages awarded to Theraputix both on a restitutionary basis and for deterrence, and awarded $10,000 on that basis in addition to the $2,600 for the equipment that was taken from Theraputix. As the plaintiffs presented no case authority or financial evidence to support their claim for $50,000 for loss of goodwill, no award for general damages was made. The claim for punitive damages was also dismissed as the other damages were insufficient to accomplish the objectives of retribution, deterrence and denunciation.

This case is a reminder that it is only worthwhile to pursue claims for breach of fiduciary duty or breach of confidence if the plaintiff can prove damages resulting from the breach, or if the defendant has made profits to be disgorged.

EDIT: In further reasons, Glionna v Stiller, 2015 ONSC 4091, the plaintiffs were awarded only $10,000 in costs. The judge noted Rule 57.05(1) which provides that if a plaintiff recovers an amount within the monetary jurisdiction of the Small Claims Court, the court may order that the plaintiff shall not recover any costs. He stated: "While I will not go so far as to proceed under Rule 57.05(1) and deny costs altogether, I have taken the quantum of damages awarded into account."