OVERVIEW

CONTEXT

1. The Parties

1.1 The Defendants

1.2 The Plaintiff

2. The Events of February 2019

3. The Internal Investigation

4. The Termination

5. The Public Announcements

6. The Proceedings

POINTS IN ISSUE

ANALYSIS

1. Was There a Serious Reason for Graceffa’s Termination?

1.1 The Applicable Principles

1.2 The Codes of Ethics

1.3 The Grounds for Termination

2. The Reasonable Notice Period

3. Graceffa’s Subsidiary Claims Under the Employment Contracts

3.1 The Claim for Base Salary

3.2 Graceffa’s Annual Bonus for 2018

3.3 The Special Bonus

3.4 The Co‑Investment Portion of the 2016 and 2017 Otéra Annual Bonuses

3.5 The 2015 Otéra Long‑Term Bonus

4. Was the Dismissal Abusive?

4.1 The Governing Principles

4.2 The Defendants Did Not Terminate Graceffa’s Employment Abusively

5. Was Graceffa Defamed?

5.1 Defamation – The Governing Principles

5.2 The Purportedly Defamatory Remarks

6. Legal Costs and Expert Fees

SUMMARY OF FINDINGS

DISPOSITION

OVERVIEW

[1]                For 13 years, the plaintiff, Mr. Alfonso Graceffa,[3] was employed as a senior executive by a number of subsidiaries of the Caisse de dépôt et placement du Québec (the Caisse). By all accounts, he was highly regarded and valued by his employers and by colleagues alike. He excelled both as an investor and as an executive. His employment record was unblemished.

[2]                In February 2019, Graceffa was at the height of his career. He held senior executive positions with Ivanhoé Cambridge Inc. (Ivanhoé Cambridge) and with Otéra Capital Holding Inc. (Otéra). On May 27, 2019, following a three-month internal investigation into Otéra, Graceffa was dismissed without notice by Ivanhoé Cambridge and Otéra. Since that fateful day, Graceffa has been unable to find suitable employment.

[3]                In June 2019, Graceffa instituted proceedings against Ivanhoé Cambridge, Otéra and the Caisse. He claims that his employment was terminated without cause and seeks compensation in lieu of the reasonable notice period to which he was entitled. Graceffa contends that such notice should be two and one-half years.

[4]                Graceffa further argues that the termination was conducted in an abusive manner and that he was defamed by statements made by Defendants at the time of his dismissal. He seeks moral and punitive damages for these wrongs.

[5]                For the reasons that follow, I find that there was a serious reason for terminating Graceffa’s employment and that he is not entitled to compensation in lieu of reasonable notice.

[6]                In particular, by accepting an envelope containing $15,000 in cash in his Otéra office from an individual with a criminal record for drug trafficking, Graceffa committed a very serious fault. While several of the grounds relied on by the Defendants for dismissing Graceffa have not been made out, this fault severed the relationship of trust between Graceffa and his employers that is necessary for continued employment. Graceffa’s failure to properly disclose certain external activities compounds the impairment of that relationship of trust.

[7]                Although Graceffa’s termination was conducted in an uncompromising manner, it was not abusive. Finally, the Defendants did not commit a fault when making various statements regarding the results of the internal investigation into Otéra and when publicly announcing Graceffa’s dismissal. As such, they cannot be held liable for any harm so caused to Graceffa’s reputation and good name.

[8]                Graceffa is nonetheless entitled to receive portions of his contractually agreed remuneration that were unilaterally withheld by Ivanhoé Cambridge while he was on paid leave during the internal investigation.

[9]                The trial in this matter was conducted in both English and French. A practice oft followed by the Quebec Superior Court is to write in the language of the unsuccessful party, who is considered by many to be the most important person in the courtroom. Graceffa has been largely unsuccessful in advancing his claims. These reasons for judgment have thus been prepared in English—the language in which Graceffa’s pleadings were drafted and in which he testified.

CONTEXT

1.        The Parties

1.1   The Defendants

[10]           The Caisse is a legal person and mandatary of the State.[4] Its statutory mission is set out in section 4.1 of the Act respecting the Caisse de dépôt et placement du Québec:

[11]           In discharging its mission, the Caisse manages pension fund assets and the assets that underwrite certain public insurance plans. The pension funds managed by the Caisse include the Quebec Pension Plan as well as the pensions of workers employed in the provincial public and parapublic sectors. In 2018, the assets managed by the Caisse totalled $308.8 billion.[5] Today, these assets amount to some $420 billion.[6]

[12]           The Caisse uses a number of subsidiaries in the performance of its mission. Three of these are Ivanhoé Cambridge, Otéra and 4223667 Canada Inc. (MCAP).

[13]           Ivanhoé Cambridge is the Caisse’s commercial real estate subsidiary.[7] It invests in real estate assets in Canada and throughout the world.

[14]           Otéra is the Caisse’s commercial real estate lending subsidiary.[8] Loans granted by Otéra finance the acquisition or development of commercial real estate properties in Canada and North America. These loans are secured by hypothecs or mortgages.

[15]           MCAP is a subsidiary of Otéra. It is a platform that originates residential and commercial hypothecs or mortgages. MCAP does not itself finance the loans it originates. Rather, it finds institutional investors to underwrite them.

1.2   The Plaintiff

[16]           Graceffa holds a degree in commerce and an MBA from McGill University. He has had a very accomplished career in commercial real estate lending. In 2006, he left the National Bank of Canada to take up employment within the Caisse’s corporate family as Vice President, Investment Management, with MCAP.

[17]           Two years later, Graceffa moved over to Otéra as Vice President, Investment Management. He was promoted to various executive positions within Otéra and eventually became the company’s President and Chief Executive Officer (CEO) in 2013.

[18]           In September 2017, while he was President and CEO of Otéra, Graceffa was asked to become a member of Ivanhoé Cambridge’s Executive Committee. In March 2018, he became an Ivanhoé Cambridge executive and took on the key role of Head of Business Units.[9]

[19]           Graceffa also held various board positions with the three relevant Caisse subsidiaries. He was thus a member of Otéra’s Board of Directors as of January 1, 2013, and became Chairman of its Board on January 1, 2019. He also sat on Ivanhoé Cambridge’s Board from September 2017 to March 2018. Finally, he was Chairman of MCAP’s Board of Directors as of February 2017.

[20]           In summary, in early February 2019, Graceffa combined the following positions:

      Head of Business Units with Ivanhoé Cambridge;

      CEO and Chairman of the Board of Directors of Otéra; and

      Chairman of the Board of Directors of MCAP.

[21]           As may be observed from the senior positions he held and the manner in which he scaled the corporate ladder, Graceffa excelled in his various roles within the Caisse’s corporate family. His performance reviews were outstanding,[10] and several witnesses spoke in glowing terms of his acumen and ability. He was a valued, highly regarded and extremely successful senior executive.

[22]           However, in February 2019, crisis struck at the Caisse and Graceffa’s exceptional career began to unravel.

2.        The Events of February 2019

[23]           On Tuesday, February 5, 2019, the Journal de Montréal published an article alleging that an Otéra Vice President was living in a conjugal relationship with a person who had links to organized crime.[11] A day earlier, on February 4, the Caisse, having been informed that this article was forthcoming, decided to launch an internal investigation in order to shed light on the allegations being advanced by the Journal de Montréal.

[24]           On February 5, the Caisse issued a press release announcing the suspension of the Vice President in question and that an internal investigation led by external legal counsel had been launched.[12] In its press release, the Caisse indicated that the conclusions of the investigation would be made public.[13]

[25]           The Journal de Montréal published another article regarding Otéra on February 6.[14] This article reported that, in 2017, Otéra had made a $44 million loan for the construction of a seniors’ residence in St-Jean‑sur‑Richelieu (the Quartier St‑Jean Project). The article further alleged that one of the promoters of the Quartier St‑Jean Project, Mr. Thomas Marcantonio, was a business partner of Graceffa’s.

[26]           Indeed, since 1997, Marcantanio and Graceffa—together with Graceffa’s former spouse—jointly owned, and still own, a number of apartment buildings.

[27]           On February 7, the Journal de Montréal published a further article. This time, it was alleged that, in 2017, MCAP (Otéra’s subsidiary) had loaned $3.3 million to a numbered company belonging to Graceffa and his former spouse.[15]

[28]           Additional articles were published by the Journal de Montréal on February 8. It was now alleged that companies owned by Graceffa had benefitted from 11 MCAP loans totalling $9.2 million.[16]

[29]           The Journal de Montréal allegations triggered a crisis within the Caisse. It was felt that public confidence in the probity and the integrity of the Caisse was at stake. On February 6, Graceffa was summoned to a meeting attended by senior Caisse Executives, including its CEO, Mr. Michael Sabia. The meeting was brief, and the issues discussed included Graceffa’s MCAP loans and his volunteer work with the Archdiocese of Montreal.

[30]           Despite the Caisse’s grave concerns regarding the Journal de Montréal allegations, as of February 6, it was felt that there was no need to suspend Graceffa.[17] Indeed, in their responses to media inquiries, Otéra and the Caisse took the position that Graceffa had not been involved in the Quartier St-Jean Project and had disclosed his MCAP loans.[18]

[31]           Nonetheless, by February 7, it was suggested to Graceffa that he should step aside temporarily in order to preserve the integrity of the internal investigation. Under threat of suspension, Graceffa agreed to do so while the investigation was ongoing. A press release announcing Graceffa’s decision to step aside was issued by the Caisse on February 8.[19] Graceffa was subsequently informed by Otéra and Ivanhoé Cambridge that his electronic accesses would be suspended.[20] He was also asked to refrain from attending at their premises and to not communicate with their employees, clients, suppliers or consultants.[21]

3.        The Internal Investigation

[32]           As noted, at the very beginning of the crisis, the Caisse decided to launch an internal investigation. External legal counsel, Maître Stéphane Eljarrat (the Investigator) of the firm Oslers, was retained to lead the investigation. The mandate given to the Investigator was very broad and extended to both Otéra’s employees and clients.[22] Moreover, as Otéra was the subject of the investigation, the Caisse believed that the integrity of the process would be best assured if the mandate came from the Caisse itself.

[33]           In short, no stone was to be left unturned and no option was off the table—including the possibility that the Caisse would divest itself of Otéra, should the investigation reveal a problem requiring a drastic solution of that sort.[23]

[34]           Graceffa met the Investigator on three occasions. The initial meeting was held on February 7 and was brief. It is at this meeting that it was first suggested to Graceffa that he should withdraw from his functions during the investigation. Graceffa was interviewed again by the Investigator on March 25 for approximately four hours.[24] A final interview was held on April 30 for approximately two hours.[25]

[35]           During the second and third interviews, Graceffa was accompanied by counsel. The interviews were wide‑ranging. Various Otéra transactions were discussed, as were Graceffa’s personal investments. His relationships, if any, with a variety of individuals were also explored.

[36]           By mid-April 2019, the Caisse was advised by the Investigator that only four persons were the subject of ongoing lines of inquiry.[26] It was also informed that the various issues being examined were unrelated inter se and that there were no further subjects of interest to the Investigator.

[37]           On May 10, the Caisse received the Investigator’s draft report. The Caisse then took some time to digest his findings and to prepare a summary thereof, having previously announced that it would make the Investigator’s conclusions public.[27]

[38]           As a result of the Investigator’s report, three employees, including Graceffa, were dismissed from their positions. A fourth person was removed from Otéra’s Board of Directors.

4.        The Termination

[39]           On May 24, 2019, Graceffa was summoned to a meeting with his employer to be held at 3 p.m. on Monday, May 27, at the offices of external legal counsel retained by Ivanhoé Cambridge and Otéra.[28] In parallel, the boards of directors of both companies met earlier on May 27. The two boards unanimously resolved to terminate Graceffa for cause.[29]

[40]           Graceffa, who had been out of the country when summoned to the May 27 meeting, duly attended as required. At the meeting, he was informed of the decision to immediately terminate his employment and presented a letter bearing both Ivanhoé Cambridge and Otéra letterhead (the Termination Letter).[30]

[41]           The Termination Letter identifies six grounds of termination without notice (the Grounds of Termination). These will be discussed in great detail below. Suffice it to say at this stage that Ivanhoé Cambridge and Otéra assert in the Termination Letter that Graceffa:

1. Demonstrated a grave lack of judgment and contravened Otéra’s Code of Ethics by engaging in personal debt recovery activities in Otera’s offices and accepting, in those premises, an envelope containing $15,000 in cash (Ground of Termination 1 – The Personal Debt Recovery Activities);
2. Contravened the various codes of ethics to which he was subject by omitting to declare the positions he held with and his interest in companies owning shares of Construction Sainte Gabrielle Inc. (Ground  of Termination 2 – The Interest in Construction Sainte Gabrielle);
3. Contravened the various codes of ethics to which he was subject and placed himself in a conflict of interest by discussing a transaction involving Otéra and Marcantonio, a friend and business partner (Ground  of Termination 3 –The Marcantonio Conflict);
4. Demonstrated a lack of judgment and contravened Otéra’s Code of Ethics as well as the Otéra Directors’ Code of Ethics by failing to disclose his conflict of interest in relation to his friend, Mr. Pierre Varadi (Ground  of Termination 4 –The Varadi Conflict);
5. Improperly used his position when engaging in discussions with Mr. Mark Aldridge in the latter’s capacity as President and Chief Operating Officer of MCAP (Ground  of Termination 5 –The MCAP Loan Discussions); and
6. Contravened the Otéra Code of Ethics by failing to declare that he had been offered bribes (Ground  of Termination 6 –The Offers of Bribes).

5.        The Public Announcements

[42]           As noted, in February 2019, the Caisse had announced that the conclusions of the internal investigation would be made public. Upon receipt of the Investigator’s report, it thus spent considerable time crafting a summary of his findings in order to achieve this goal, without improperly communicating any personal information or waiving privilege.

[43]           On May 28, Ivanhoé Cambridge and Otéra issued separate press releases stating that Graceffa was no longer an employee of these organisations.[31]

[44]           In parallel, the Caisse issued a press release[32] announcing that a summary (the Summary)[33] of the Investigator’s report was available on its website. The Caisse’s press release notes that the report found that the integrity of Otéra’s asset portfolio was not tainted by fraud or misappropriation. It adds, however, that misconduct arising from the personal activities of four unnamed individuals, who no longer held positions with any Caisse subsidiaries, had been identified. The press release further explains that the Caisse could not provide details, beyond those found in the Summary, which might allow one to link the misconduct that had been identified with any particular individual.

[45]           As for the Summary, it provides a high‑level description of the process followed by the Investigator and his team. It further indicates that there were no findings of fraudulent transactions or money laundering in relation to the Otéra portfolio. It notes, nonetheless, that Otéra’s internal culture in terms of integrity fell below the Caisse’s standards.

[46]           The Summary also provides some details as to the misconduct found by the Investigator. As a general matter, it indicates that four individuals, who acted independently of one another, breached their obligations under the applicable codes of ethics. The Summary then lists the following more specific instances of misconduct found by the Investigator:

• Eu égard à certaines situations mentionnées précédemment, certaines de ces personnes n’ont pas agi avec prudence et diligence requises par la loi (Code civil du Québec et Loi sur les sociétés par actions) en raison de leur poste ou leurs responsabilités.
• Une de ces personnes a contrevenu à la Politique générale d’utilisation des systèmes d’information d’Otéra en effectuant fréquemment, par le biais des outils technologiques mis à sa disposition par Otéra, en particulier, son adresse de messagerie d’Otéra, des transactions commerciales personnelles pour des montants substantiels.
• La nature, la fréquence, les montants et la quantité des transactions commerciales personnelles effectuées par l’une de ces personnes constituent un risque réputationnel pour la Caisse et Otéra. Par exemple, certaines de ces transactions ont été effectuées par le biais d’une personne qui a, ou a eu, des liens directs et/ou indirects avec des acteurs connus du milieu du crime organisé. À titre d’exemple supplémentaire, nous avons découvert, à partir de son adresse de messagerie d’Otéra, que cette personne a consenti un prêt commercial personnel de 180 000$ à une compagnie qui aurait été remboursée une semaine plus tard. Selon nos experts, les 2000$ de revenus d’intérêts qui auraient été réalisés sur ce prêt représenteraient un taux d’intérêt annuel effectif réalisé de 78,20 %. Finalement, les sociétés liées à cette personne, en raison de ces liens directs et/ou indirects, ainsi que certaines de ses fréquentations, constituent en soi un risque réputationnel.
• Le réseau d’individus liés à l’une de ces personnes et certains événements préoccupants dans lesquels elle a joué un rôle important constituent un risque réputationnel pour la Caisse et Otéra. Notamment, cette personne a représenté un individu ayant eu divers démêlés avec la police dans le cadre d’un acte juridique relatif à une transaction immobilière.
• Il est également probable qu’une de ces personnes a profité de sa position chez Otéra pour obtenir des avantages pour elle-même.
• Une de ces personnes a rencontré dans les bureaux d’Otéra un individu. Lors de cette rencontre, cette personne s’est fait remettre 15 000 $ en argent comptant. La remise de cette somme serait en lien avec le recouvrement d’une dette liée à une compagnie dans laquelle elle a un intérêt qu’elle n’a par ailleurs pas déclaré. Selon nos experts, cet individu a des antécédents criminels en matière de stupéfiants. Cet événement constitue une situation qui pourrait s’avérer embarrassante pour Otéra et dommageable du point de vue réputationnel, contrevenant ainsi au code d’éthique applicable.
• Une de ces personnes a communiqué directement avec le président et chef de l’exploitation d’une filiale d’Otéra pour discuter de certaines modalités d’un ou des prêts la concernant, ce qui constitue un manquement au code d’éthique applicable.[34]

[47]           In view of the Grounds of Termination relied on by Ivanhoé Cambridge and Otéra,[35] only the two final items in the above list relate to Graceffa.

[48]           Finally, the Summary offers a number of recommendations aimed at improving Otéra’s processes from an ethics and governance perspective.[36]

6.        The Proceedings

[49]           On May 28, 2019, counsel for Graceffa sent a demand letter to counsel for the Defendants asserting that his employment had been unjustly terminated. The demand letter further provided Graceffa’s response to each of the Grounds of Termination relied on in the Termination Letter, requested Graceffa’s reinstatement and proposed mediation.[37] It also asserted that the Summary damaged Graceffa’s reputation by leading the public to erroneously believe that he had been fired for misconduct that in fact related to other individuals.

[50]           Subsequent exchanges between counsel following the demand letter were not fruitful.[38] On June 19, Graceffa issued a press release stating that his termination was abusive and unjustified and that he would restore his unfairly tarnished reputation.[39] The Caisse responded with a press release indicating that it would defend its decisions and would not pay a penny derived from the savings of Quebeckers to a person who had committed serious ethical breaches.[40]

[51]           On June 20, Graceffa instituted proceedings against the Defendants. As amended, these proceedings seek:

      from Ivanhoé Cambridge:

• an indemnity in lieu of reasonable notice in the amount of $5,463,833;
• a yearly increase to his existing pension in the amount of $52,634.31;
• his special bonus (prime spéciale) payable in April 2019 in the amount of $400,000;
• his annual bonus for 2018 (due in April 2019) in the amount of $1,173,000;

      from Otéra:

• the retained “co-investment” portion of Graceffa’s annual bonuses for 2016 and 2017 and his long‑term bonus from 2015 totalling $714,283; and

      solidarily from the Caisse, Ivanhoé Cambridge and Otéra:

• moral damages in the amount of $450,000; and
• punitive damages in the amount of $150,000.[41]

[52]           As a subsidiary position, in the event that his termination is found to be for cause, Graceffa seeks:

      from Ivanhoé Cambridge:

• his base salary for 2019 in the amount of $460,000;
• the special bonus (prime spéciale) payable in April 2019 in the amount of $400,000;
• his annual bonus for 2018 (due in April 2019) in the amount of $1,173,000; and

      from Otéra:

• the retained “co-investment” portion of Graceffa’s annual bonuses for 2016 and 2017 and his long‑term bonus from 2015 totalling $714,283.[42]

[53]           The Defendants deny that Graceffa is entitled to any monies whatsoever.

POINTS IN ISSUE

[54]           The dispute between the parties raises the following issues:

1. Did Ivanhoé Cambridge and Otéra have a serious reason allowing them to terminate Graceffa’s employment without reasonable notice?
2. If not, what is the reasonable notice period to which Graceffa is entitled and what remuneration is he entitled to during such reasonable notice period?
3. In the event that Ivanhoé Cambridge and Otéra had a serious reason justifying termination without notice, what amounts, if any, is Graceffa nonetheless entitled to?
4. Was the termination conducted in an abusive fashion and, if so, what are the moral damages to which Graceffa is entitled? and
5. Did the Defendants defame Graceffa and, if so, what are the moral damages and punitive damages to which he is entitled for the interference with his right to the safeguard of his dignity, honour and reputation?

ANALYSIS

1.        Was There a Serious Reason for Graceffa’s Termination?

[55]           The crux of the dispute between the parties is whether there was a serious reason or “cause” for terminating Graceffa’s employment. In addressing this issue, I will first set out the applicable principles governing the unilateral termination of an employment relationship. I will then examine the various codes of ethics that applied to Graceffa. Finally, I will analyse each of the grounds identified in the Termination Letter in order to determine whether, individually or collectively, they give rise to a serious reason justifying termination without notice.

1.1   The Applicable Principles

1.1.1           Unilateral Termination of an Employment Contract Without Notice

[56]           An employment contract is an agreement whereby one person—the employee—undertakes to perform remunerated work for another—the employer. Such a contract may be for a fixed term or of indeterminate duration.

[57]           Either party to an employment contract may decide to terminate it. In the case of a contract for an indeterminate term, the terminating party must give the other reasonable notice or compensation in lieu thereof. Article 2091 of the Civil Code of Québec (CCQ) thus provides:

[58]           For employees, the right to notice—or compensation in lieu thereof—is of public order (article 2092 CCQ). Exceptionally, article 2094 CCQ grants the parties to an employment contract the ability to terminate without notice for cause or a “serious reason” to use the language of the Code:

[59]           The concept of “serious reason” is not defined in the Code, but has been clarified by a significant body of case law. The party who seeks to terminate an employment contract for a serious reason—usually the employer—bears the burden[43] of proving conduct that, in view of the context in which it occurs and the employee’s position, represents a serious breach of the employee’s duties such that continuity of the employment relationship has become impaired. As explained in Le droit du travail du Québec:

[…] [L]e sens à donner à l’expression « motif sérieux » est celui d’une faute grave commise par le salarié ou d’une cause juste et suffisante qui se rapporte à sa conduite ou à son défaut d’exécuter le travail. […][44]

[60]           A mere loss of confidence in the employee does not allow the employer to terminate without reasonable notice or compensation in lieu thereof. In order to establish a serious reason for termination, the employer must demonstrate that the loss of confidence results from a serious breach of the employee’s duties or a series of breaches that amount to a serious breach.[45]

[61]           A contextual approach must be adopted where employee misconduct is relied on as the serious reason for termination without notice.[46] In such cases, a three‑step approach is used to determine whether the alleged misconduct meets the serious reason standard. The court must: (1) ascertain the nature of the misconduct, (2) determine the context in which such misconduct occurred, and (3) assess whether termination is a proportionate sanction in the circumstances.

[62]           If the misconduct is so serious as to be incompatible with a continued employment relationship, there will be a serious reason justifying termination without notice. As explained by Chief Justice Robert on behalf of the Court of Appeal in LeFrançois v. Canada:

[59]           On peut donc conclure de cette revue de la jurisprudence que toute faute ne rompt pas d'office la relation employeur-employé. Il faut plutôt déterminer la nature de l'inconduite, le contexte de sa commission et la proportionnalité du congédiement comme sanction. Le congédiement sera justifié si l'inconduite est d'une gravité telle qu'elle est incompatible avec le maintien de la relation d'emploi.

[60]           Les facteurs considérés par la jurisprudence étudiée sont: la position hiérarchique de l'employé et son niveau de responsabilité, l'ancienneté, le degré d'autonomie fonctionnelle, les difficultés auxquelles l'entreprise fait face, la conscience de l'employé de son inconduite, le bénéfice personnel retiré de l'inconduite, l'âge de l'employé, sa conduite passée et les politiques du milieu d'emploi.[47]

[63]           At the time of his termination, Graceffa was a very senior executive with Ivanhoé Cambridge and Otéra. In this regard, the case law notes that senior executives and employees holding positions of hierarchical importance within an organisation are held to exacting standards of probity and loyalty.[48] While the very senior positions held by Graceffa constitute an important contextual factor, the Defendants are nonetheless required to establish a serious reason, as described above, in order to terminate his employment without notice.

[64]           That said, the case law further recognizes that the doctrine of progressive discipline does not apply to senior executives.[49] An employer is thus not required to apply more lenient disciplinary measures, such as reprimands or suspensions, prior to imposing the ultimate sanction of termination on a senior executive. Even so, if termination without notice is to be imposed, it must be justified by the existence of a serious reason. As explained by Justice Lacoste in Darveau v. Transcontinental Inc.:

[43]        Il est établi que dans le cas d’un cadre supérieur, un employeur peut généralement imposer un congédiement sans passer par une progression de sanctions comme il devrait le faire pour un simple salarié. Il demeure qu’il doit prouver la gravité objective du motif invoqué pour que le Tribunal puisse le qualifier de sérieux. Il faut pour cela tenir compte de l’ensemble du contexte.[50]

[65]           At the end of the day and for all employees, termination without notice is the ultimate sanction for a breach of an employee’s duties.[51] As such, the Court must be satisfied that, in the specific circumstances of the case, it constitutes a proportionate sanction in view of the gravity of that breach.

1.2   The Codes of Ethics

[66]           The Termination Letter asserts that Graceffa breached the various codes of ethics that applied to him. A review of the terms of these codes is useful at this stage.

1.2.1           The Otéra Code of Ethics

[67]           In 2011, Graceffa and Otéra executed a written employment contract.[52] Pursuant to section 8 of this contract, Graceffa agreed to abide by the Otéra Code of Ethics:

Article 8 – Code D’Éthique

8.1 L’Employé s’engage, par la présente, à observer et à respecter en tout temps le code d’éthique d’OTÉRA (le « Code ») dont copie est jointe en annexe A des présentes. À noter que le Code peut être modifié sans préavis.

[68]           Accordingly, one of Graceffa’s contractual obligations as an employee of Otéra was to act in accordance with its Code of Ethics. The code referred to in section 8.1 is the Code d’éthique d’Otéra applicable to Otéra employees, officers and consultants. A breach of this code would thus constitute a breach of Graceffa’s contract of employment.

[69]           Over the years, various iterations of the Otéra Code of Ethics applied to Graceffa.[53] A requirement that it consistently imposed was the avoidance of conflicts of interests. In this respect, section 7.1 of the 2016 version[54] of the code provides:

7.1. Éviter les conflits d'intérêts

Vous ne devez pas participer, directement ou indirectement, à des activités :

1)      qui sont susceptibles de nuire à vos performances ou à votre jugement dans l'exercice de vos fonctions chez Otéra;

2)      qui résulteraient en un conflit d'intérêts réel ou perçu, c'est-à-dire la création d'une obligation, d'un intérêt ou d'une préoccupation susceptible d'influencer votre jugement ou votre impartialité au détriment de l'intérêt d'Otéra ou qui pourraient potentiellement être embarrassantes pour Otéra;

3)      qui « mettent en jeu » ou « ont pour objet » ou « concernent » une participation financière importante (compte tenu des perspectives qu'elle présente pour Otéra, vous ou la contrepartie visée, selon le cas) et directe dans un partenaire, une société pour laquelle un des actionnaires est une personne liée (voir définition à l'article 15 [sic]), un collègue, un client, un fournisseur de biens ou de services faisant affaires [sic] ou étant concurrent d'Otéra (sauf s'il s'agit d'une participation financière sans contrôle dans une société ouverte cotée en Bourse, tel que mentionné à l'article 9).

[…]

[Emphasis added.][55]

[70]           The notion of “personne liée” (related person), referred to in subparagraph 7.1 3), is defined in section 14 as including members of one’s immediate family and friends who might influence one’s objectivity:

Les personnes liées sont des membres de votre famille immédiate:

• votre époux ou épouse ou votre conjoint de fait
• votre père ou votre mère ainsi que leur époux ou épouse ou conjoint de fait
• vos enfants ou les enfants de votre époux ou épouse ou de votre conjoint de fait
• vos petits-enfants
• vos frères et sœurs
• vos grands-parents
• le père ou la mère de votre époux ou épouse ou de votre conjoint de fait, ainsi que leur époux ou épouse ou leur conjoint de fait
• un parent qui vit avec vous en permanence ou avec qui vous habitez en permanence
• une personne avec qui vous entretenez une relation amoureuse.

De plus, si votre relation avec un cousin, un membre de la famille éloignée ou un ami peut influencer votre objectivité, vous devez présumer que celui-ci est également une personne liée.

[Emphasis added.][56]

[71]           Section 10.2 of the Otéra Code of Ethics governs appointments as an officer or a member of a board of directors of an external corporation. Such appointments are permissible if they are pre-authorized, do not interfere with the performance of the employee’s duties, and do not involve corporations competing against or doing business with Otéra:

10.2. Nomination comme membre du conseil d'administration ou dirigeant d'une société à but lucratif autre qu'Otéra

Tout employé d'Otéra peut être nommé administrateur ou dirigeant d'une société à but lucratif ne faisant pas partie du groupe Otéra à condition que :

1)      la nomination soit préautorisée par le président et chef de la direction;

2)      la nomination ne nuit pas à l'exécution des tâches de l'employé pour le compte d'Otéra ou le respect de ses obligations envers elle;

3)      la société en question ne s'adonne pas à des activités qui font concurrence à Otéra de quelque manière que ce soit;

4)      la société en question ne soit pas un partenaire, un client ou un fournisseur de biens ou de services d'Otéra ou un émetteur assujetti immobilier.

Durant l'exercice de votre fonction en tant qu'administrateur ou dirigeant d'une telle société, vous êtes tenu de vous assurer d'agir en tout temps à titre strictement personnel.[57]

[72]           The Otéra Code of Ethics indicates that it is not intended to comprehensively address every potential ethical risk and that the employee’s decisions and actions should be guided by good judgment based on high ethical standards. In this respect, it identifies a series of questions aimed at providing ethical guidance:

De façon générale, le bon jugement basé sur des principes d'éthique élevés vous guidera dans votre prise de décision et dans vos actes.

En cas de doute, veuillez toujours agir dans l'intérêt d'Otéra et vous poser les questions suivantes :

• Est-ce légal?
• Est-ce conforme aux politiques et au Code?
• Cela entre-t-il en conflit avec l'intérêt des actionnaires et des déposants?
• Vos actions et vos décisions résisteront-elles à l'examen public le plus minutieux?
• Cela pourrait-il entraîner une perception défavorable à votre endroit ou à l'endroit d'Otéra?
• Avez-vous un intérêt pécuniaire personnel, soit un droit ou un avantage qui vous confère un avantage commercial ou financier? Est-ce que d'autres personnes pourraient juger que cet intérêt pécuniaire influe sur votre comportement ou votre capacité à remplir vos fonctions de façon responsable et objective?

[Emphasis added.][58]

[73]           The Otéra Code of Ethics also contains a number of appendices that employees are required to complete on an annual or an “as needed” basis. Two of these are relevant to these proceedings.

[74]           Appendix 1—entitled “Déclaration sur l’adhésion au Code d’éthique” (Appendix 1)—is an annual declaration in which each Otéra employee recognizes having read and understood the code and agrees to abide by its requirements.[59] Appendix 1 further requires that the employee identify all external corporations or organizations in respect of which he or she acts as a director, officer or in another similar capacity:

Je déclare ci-dessous tout intérêt ou activité extérieure afin de me conformer à l'article 7 du Code (« Conflit d'intérêts »). J’inclus dans cette déclaration les sociétés, les organisations et les organismes sans / à but lucratif pour lesquels j’agis à titre de dirigeant, d'administrateur ou toute fonction similaire : […]

[Emphasis added.][60]

[75]           In the event that a conflict of interest does arise, including apparent and potential conflicts, Otéra’s employees are required to complete Appendix 4—entitled “Déclaration de conflit d’intérêts ou d’apparence de conflit d’intérêts” (Appendix 4).[61] When completing Appendix 4, the employee is required to describe the nature of the conflict. If needed, an action plan is then prepared and approved by Otéra’s Vice‑President, Risk, and reviewed annually.[62] Once an action plan is prepared, a further declaration in which the employee agrees to abide by that plan is signed.

1.2.2           The Otéra Directors’ Code of Ethics

[76]           As noted, Graceffa was also a member of Otéra’s Board of Directors. In this capacity, he was subject to various iterations of the Otéra Directors’ Code of Ethics.[63] Pursuant to this code, directors are required to sign an annual declaration—entitled Déclaration d’adhésion au Code d’éthique et de déontologie des administrateurs—confirming that they have read the Code and will abide by it.[64]

[77]           The Otéra Directors’ Code of Ethics also contains provisions governing conflicts of interest. Section 4.7 of the 2016 version thus provides:

4.7 Conflit d’intérêts

4.7.1 L’Administrateur doit éviter de se placer dans une situation de conflit entre ses intérêts personnels et les obligations de ses fonctions. Il doit éviter de se placer dans une situation qui laisse un doute raisonnable sur sa capacité d’exercer ses fonction aves loyauté et impartialité.

4.7.2  L’Administrateur doit éviter de se trouver dans une situation où lui ou une personne qui lui est liée pourrait tirer, directement ou indirectement, profit d’une transaction ou d’un contrat conclu par Otéra ou de l’influence du pouvoir de décision de cet Administrateur en raison des fonctions qu’il occupe au sein de la Société.

4.7.3 L’Administrateur qui assume des obligations vis-à-vis d’autres entités peut parfois se trouver en situation de conflit d’intérêts. Dans le cas où le présent Code ne prévoit pas la situation, l’Administrateur doit déterminer si son comportement respecte ce à quoi la Société peut raisonnablement s’attendre du comportement d’un Administrateur dans ces circonstances. Il doit également déterminer si une personne raisonnablement bien informée conclurait que les intérêts qu’il détient dans l’autre entité ou la position qu’il y occupe risque d’influencer ses décisions et de nuire à son objectivité et à son impartialité dans l’exercice de ses fonctions au sein de la Société. À cet égard, l’Administrateur peut consulter le Président du Conseil ou le Secrétaire.[65]

[78]           Section 4.10 of the Otéra Directors’ Code of Ethics imposes an obligation to disclose real estate investments, directorships of other corporations and potential conflicts of interest. Moreover, directors are required to obtain approval prior to accepting a position with an external for-profit corporation:

4.10 Obligation de divulgation

4.10.1 Chaque Administrateur doit, lors de son entrée en fonction, et annuellement par la suite, communiquer au Secrétaire, la liste de ses Investissements immobiliers, la liste des sociétés pour lesquelles il agit à titre d’Administrateur ainsi que la liste des sociétés susceptibles de constituer un conflit d’intérêts ou une apparence de conflit, et en déclarer la nature en complétant les annexes du présent code.

4.10.2 Il doit également aviser le Secrétaire, dès qu’il en a connaissance, de tous les liens et les intérêts directs ou indirects, qu’il a dans une personne morale susceptible de le placer dans une situation de conflit d’intérêts.

4.10.3 Avant d’accepter un poste d’administrateur, d’employé ou de consultant ou autre d’une personne morale à but lucratif, chaque Administrateur doit s’assurer auprès du Secrétaire de l’absence de conflit d’intérêts entre cette éventuelle fonction et sa fonction d’Administrateur.[66]

[79]           These disclosures are made by completing, on an annual basis, various appendices to the Otéra Directors’ Code of Ethics:

      Appendix A: list of the director’s real estate investments;

      Appendix B – Section 2: list of the director’s external corporate directorships; and

      Appendix B – Section 3: list of corporations with which the director has a link or an interest giving rise to a conflict of interest or an apparent conflict of interest.

1.2.3           The Ivanhoé Cambridge Code of Ethics

[80]           Pursuant to section 17 of his written employment contract with Ivanhoé Cambridge, Graceffa undertook to read, sign and abide by the Ivanhoé Cambridge Code of Ethics:

17. Vous vous engagez à prendre connaissance, signer, observer et respecter en tout temps le code d’éthique et de déontologie d’Ivanhoé Cambridge, tel qu’il peut être amendé de temps à autre.[67]

[81]           Attached to the employment contract is a declaration signed by Graceffa in which he recognizes having read and understood the Ivanhoé Cambridge Code of Ethics and agrees to comply with it.[68] This code of ethics thus formed part of Graceffa’s employment contract with Ivanhoé Cambridge.

[82]           Section 4 e) of the Ivanhoé Cambridge Code of Ethics governs directorships with external corporations. It is similar to section 10.2 of the Otéra Code of Ethics and provides that:

e) SIÉGER À UN CONSEIL D’ADMINISTRATION EXTERNE

Principe

Il convient d’éviter les fonctions sur un conseil d’administration externe qui sont susceptibles de constituer un conflit d’intérêts réel ou apparent. Dans le doute, assurez‑vous de consulter votre gestionnaire, les Ressources humaines ou les affaires juridiques.

[…]

Agir comme il se doit – société à but lucratif

Vous pouvez devenir administrateur d’une société à but lucratif autre qu’Ivanhoé Cambridge si :

• la nomination est préalablement autorisée par les Ressources humaines;
• la nomination ne vous empêche d’aucune façon de remplir vos responsabilités et obligations envers la Société;
• la société n’exerce pas d’activités qui sont en concurrence de quelque façon que ce soit avec celles de la Société; et
• la société n’est pas, actuellement ou potentiellement, un locataire un partenaire, un copropriétaire, un partenaire de coentreprise, un client ou un fournisseur de biens ou de services d’Ivanhoé Cambridge.[69]

1.2.4           The Ivanhoé Cambridge Directors’ Code of Ethics

[83]           From September 2017 to March 2018, Graceffa was also a member of Ivanhoé Cambridge’s Board of Directors. During that period, he was accordingly subject to the Ivanhoé Cambridge Director’s Code of Ethics.[70] Section 4.9 of this code imposes on directors the obligation to disclose external corporate directorships and to provide a list of corporations giving rise to any potential conflict of interest.[71] Disclosures are to be made annually, using the declaration forms annexed to the code.[72]

1.3   The Grounds for Termination

[84]           Six Grounds of Termination are relied on by the Defendants in the Termination Letter. Throughout the trial, the Defendants sought to add to these in various ways. Prior to examining each ground identified in the Termination Letter, I will discuss the principles governing the circumstances in which an employer may add to the grounds of termination relied on in a formal termination letter.

[85]           I will then review those Grounds of Termination with respect to which the Defendants have failed to discharge their burden of proving misconduct. These consist of Grounds of Termination 4 (The Varadi Conflict), 5 (The MCAP Loan Discussions) and 6 (The Offers of Bribes).

[86]           The analysis will subsequently address Ground of Termination 2 (The Interest in Construction Sainte Gabrielle), as it provides necessary context for Ground of Termination 1 (The Personal Debt Recovery Activities), which will then be explored. I will complete my analysis with Ground of Termination 3 (The Marcantonio Conflict).

1.3.1           The Defendants’ Reliance on New Grounds of Termination

[87]           As noted, an employer who terminates an employment contract without reasonable notice or compensation in lieu thereof bears the burden of establishing the existence of a serious reason for the termination. When specific grounds of termination are relied on, the employer cannot add to these and seek to establish new grounds that might justify dismissal without notice.[73] Justice Levesque put the principle rather well in Mahoney v. Alliance compagnie mutuelle d’assurance‑vie:

Bien qu’il n’existe pas de principes consacrés au devoir d’équité procédurale dans la relation employeur-employés du secteur privé en droit commun, il est acquis cependant qu’un employeur qui se départit des services pour cause a à l’esprit des motifs au moment où il procède à la résiliation. En principe, il ne peut invoquer lors de la présentation de sa cause des motifs différents de ceux qui ont entraîné sa décision. S’il a fait connaître ses motifs au salarié, celui-ci est en droit de s’attendre que la preuve sera limitée à ces motifs, à défaut de quoi le traitement que l’on fait subir à ce dernier est inéquitable et arbitraire.[74]

[88]           On the other hand, there are cases where, following dismissal, an employer discovers facts that occurred prior to termination, but were unknown at the time of dismissal.[75] The case law instructs that such facts may be adduced into evidence in the event that they are relevant to the decision to terminate without notice at the time that decision was taken. Such will be the case if those facts are intimately related to that decision and to the employee’s breach.[76] As explained by Audet, Bonhomme and Gascon:

Peu importe le contenu de la lettre de congédiement, les faits survenus antérieurement et qui ont été connus postérieurement à cette décision sont admissibles en preuve, mais encore faut-il qu'ils soient pertinents à la décision, i.e. qu'ils soient intimement liés à la prise de décision de l'employeur et à la faute commise par l'employé;[77]

[89]           In short, the Defendants can adduce evidence of prior facts learned post‑dismissal to the extent that they are relevant to the Grounds of Termination. They cannot do so in order to establish a new ground of termination.

[90]           In the present case, the Defendants adduced much evidence of prior facts not explicitly relied on in the Grounds of Termination. As a general matter, I propose to deal with these prior facts in my discussion of each Ground of Termination to which they purport to relate. That said, it is useful to dispose at this stage of one distinct category of prior facts relied on by the Defendants.

[91]           Inordinate energy was expended at trial on Graceffa’s position as a director of the Compagnie mutuelle d’assurance en église (CMAÉ) and his legal dispute with other members of that organization’s board of directors. After some uncertainty as to the true purpose of this evidence, the Defendants ultimately asserted that it was relevant to Graceffa’s general lack of transparency, which constituted a common thread uniting the various Grounds of Termination.

[92]           In this respect, the Defendants essentially pointed to Graceffa’s failure to provide his employers with a copy of an internal investigation report prepared at the behest of the ethics committee of the CMAÉ’s board. Graceffa’s objection to the admission into evidence of this report was sustained on the basis that its weak probative value—the report consisted essentially of hearsay and opinion evidence—was substantially outweighed by its prejudicial effect.

[93]           The Defendants’ CMAÉ arguments are based on pre‑dismissal facts that were essentially known to them. Indeed, the evidence establishes that prior to termination, the Defendants were well aware of Graceffa’s CMAÉ dispute and the resulting legal proceedings.[78] As for Graceffa’s failure to disclose the internal investigation report, the existence of that report—including its conclusion in respect of Graceffa—is mentioned in the legal proceedings filed by Graceffa in the CMAÉ dispute.[79] A copy of these proceedings had been provided to Otéra’s in‑house counsel.[80]

[94]           In view of the foregoing, the Defendants’ arguments based on the CMAÉ dispute and Graceffa’s failure to provide them with a copy of the ethics committee’s internal investigation report cannot succeed. These arguments ultimately constitute an improper attempt to raise a further ground of dismissal based on facts that were previously known or readily available to the Defendants at the time of termination. As the facts surrounding the CMAÉ dispute are not relied on as a Ground of Termination in the Termination Letter, I have had no regard to them.

1.3.2           The Varadi Conflict

[95]           Ground of Termination 4 asserts that Graceffa lacked judgment and breached the Otéra Code of Ethics and the Otéra Director’s Code of Ethics by failing to disclose his conflict of interest in relation to Varadi. The relevant portion of the Termination Letter reads as follows:

4. Vous avez manqué de jugement et contrevenu au Code d’éthique d’Otéra et au Code d’éthique des administrateurs d’Otéra en omettant de déclarer votre conflit d’intérêt au sujet de votre ami Pierre Varadi.

Au cours de l’enquête, vous avez reconnu vos liens d’amitié avec monsieur Pierre Varadi, un client d’Otéra. Celui‑ci ou ses sociétés liées ont obtenu plusieurs prêts d’Otéra variant de […] et totalisant, depuis 2010, […]. Or, l’enquête a révélé que vous êtes intervenu au cours du processus d’approbation de certains de ces prêts, soit en approuvant certaines transactions à titre de vice‑président, Crédit et unité d’intervention ou de président et chef de la direction ou soit en recommandant certaines transactions devant être approuvées par le comité de crédit d’Otéra.

Considérant la relation d’amitié que vous entreteniez avec monsieur Varadi et considérant la nature de vos fonctions qui requéraient une éthique et un jugement irréprochables, vous avez fait preuve d’un manque de jugement grave et n’avez pas agi avec le degré de probité attendu. Vous avez également omis de divulguer, à la première occasion, votre conflit d’intérêts ce qui était requis tant par le Code d’éthique d’Otéra que par le Code d’éthique des administrateurs d’Otéra.[81]

[96]           Varadi is a Montreal businessman and successful real estate developer. Graceffa and Varadi became acquainted when the former was a National Bank employee. The Defendants suggest that Graceffa’s friendship with Varadi gave rise to a conflict of interest and that he should not have participated in transactions involving this gentleman.[82] In the Defendants’ view, this relationship ought also to have been disclosed to Otéra—presumably by Graceffa completing Appendix 4 of the Otéra Code of Ethics (which would have given rise to an action plan) and Section 3 of Appendix B of the Otéra Directors’ Code of Ethics.

[97]           In his interviews with the Investigator, Graceffa explained that Varadi was a client he had brought to Otéra form the National Bank[83] and that he was “a friend or as close as you want to say”.[84]

[98]           In his testimony, Graceffa distinguishes “personal friends” from “business friends”. Personal friends are individuals with whom he has a very close long‑term relationship. Personal friends almost qualify as family, and he has very few of them.

[99]           Business friends, on the other hand, are persons with whom he has a strong relationship, but essentially in a business context. While he would have drinks and perhaps dinner with a business friend, he would not interact or spend time with such persons on weekends, nor involve them in family events. Similarly, Graceffa would not go on vacation with business friends.

[100]       Graceffa places Varadi in the “business friend” category. He explains that Otéra staff would frequently meet after work for drinks at a bar close to their offices. Often, Varadi would also be there.[85] Discussions would relate to real estate, projects and market trends.

[101]       Varadi largely confirms Graceffa’s description of their relationship. If anything, the relationship is even more in the nature of a business one from Varadi’s perspective. He describes it as a “banker-client” relationship. He confirms that he would see Graceffa in the context of after‑work drinks and that they have occasionally had dinner[86] together. He thinks their spouses may have met in the context of bank or Otéra events.

[102]       According to Varadi, his relationship with Graceffa is no different from that which he has with other bankers and Otéra is one of about eight financial institutions used by Varadi to finance his projects.[87] Indeed, during the time in which Graceffa was at Otéra, the company declined several loans sought by Varadi and he declined a number of loan proposals made by Otéra.[88]

[103]       The evidence leads me to conclude that Graceffa’s relationship with Varadi is an amicable one that is not atypical in a business context. It is commonplace that business people will cultivate such relationships to better understand their clients’ needs and expectations and to generate potential opportunities.

[104]       In short, the preponderant evidence leads me to conclude that Varadi was not a “personne liée” within the meaning of the Otéra Code of Ethics. I further find that Graceffa was not in a conflict of interest when he participated in transactions involving Varadi. There was thus no reason for Graceffa not to participate in these transactions or to otherwise disclose his relationship with Varadi as a conflict, whether potential or apparent.

[105]       The Defendants have failed to discharge their burden of proof in respect of Ground of Termination 4.

1.3.3           The MCAP Loan Discussions

[106]       Ground of Termination 5 alleges that Graceffa used his position in exchanges with MCAP’s President regarding a loan for one of his properties. It reads as follows in the Termination Letter:

5. Vous avez utilisé votre position en vous adressant à Mark Aldridge en sa qualité de président et chef de l’exploitation de MCAP.

L’enquête a également révélé que vous aviez échangé des courriels avec monsieur Mark Aldridge en juin 2017 afin de discuter de vos propriétés « Donegani & Fairwood ». Notamment, vous y indiquiez que vous vouliez « hedge the rate » et « hedge my loans ».

À cette époque, vous étiez président et chef de la direction d’Otéra, administrateur d’Otéra et administrateur et président du conseil de MCAP. De son côté, monsieur Aldridge était président et chef de l’exploitation de MCAP depuis 2013. Monsieur Aldridge a été promu comme président et chef de la direction en juillet 2018.

Nous sommes d’avis que ce faisant, vous avez manqué de discernement et n’avez pas agi avec la retenue attendue d’une personne exerçant pareilles fonctions en utilisant votre lien privilégié avec la personne sous‑mentionnée pour discuter de vos affaires personnelles.[89]

[107]       In essence, the Defendants complain that Graceffa used his position to discuss personal business with MCAP, thereby obtaining preferential treatment.

[108]       To properly address this ground of dismissal, it is necessary to explore the history of Graceffa’s relationship with MCAP. As mentioned earlier, Graceffa owns or is a part owner of a number of residential rental properties. In 2007, several months after joining MCAP from the National Bank, Graceffa sent a memo to its president disclosing various potential conflicts of interest (the 2007 MCAP Memo). With respect to his real estate holdings, Graceffa disclosed the following:

I own, with other individuals, five apartment buildings in Montreal. Three of these buildings are co‑owned equally by Mr. Thomas Marcantonio (Canada ICI), Ms. Josie Solito and myself. CDPQ and/or MCAP do not provide mortgage financing on any of these five properties.[90]

[109]       After approximately two years at MCAP, Graceffa moved over to Otéra. In his written Otéra employment contract, Graceffa added the following handwritten disclosure of his personal real estate activities:

[…] [T]he Employee is involved in certain Real Estate transactions outside Otéra which may take some of the Employee’s time. However, at no time shall said interfere in the execution of the Employee’s responsibilities at Otéra.[91]

[110]       Subsequently, on April 30, 2012, Graceffa addressed a memo to Otéra’s CEO and to its Vice President, Human Resources, disclosing his real estate holdings (the April 2012 Memo).[92] In this memo, which was attached to Graceffa’s 2012 declaration of adhesion to the Otéra Code of Ethics,[93] he advised his employer as follows:

• I, with other individuals own six (6) apartment buildings in Montreal.
• My mortgage lenders include: Royal Bank of Canada, Peoples Trust, Manuvie, Industrial Alliance and MCAP.
• The loan with MCAP is insured by CMHC and on a non recourse basis. It’s my understanding that MCAP has securitized this loan.
• On four (4) of the apartment buildings, Thomas Marcantonio from Canada ICI is a co‑owner.

It is my understanding that he is finalizing a strategic alliance with MCAP which I am not involved in this strategic alliance [sic].

[Emphasis added.][94]

[111]       As may be observed from the April 2012 Memo, at some time following the 2007 MCAP Memo, Graceffa borrowed money for one of his buildings from MCAP.

[112]       In 2013, Graceffa became an Otéra director. Over the years, in his declarations as a director, he disclosed both the real estate properties he had invested in and the numbered companies which owned those properties.[95] He further indicated which of these numbered companies had borrowed from MCAP.[96]

[113]       The evidence thus reveals that Graceffa owned real estate and had disclosed this external activity. It also reveals that Graceffa disclosed that he had financing with MCAP.[97] Neither Graceffa’s real estate investments, nor the fact that MCAP was the lender on one or more of his properties was problematic for the Defendants.

[114]       Indeed, Ground of Termination 5 does not take issue per se with the fact that Graceffa had MCAP loans on some of his properties. Nothing in the various codes of ethics to which Graceffa was subject prohibited him from entering into loans with MCAP for his personal real estate holdings.[98] Moreover, the Summary of the Investigator’s report confirms that there was no misconduct in obtaining these loans.[99]

[115]       Rather, the Defendants take issue with discussions in June and July 2017 that led to MCAP taking over two mortgages previously held by Manulife. Ground of Termination 5 is essentially based on a string of email communications between Graceffa, Mark Yhap, a Managing Partner within MCAP’s Commercial Mortgages, Real Estate Finance Group, and Mark Aldridge, MCAP’s President and Chief Operating Officer.[100]

[116]       On June 4, Graceffa wrote to Yhap to inquire whether MCAP would be interested in acquiring two Manulife loans at maturity in August 2017.[101] In his testimony, Graceffa explained that these were highly desirable CMHC insured loans and that he could have gone anywhere to obtain financing. He approached MCAP because his preference was to offer this opportunity to a member of the Caisse corporate family.

[117]       The next day, Yhap answered indicating that MCAP could do the mortgages (although it did not generally do deals for less than $2 million),[102] and offered pricing for 5‑year and 10‑year terms.[103]

[118]       On June 8, Graceffa confirmed that he would be agreeable to the pricing offered for a 10‑year term, but that he had to speak to Marcantonio. Aldridge was also copied on this email.

[119]       In his email, Graceffa explained that he had copied Aldridge “for full disclosure” and added that Ken Teskey, the head of legal for MCAP, should be advised.[104] Evidently, Graceffa wished to ensure that Yhap’s superior and MCAP’s legal department were comfortable with the loan, given that Graceffa was the Chairman of MCAP’s Board of Directors and had been since February 2017.

[120]       Teskey was copied on Yhap’s subsequent email to Graceffa of June 8.[105] That same day, Aldridge wrote to Graceffa and Yhap (copying Teskey as well) and stated that “I am prepared to hedge the CMB now if the terms are acceptable”.[106] This meant that MCAP would “lock‑in” the rate offered to Graceffa for a certain period of time. On July 10, in response to a question by Graceffa, Aldridge confirmed that his loans had been hedged and added that he “should go with MCAP”,[107] which Graceffa and Marcantonio did.

[121]       At the time, nothing precluded Graceffa from having personal business dealings with MCAP. In this context, it follows that discussions with MCAP representatives regarding otherwise permissible business dealings cannot per se constitute a breach of his duties as an employee.[108]

[122]       At trial, the reproach advanced by the Defendants thus emphasized that Graceffa used his position as CEO of Otéra, Chair of Otéra’s Board and Chair of MCAP’s Board to improperly obtain a personal advantage. If proven, this would constitute misconduct.

[123]       However, the Defendants have failed to discharge their burden of proving that Graceffa obtained such an advantage. The Defendants did not call any MCAP witness to establish that Graceffa was advantaged by the hedging of his loans. Rather, they called Marcantonio who, in his testimony in chief, explained that this type of hedging was well‑known and perfectly commonplace in the industry. The Defendants’ main contention that Graceffa was advantaged because Aldridge hedged his loans thus fails on the evidence.

[124]       The Defendants further suggest that Graceffa was advantaged because MCAP does not do transactions under $2 million. The only evidence in support of this argument is Yhap’s email in which he writes that MCAP “generally” does not “do less than $2M deals”.[109]

[125]       The use of the word “generally” suggests that such deals are not unheard of. Again, no MCAP witness was called to establish that by doing this deal, Graceffa was advantaged in any particular way. I add that following Graceffa’s dismissal, MCAP renewed loans on his properties for amounts less than $2 million.[110] This strongly suggests that the terms of these loans were not disadvantageous to MCAP or otherwise improperly advantageous to Graceffa.

[126]         Finally, the Defendants suggest that Graceffa was advantaged because MCAP waived identification requirements for him despite his status as a “politically exposed person”. The only evidence in support of this is an email from Yhap in which he writes that he believes that MCAP’s compliance department took the position that Graceffa was a politically exposed person (as the head of a Caisse subsidiary), but that the identification requirement had been waived.[111]

[127]       Given the double hearsay nature of this evidence—compounded by the very terms used by Yhap in the email stating that he is “Not a 100% sure”—it does not have sufficient weight to establish, on the civil standard of preponderance, that Graceffa was advantaged when obtaining these loans from MCAP.

[128]       I thus find that the Defendants have not discharged their burden of showing that Graceffa engaged in misconduct in his dealings with MCAP representatives. Accordingly, they have failed to establish that Ground of Termination 5 constitutes a serious reason justifying termination without reasonable notice.

1.3.4           The Offers of Bribes

[129]       The sixth Ground of Termination relied on by the Defendants is that Graceffa breached the Otéra Code of Ethics by failing to disclose that he received offers of bribes. The Termination Letter explains:

6. Vous avez contrevenu au Code d’éthique d’Otéra en omettant de déclarer que vous aviez reçu des offres de pots‑de‑vin.

Au cours de votre entrevue avec l’enquêteur, vous avez mentionné avoir reçu des offres de pots‑de‑vin probablement à de multiples reprises (« probably was offered on [sic] many times »). Vous avez même mentionné de votre propre chef avoir été abordé à une reprise par un client d’Otéra pour vous faire offrir ce que vous avez qualifié de pot‑de‑vin, ce qui aurait en soi été une tentative de corruption.

Or, vous avez fait défaut de rapporter cette violation et, par votre omission, vous avez agi en contravention de l’article 1 de la Procédure d’alerte éthique […].[112]

[130]       In support of Ground of Termination 6, the Defendants rely on the whistleblowing policy (“Procédure d’alerte éthique”) set out in the Otéra Code of Ethics. Specifically, they point to section 1 of that policy:

1.  CHAMP D’APPLICATION

Tout employé d’Otéra a l’obligation de signaler de bonne foi les agissements qu’il juge susceptibles d’être dommageables à la santé financière ou à la réputation d’Otéra. Les tiers peuvent également rapporter les agissements dont ils sont témoins. Les plaintes peuvent porter sur des agissements commis par des employés, des consultants, des fournisseurs ou des clients.

La procédure vise essentiellement les actes dérogatoires se rapportant à des affaires financières, contrôles comptables, actes illégaux, cas de corruption ainsi qu’à toute allégation de harcèlement ou de discrimination.

Quelques exemples d’agissements relevant de la procédure d’alerte éthique :

[…]

• Acceptation de pots-de-vin ou tentative de corruption

[…].[113]

[131]       In short, the Otéra Code of Ethics requires that employees disclose incidents involving the acceptance of bribes or attempted corruption.

[132]       The facts giving rise to this Ground of Termination came to light during the 3rd and final meeting between Graceffa and the Investigator held on April 30, 2019. Towards the end of that meeting, Graceffa expressed his feelings regarding the process, which he had found to be quite unfair and unpleasant.

[133]       In that context, Graceffa stated the following:

[…] I’ve never taken a bribe in my entire life.

And you know what, I was in the position to take many.

Was it offered?

Probably was offered many times. Never touched it.[114]

[134]       This led the Investigator to ask several more questions. Eventually, Graceffa and the Investigator had the following exchange:

MR. ELJARRAT: Who offered you bribes?

MR. GRACEFFA: Okay. There was one time one gentleman asked me to take a return flight from Quebec City, where I was taking the train back. His name was [Mr. X] and I turned it down.[115]

[135]       Graceffa also confirmed to the Investigator that this was the only incident of such nature that he could recall.[116] The next day, counsel for Graceffa (who was in attendance during the meeting) wrote to the Investigator to provide the following clarifications:

[…]

This led you to ask Mr. Graceffa who offered him bribes (as if bribes had actually been offered as opposed to probably). Mr. Graceffa answered that he was once offered to take [Mr. X’s] plane from Quebec City (instead of the train) which he refused and that this was the only one that he remembered.

According to Mr. Graceffa’s memory, when [Mr. X] proposed the plane ride, his deal had already been financed by Otéra. Nevertheless, Mr. Graceffa refused the plane ride.

After further consideration since last night, Mr. Graceffa confirms that, apart from [Mr. X’s] offer, he was never offered a bribe relating to a deal during his time at la Caisse.[117]

[136]       In his testimony, Graceffa explained that an Otéra client had offered him a flight back to Montreal on his private plane. Graceffa declined the offer and returned to Montreal using a pre-purchased train ticket. He explains that the incident occurred after the client’s financing had been completed. According to Graceffa, the client’s offer was a gesture of kindness rather than an attempt to bribe. Graceffa recognizes that he did not disclose the offer to Otéra.

[137]       The word “bribe” is used by Graceffa and the Investigator when discussing the nature of the offer made by the Otéra client. In the full context of the exchange, however, the use of this expression is not conclusive as to the nature of the client’s offer. Graceffa was trying to convey to the Investigator that he had never taken a bribe. This led him to discuss the flight offer made by a client and declined by him as an example of never having accepted corrupt payments or favours.

[138]       Given that the offer was refused, it cannot be said that Graceffa accepted a bribe. Was he required nonetheless to disclose the offer as an attempt to corrupt him?

[139]       No evidence has been adduced as to the client’s motivations and intent in offering Graceffa transportation on his private plane. There is thus no direct evidence that the offer was an attempt to corrupt Graceffa. Moreover, given the fact that the deal with Otéra had already been completed when the offer was made, I find that it is probable that Graceffa did not, at the time, perceive the client’s gesture as an attempt to corrupt him, despite his subsequent use of the word “bribe” in his discussion with the Investigator.

[140]       Graceffa was nevertheless wise to decline the flight. Accepting the offer of travel could have placed Graceffa in a vulnerable position in Otéra’s ongoing relations with the client.

[141]       In view of the foregoing, and recalling that the burden of proof in establishing a serious reason justifying termination without notice rests with the employer, I find that the Defendants have not established, on a balance of probabilities, that the offer constituted an attempt to corrupt Graceffa, or that he perceived it in that way at the time it was made.

[142]       In the circumstances, Graceffa could reasonably form the view that the offer was intended as a gesture of kindness and that, given his refusal, it was not potentially damaging to Otéra’s financial health or reputation.

[143]       It follows that the Defendants have not established that failure to disclose the offer of transportation was a breach of Graceffa’s obligations under the Otéra Code of Ethics. Accordingly, the Defendants have not discharged their burden of proving Ground of Termination 6.

1.3.5           The Interest in Construction Sainte Gabrielle

[144]       The second Ground of Termination relied on by the Defendants relates to Graceffa’s failure to disclose his interest in Construction Sainte Gabrielle Inc. (Sainte Gabrielle). According to the Termination Letter:

2. Vous avez contrevenu aux divers codes d’éthique auxquels vous étiez assujetti en omettant de déclarer les fonctions occupées et votre intérêt dans les sociétés actionnaires de Sainte Gabrielle.

L’enquête a également révélé que vous avez contrevenu, pendant plusieurs années, aux divers codes d’éthique auxquels vous étiez assujetti en tant qu’employé, dirigeant et administrateur d’Otéra et d’Ivanhoé en omettant de divulguer vos fonctions au sein des deux sociétés actionnaires de Sainte Gabrielle.

En effet, nous avons appris que depuis 2012, vous êtes le président et premier actionnaire de la société 9269-4868 Québec inc., laquelle est le deuxième actionnaire de Sainte Gabrielle depuis 2014.

Nous avons également pris connaissance du fait que vous étiez le secrétaire, depuis 2012, de la société 9269-4876 Québec inc., laquelle est le premier actionnaire de Sainte Gabrielle.

Bien que vos déclarations annuelles d’adhésion fassent état de vos implications dans diverses autres sociétés, il demeure clair que vous avez omis celles qui précèdent et ce, sans aucune justification valable. Ce faisant, vous avez contrevenu aux divers codes d’éthique applicables.[118]

[145]       Sainte Gabrielle was incorporated by Graceffa’s brother in 2004. The company operated a residential home construction business, but is now inactive. Beginning in 2005, Graceffa lent funds to Sainte Gabrielle. By May 2012, these advances totalled $2.15 million, and Sainte Gabrielle delivered Graceffa a promissory note evidencing its indebtedness to him.[119]

[146]       Initially, Graceffa’s brother was Sainte Gabrielle’s sole shareholder. However, in 2013, Graceffa decided he should participate in Sainte Gabrielle’s equity.

[147]       Two holding companies—one for Graceffa and one for his brother—were thus incorporated and became Sainte Gabrielle’s shareholders in December 2013.[120] Graceffa is the sole director and the president of his holding company—9269‑4868 Québec Inc.[121] He also holds the position of secretary of his brother’s holding company—9269‑4876 Québec Inc.[122]

[148]       In September 2015, the two holding companies entered into a Unanimous Shareholders’ Agreement (USA).[123] Pursuant to section 3.1 of the USA, the parties agreed that Sainte Gabrielle’s board would have two directors and that these would be Graceffa and his brother. Moreover, in accordance with section 3.2 of the USA—and as is usual in such agreements—a number of important matters are withdrawn from Sainte Gabrielle’s board and require unanimous shareholder consent.

[149]       Sainte Gabrielle’s residential construction operations were managed and directed by Graceffa’s brother. However, as of the summer of 2016, Graceffa became far more involved in the affairs of the corporation. Graceffa explains that neither the business nor his brother were doing well. He thus stepped in to lend a hand.

[150]       Accordingly, on July 6, 2016, Sainte Gabrielle adopted a banking resolution that required the signatures of Graceffa and his brother on all cheques issued by the corporation.[124] About a week later, on July 15, Graceffa was given a notarized power of attorney by his brother (the POA), granting him very broad authority to manage the latter’s property.[125]

[151]       That same day, a new promissory note in the amount of $1.85 million was executed by Sainte Gabrielle.[126] Graceffa’s brother and his wife personally signed this promissory note and thus became additional debtors. Also on July 15, Graceffa’s brother and his wife hypothecated three immovables, including their residence, in favour of Graceffa to guarantee their indebtedness.[127] Thereafter, in December 2016, Sainte Gabrielle hypothecated several immovables and all its movable property in favour of Graceffa.[128]

[152]       Graceffa insists that his involvement in Sainte Gabrielle, which began in July 2016, was aimed at helping his brother. In reality, the documentary evidence discussed in the previous paragraphs demonstrates that Graceffa’s main purpose was evidently the recovery of monies that he had loaned to the corporation.

[153]       Such purpose is not per se improper. After all, Graceffa was owed a substantial sum by Sainte Gabrielle and was entitled to take steps to ensure that he would be repaid. The real issue relates to whether his involvement in Sainte Gabrielle ought to have been disclosed to Otéra.

[154]       In the Termination Letter, the Defendants assert that Graceffa failed to disclose his functions in the two Sainte Gabrielle holding companies. The Defendants have proved that no such disclosure was made.

[155]       Although Graceffa disclosed his various real estate holdings and his role as a director of the companies owning these properties,[129] on no occasion did Graceffa disclose his role as a director and president of 9269‑4868 Québec Inc. Nor did he disclose his role as secretary of 9269‑4876 Québec Inc. Graceffa explains that this was an oversight on his part.

[156]       Be that as it may, by failing to disclose and obtain prior approval for his roles as director or officer of these two corporations, Graceffa breached the Otéra Code of Ethics,[130] the Otéra Directors’ Code of Ethics[131] as well as the Ivanhoé Cambridge Directors’ Code of Ethics[132].

[157]       Much time was spent at trial on the question of whether Graceffa was also a director of Sainte Gabrielle. The Defendants submitted that he was, in view of the terms of section 3.1 of the USA noted above. However, Graceffa explains that, upon reflection, he decided not to take on any potential director’s liability in respect of Sainte Gabrielle’s historical activities. Accordingly, he never formally became a director.[133]

[158]       The Defendants objected to Graceffa’s testimony on this question on the basis that it contradicted a juridical act—the USA—set forth in writing (article 2863 CCQ). The Defendants’ objection is ill‑founded.

[159]       To begin with, the Defendants themselves filed the transcript of Graceffa’s examination on discovery into the court record. He testifies therein that he was not a director of Sainte Gabrielle.[134] Article 2863 CCQ is not a public order provision. By producing Graceffa’s testimony on this point, the Defendants effectively waived their right to object to further testimony on this issue.[135]

[160]       Moreover, and in any event, Graceffa’s testimony is not aimed at modifying the obligational content of section 3.1 of the USA. Rather, its purpose is to explain what ultimately transpired, as a matter of fact.

[161]       At the end of the day, however, nothing turns on whether Graceffa actually became a director of Sainte Gabrielle. Indeed, Appendix 1 of the Otéra Code of Ethics required Graceffa to disclose the external corporations of which he was a director or officer, as well as those in respect of which he held a similar role (“toute fonction similaire”). There can be no doubt that de facto Graceffa held a function similar to that of a director of Sainte Gabrielle in view of: (1) the powers reserved to the two shareholders of Sainte Gabrielle by section 3.2 of the USA; (2) the fact that Graceffa was a director and the operating mind of one of these shareholders; and (3) Graceffa’s signing authority in respect of Sainte Gabrielle cheques.

[162]       As a result, Graceffa should have disclosed his involvement in Sainte Gabrielle as well as in the two holding companies.

[163]       Strictly speaking, Graceffa’s failure to disclose his role with Sainte Gabrielle is not mentioned as a ground of termination in the Termination Letter. However, this nondisclosure is intimately related to Graceffa’s failure to disclose his roles with the holding companies that were Sainte Gabrielle’s shareholders. It is thus a fact that is relevant to the issue of whether Ground of Termination 2 constitutes a serious reason under article 2094 CCQ.

[164]       In view of the foregoing, the Defendants have met their burden of proving that Graceffa breached the various codes of ethics to which he was subject by not disclosing and obtaining prior approval of his roles with Sainte Gabrielle and its corporate shareholders.

[165]       That said, on their own, these breaches do not constitute a serious reason permitting dismissal without reasonable notice under article 2094 CCQ. None of the codes of ethics at issue precluded Graceffa from acting as director or officer of an external for‑profit corporation. What the codes required was disclosure and pre‑approval.

[166]       Sainte Gabrielle operated a modest residential construction business. Its business did not compete with either Otéra or Ivanhoé Cambridge.[136] Moreover, Sainte Gabrielle had no dealings, as a client, customer, partner or otherwise, with either Otéra or Ivanhoé Cambridge.[137] Finally, acting as a director or officer of the numbered companies or of Sainte Gabrielle ought not to have interfered, at least in principle, with the performance of Graceffa’s duties.

[167]       In short, it is likely that prior approvals would have been granted had they been sought as required.

[168]       In the circumstances, an appropriate sanction for Graceffa’s breach of the disclosure and prior approval requirements would have been a reprimand. Were Graceffa’s misconduct limited to such breaches, the ultimate sanction of dismissal without notice would have been disproportionate and unjustified.

[169]       However, Graceffa’s misconduct was not so limited. Indeed, it is his undisclosed involvement in Sainte Gabrielle that led him to engage in debt collection activities which ultimately gave rise to a serious reason that amply justifies dismissal without notice. I now turn to these activities.

1.3.6           The Personal Debt Collection Activities

[170]       The first Ground of Termination relied on by the Defendants relates to Graceffa’s acceptance, in his Otéra offices, of $15,000 in cash from a person owing money to Sainte Gabrielle. This ground is set out in some detail in the Termination Letter:

1. Vous avez fait preuve d’un grave manque de jugement et avez contrevenu au Code d’éthique d’Otéra en procédant à des activités personnelles de recouvrement de dette dans les bureaux d’Otéra et en acceptant d’y recevoir une enveloppe contenant 15 000 $ en argent comptant.

En effet, vous avez admis avoir reçu, dans votre bureau chez Otéra, une enveloppe contenant 15 000 $ en argent comptant d’un dénommé Jean-Denis Lamontagne. Tel que vous l’avez également admis, la remise de cette enveloppe était en lien avec le recouvrement d’une dette liée à une compagnie de construction dans laquelle vous aviez et avez toujours un intérêt, Construction Sainte Gabrielle inc. (« Sainte Gabrielle »).

Selon votre déclaration à l’enquêteur, vous auriez investi entre 1,4 et 1,8 millions de dollars, depuis 2009, dans cette entreprise opérée par votre frère. En 2014, vous êtes devenu le deuxième actionnaire de Sainte Gabrielle par l’intermédiaire de votre société de gestion 9269-4868 Québec inc.  Puis, vers 2015, vous vous êtes impliqué davantage en raison des difficultés financières de Sainte Gabrielle. D’ailleurs, c’est dans le but de récupérer au moins une partie de la dette de 60 000 $ de monsieur Lamontagne envers Sainte Gabrielle que vous avez entrepris des démarches pour le retracer et le rencontrer.

Nous avons appris que vos recherches et démarches pour retracer cet individu ont impliqué un client d’Otéra et requis l’utilisation de votre courriel d’Otéra. Vous avez finalement donné rendez-vous à cette personne dans les bureaux d’Otéra et ce, sans avoir effectué quelque recherche que ce soit au niveau de ses antécédents criminels, bien que de votre propre aveu, vous sachiez qu’il n’était pas a good guy. Après vérification, cet individu a des antécédents criminels. En effet, ce dernier a été arrêté par la Sûreté du Québec et inculpé en 2000 pour avoir fait partie d’une organisation criminelle impliquée, notamment, dans la culture du cannabis et le vol/recel de motos. Les enquêteurs auraient saisi 1 794 plants de cannabis et 32 kilos de cocottes en vrac dans sept serres hydroponiques situées en milieu urbain, à Longueuil, Chambly, Richelieu, Sainte‑Julie et Le Moyne. C’est dans le cadre de ces perquisitions que les agents de la Sûreté du Québec auraient également mis la main, par hasard, sur une cinquantaine de motos volées. Cet individu a plaidé coupable à un des chefs de production de cannabis (art. 7(1) et 7(2) b) de la Loi règlementant certaines drogues et autres substances, LC 1996, c. 19) qui pesait contre lui et, dans ce qui semble être une négociation de plaidoyer, a été libéré des autres chefs de production. Il a obtenu un sursis pour ce qui est du chef de complot (465(1) c) du Code criminel). Il a obtenu une sentence de six mois d’incarcération avec trois ans de probation dans cette affaire. Il aurait de plus été accusé en 2017 de méfait par le Service de police de Longueuil, mais les accusations auraient finalement été retirées. Selon les informations portées à notre connaissance, cet individu a, depuis plusieurs années, dans son entourage, par alliance, des individus hautement criminalisés.

Lors de l’enquête, vous n’avez donné aucune explication valable permettant d’expliquer pourquoi cette rencontre a eu lieu dans les bureaux d’Otéra et encore moins pourquoi vous avez accepté de recevoir une telle somme en argent comptant.

Or, en tant que président du conseil et chef de la direction d’Otéra, vous occupiez les plus hautes fonctions au sein de la société, et cette dernière devait par conséquent pouvoir s’attendre à ce que vous fassiez preuve d’exemplarité et que vous conserviez en tout temps une éthique et un jugement irréprochables.

En acceptant une somme de 15 000 $ en argent comptant dans les bureaux d’Otéra, provenant de surcroît d’un individu détenant un passé criminel, vous avez fait preuve d’un manque de jugement grave et n’avez pas agi avec le degré de probité attendu. Vous avez également agi contrairement aux intérêts d’Otéra en faisant primer vos intérêts personnels sur ceux de votre employeur et des employés sous votre direction, et sans vous demander si cette rencontre et remise d’argent comptant pourraient résister à l’examen public le plus minutieux ou entraîner une perception défavorable à votre endroit ou à celui d’Otéra (tel que prévu par le Code d’éthique d’Otéra à l’intention des dirigeants, employés et consultants (le « Code d’éthique d’Otéra »)). Enfin, vous avez placé votre employeur dans une situation qui pourrait s’avérer embrassante et dommageable du point de vue réputationnel.

Compte tenu de tout ce qui précède, nous sommes d’avis que vos agissements constituent une faute grave, qu’ils portent atteinte aux valeurs de notre organisation et qu’ils ont irrémédiablement rompu le lien de confiance devant exister entre vous et votre employeur.[138]

[171]       In 2012 and 2013, Sainte Gabrielle made two advances—of $60,000 each—in the form of a loan to a certain Jean‑Denis Lamontagne.[139] For reasons that remain unexplained, the amount owed by Lamontagne to Sainte Gabrielle was transformed into a personal loan from Graceffa’s brother.[140]

[172]       In July 2016—at the same time that Graceffa became more actively involved in Sainte Gabrielle’s affairs—efforts to recover the loan made to Lamontagne were initiated.[141] Graceffa assisted in locating Lamontagne and received a copy of the demand letter sent by counsel acting on behalf of his brother.[142]

[173]       In August, legal proceedings were instituted against Lamontagne in Quebec Court and a default judgment was eventually obtained on December 19, 2016.[143] Thereafter, efforts to execute that judgment were launched.

[174]       In February 2017, counsel wrote to Lamontagne and an examination after judgment was arranged and held in March.[144] On March 21, counsel reported to Graceffa and his brother on the examination.[145]

[175]       Counsel’s reporting memorandum explains inter alia that Lamontagne had no declared revenues or assets. Nonetheless, it further notes that he “has a criminal record and that he may be doing some other ‘activities’ on the side, which may bring him some undeclared revenues”.[146] A copy of Lamontagne’s criminal docket is attached to the memorandum and, in a footnote, counsel notes that it relates to drug trafficking offences. The reporting memorandum adds that Lamontagne is an undischarged bankrupt.[147]

[176]       Graceffa acknowledges that the reporting memorandum was provided to him contemporaneously by email.[148] Nonetheless, he states that he did not read it at the time, as he was fully occupied with activities relating to Otéra’s year end.

[177]       By June 2017, Graceffa and his brother were exploring the possibility of examining Lamontagne’s mother and spouse as a means of placing pressure on him.[149] A motion seeking authorisation to conduct such examinations was prepared and served.[150] This apparently led to an agreement with Lamontagne whereby, in exchange for partial payment, presentation of the motion to examine his mother and spouse would be postponed.

[178]       On August 18, Graceffa and Lamontagne exchanged emails on this subject and arranged to meet in Graceffa’s offices on Monday, August 21.[151] Graceffa explains that he agreed to meet Lamontagne, as neither his brother nor legal counsel were available. He chose to do so in his Otéra office, as he was scheduled to fly to Toronto later that afternoon.

[179]       On the agreed date, Lamontagne presented himself at Graceffa’s Otéra office. He handed Graceffa an envelope containing $15,000 in cash. Graceffa, who states that he did not know that Lamontagne would be paying in cash, accepted the funds and ultimately remitted them to his brother.

[180]       Lamontagne and Graceffa then signed an agreement conditionally postponing the presentation of the motion to examine Lamontagne’s mother and spouse (the Postponement Agreement).[152] The agreement, which acknowledges receipt of $15,000, was signed by Graceffa on behalf of his brother, presumably under the authority of the POA.

[181]       Lamontagne made no further payments, and additional steps to execute the judgment were thus pursued by counsel.[153] On July 16, 2018, Graceffa received a copy of a letter from counsel to his brother reporting on judgment execution efforts.[154] Counsel explains therein that Lamontagne may have revenues from undeclared construction activities. Counsel also writes that some cash revenues “may come from illegal activities, namely organized crime”.[155]

[182]       At that point, a decision was taken to cease collection efforts. In his testimony, Graceffa explained that “we don’t deal with those people”. Be that as it may, Graceffa met in his Otéra office and accepted $15,000 in cash from an undischarged bankrupt with a history of unlawful activities.[156]

[183]       Accepting an envelope containing that amount of cash is evidently problematic. Such a payment in cash raises prominent red flags and questions as to the provenance of the funds in question. Cash—as all know—is relatively untraceable and can thus be used to mask the illegitimate origin of funds, especially when used for comparatively large transactions.

[184]       Indeed, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations require various financial institutions to report large cash transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).[157] A large cash transaction consists of the receipt of $10,000 or more in cash in a single transaction.[158] While this reporting requirement was not applicable to Graceffa, it is illustrative of the alarm bells that necessarily sound when an envelope containing thousands of dollars in cash is tendered for payment.

[185]       In view of his obvious intelligence and wealth of experience in the financial world, the dangers of accepting a significant cash payment would necessarily have been apparent to Graceffa.

[186]       It is evident that Graceffa should have refused the payment proffered in cash by Lamontagne, even at the risk of his brother’s debt becoming entirely unrecoverable. The fact that the payment took place in Otéra premises compounds Graceffa’s fault and wholly removes this activity from the realm of the purely private.

[187]       Any reasonable person, learning that Graceffa had accepted such a cash payment in his office would have legitimate concerns. Graceffa was the head of a subsidiary of the Caisse—the public entity charged with managing funds used for the pensions of millions of Quebeckers. As such, public confidence in the Caisse—“le bas de laine des québécois”, to use a common expression—and its subsidiaries is of utmost importance and any hint of impropriety is intolerable. Such public confidence rests, in turn, on confidence in the probity and trustworthiness of the persons employed by the Caisse and its subsidiaries, particularly those holding senior executive positions.

[188]       The acceptance of an envelope stuffed with cash by an official with a Caisse subsidiary—a very senior executive in this case—raises reasonable suspicions of impropriety or even corruption. This is compounded here by the fact that the cash payment was made by a person with a criminal record and an undischarged bankrupt, whose assets, if any, ought to have benefitted the body of creditors generally. In this respect, the cash payment may have resulted in one of Lamontagne’s creditors being preferred over all the others.

[189]       In short, Graceffa’s acceptance of the cash payment from Lamontagne constituted an exceedingly grave error of judgment. Graceffa argues that he had no knowledge of the fact that Lamontagne would be paying in cash. Be that as it may, his decision to accept the payment once he realized that it would be made in cash is simply unjustifiable.

[190]       Moreover, Graceffa states that he was unaware of Lamontagne’s criminal record and status as a bankrupt, as he did not read the reporting memorandum and examination transcript provided to him by counsel several months prior to the fateful August meeting. Even so, Graceffa demonstrated extraordinary imprudence in choosing to meet Lamontagne in his Otéra offices and to accept cash from a person he claims to have known nothing about. Important information was sitting in his email inbox or could have been readily obtained had he made a call to counsel.

[191]       By accepting the cash payment in Otéra’s offices, Graceffa engaged in activities that, should they become known by the public, would inevitably reflect negatively on Otéra and raise questions about the probity of its senior management and, by extension, the corporation’s own activities.[159]

[192]       The definition of conflict of interest in the Otéra Code of Ethics includes activities that create a concern capable of affecting one’s judgment to Otéra’s detriment or that might be potentially embarrassing for Otéra (paragraph 7.1 2)).[160] Graceffa’s personal debt collection activities in Otéra premises fell squarely within this category of conflict. These activities also engaged paragraph 4.7.3 of the Otéra Directors’ Code of Ethics.[161]

[193]       The Otéra Code of Ethics further instructs that, in case of doubt, one should always act in Otéra’s interests. It then suggests a number of questions that ought to guide one’s decision. At least two of these were germane to Graceffa’s debt collection activities, namely:

      Would the actions and decisions withstand exacting public scrutiny? and

      Could they result in an unfavourable perception towards oneself or towards Otéra?[162]

[194]       I am compelled to find that Graceffa’s actions and decisions on August 21, 2017, do not withstand public scrutiny for a senior executive of a subsidiary of mandatary of the Quebec State. Moreover, these actions have unquestionably resulted in an unfavourable perception towards Graceffa and by ricochet towards Otéra and indeed the Caisse.

[195]       Graceffa’s fault in accepting the $15,000 cash payment from Lamontagne in his Otéra office constitutes grave misconduct that irremediably severed the relationship of trust between Graceffa and the Defendants. In view of the fact that this relationship of trust between an employer and its senior executives is essential to continued employment, I am compelled to find that the ultimate sanction of termination is proportionate to Graceffa’s breach.

[196]       On its own, this misconduct constitutes a serious reason that justifies dismissal without reasonable notice within the meaning of article 2094 CCQ. The misconduct is compounded here by the fact that Graceffa’s interest and role in Sainte Gabrielle—which is what ultimately led him to become deeply involved in the collection of Lamontagne’s debt—was undisclosed and also in breach of various codes of ethics.

[197]       When considered in the context of Graceffa’s debt collection activities, this latter breach further undermined the Defendants’ trust and confidence in Graceffa and confirms, pursuant to a holistic and contextual analysis, the existence of a serious reason for termination.

[198]       Graceffa argues that the Boards of Otéra and Ivanhoé Cambridge were not made aware of certain important facts that would have impacted upon their decision to terminate his employment.[163] He points to the fact that his brother had obtained a judgment against Lamontagne, that he was acting under a POA for his brother, that he signed a receipt for the payment (i.e., the Postponement Agreement), and that he was unaware of Lamontagne’s criminal background.

[199]       None of these elements eliminate the gravity of Graceffa’s fault in accepting an envelope with $15,000 in cash. At the risk of repetition, this envelope was received in premises belonging to his employer, from a person he chose to meet despite claiming to know nothing about him. There is simply no version of these events in which Graceffa’s conduct becomes acceptable.

[200]       In assessing the gravity of Graceffa’s misconduct, it is important to bear in mind that, at the time, he held the most senior position within Otéra. With such a position comes heavy responsibilities, significant decision‑making autonomy and corresponding expectations as to sound judgment and probity. Indeed, the good judgment of a senior executive and that person’s ability to make the “right calls”, in the best interest of the organization, lie at the heart of an employer’s decision to entrust them with weighty responsibilities and even the fate of the business.

[201]       Here, the gravity of Graceffa’s fault, committed by a senior executive employed by an entity entrusted with preserving and growing the retirement funds of millions of Quebeckers, cannot be understated. While Graceffa’s disciplinary record was untainted up until his termination, it is evident that his fault, in accepting the cash payment, so undermined the Defendants’ confidence in his judgment and probity that continued employment in the senior positions that he held became untenable.

[202]       Finally, Graceffa submits that Ivanhoé Cambridge cannot rely on this Ground of Termination as the incident in question occurred when he was an Otéra employee. Based on the principle of relativity of contract (article 1440 CCQ), Graceffa argues that Ivanhoé Cambridge cannot invoke purported breaches of his employment contract with Otéra, as these are two separate and distinct legal persons.

[203]       I do not accept this argument. Employers may legitimately terminate an employment relationship without notice where an employee commits a serious fault outside the immediate work environment and where that fault impacts on the employer’s work environment or business. As explained by Desmarais:

Les fautes reprochées au salarié doivent généralement avoir été commises dans l'exécution ou à l'occasion de son travail. Il n'est pas exclu qu'une faute commise à l'extérieur de l'environnement de travail immédiat puisse constituer un motif sérieux de congédiement. À notre avis, il est loisible à l'employeur d'imposer les mesures disciplinaires appropriées, y compris un congédiement, lorsqu'un salarié commet une faute grave à l'extérieur du travail qui produit des effets directs sur l'environnement de travail ou sur son entreprise. Tel pourrait être le cas d'un salarié qui profère des menaces de mort à un collègue dans un lieu public ou qui dénigre son employeur en dehors de ses heures de travail.

[Emphasis added][164]

[204]       That same logic applies to misconduct committed, unbeknownst to the employer, prior to the employment relationship. Here, Graceffa’s fault in accepting an envelope containing a $15,000 cash payment in Otéra’s offices, fundamentally and irremediably undermined the trust that Ivanhoé Cambridge reposed in him.

[205]       Ultimately, it is the destruction of that relationship of trust as a result of Graceffa’s misconduct that is the serious reason for termination without notice. In this respect, it matters little that the misconduct giving rise to the failure of trust occurred while he was employed by Otéra, rather than by Ivanhoé Cambridge.

[206]       An organization must have utmost confidence in its senior executives. Ivanhoé Cambridge could no longer have that confidence in Graceffa. His misconduct as an Otéra senior executive necessarily impacted on Ivanhoé Cambridge’s business and could be relied on by the latter as a ground for dismissal without notice.

[207]       In view of the foregoing, the Defendants have discharged their burden and have established a serious reason permitting them to terminate Graceffa’s employment without notice.

1.3.7           The Marcantonio Conflict

[208]       The third Ground of Termination relied on by the Defendants asserts that Graceffa’s relationship with Marcantonio, a friend and business partner, gave rise to a conflict of interest.

[209]       Marcantonio is a commercial real estate mortgage broker. He also owns real estate and arranges loans secured by second ranking hypothecs. He has relationships with both Otéra and Graceffa.

[210]       With respect to Otéra, Marcantonio may be described both as a client and as a service provider. When acting as a mortgage broker, Marcantonio is a service provider who brings lending opportunities to Otéra (and to other financial institutions). Otéra has made loans to various clients in respect of projects in which Marcantonio, or his firm, acted as brokers.[165] The broker’s remuneration in such case is paid by the borrowers and not by Otéra.

[211]       As noted, Marcantonio has also been a client of Otéra’s. In 2017, Otéra loaned approximately $44 million for phase I of the Quartier St‑Jean Project. Through one of his companies, Marcantonio is an investor in this project.

[212]       Graceffa and Marcantonio have known each other for many years. They are business partners and Graceffa describes Marcantonio as a “business friend”. Previously, Graceffa and Marcantonio owned four immovable properties together. At the time of trial, they were partners in three such properties. Graceffa has also funded certain loans secured by second ranking hypothecs that were arranged by Marcantonio through two of his companies—Les Investissements Moncalieri Inc. and Potenza Capital Corporation Inc.[166]

[213]       The Termination Letter advances two complaints against Graceffa in respect of his relationship with Marcantonio: (1) a conflict of interest resulting from his involvement in phase II of the Quartier St-Jean Project, and (2) failure to disclose his conflict of interest in respect of Marcantonio and his projects. According to the Termination Letter:

3. Vous avez contrevenu aux divers codes d’éthique auxquels vous étiez assujetti et vous êtes placé en situation de conflit d’intérêts en vous immisçant et en participant à des discussions au sujet d’une transaction impliquant Otéra et l’un de vos amis et partenaires d’affaires, monsieur Thomas Marcantonio.

Au cours de l’enquête, vous avez admis avoir discuté de certains critères relatifs à la Phase 2 du projet Quartier St-Jean impliquant votre ami et partenaire d’affaires, monsieur Thomas Marcantonio, avec une représentante d’Otéra et ce, avant que la demande de modification du financement demandée par monsieur Marcantonio ne soit refusée par Otéra.

Vous avez également admis avoir discuté de cette demande de modification avec Marcantonio lui-même. D’ailleurs, vous avez soumis une note de frais pour un repas tenu le 12 juin 2018 avec Thomas Marcantonio avec le justificatif du Projet Quartier St-Jean.

Or, lors de la mise en place du financement du Projet Quartier St-Jean, vous aviez pourtant reconnu être en conflit d’intérêts relativement à ce projet et vous vous étiez retiré du processus d’approbation en raison de cette situation. Vous aviez même explicitement avisé Thomas Marcantonio que vous ne pouviez être impliqué dans le dossier considérant votre conflit d’intérêts, ce que vous avez omis de faire à nouveau lorsque vous avez été abordé pour des changements demandés en relation avec la Phase 2.

Ce faisant, vous avez agi avec désinvolture et avez commis un manquement flagrant à vos obligations en matière d’éthique, notamment celles prévues au Code d’éthique d’Otéra et au Code d’éthique des administrateurs d’Otéra. Vous auriez dû vous abstenir de toute discussion relativement à la Phase 2 avec qui que ce soit, incluant le principal intéressé qui demandait des changements à Otéra afin d’avantager son dossier.

De plus, vous avez également omis de procéder à la divulgation de votre conflit d’intérêts face à monsieur Marcantonio et ses projets et avez ainsi contrevenu aux différents codes d’éthique applicables.[167]

[214]       I will begin with the issue relating to the Quartier St‑Jean Project and then turn to Graceffa’s disclosure of his relationship with Marcantonio. Prior to doing so, however, some explanation of Otéra’s loan approval process would be helpful.

1.3.7.1    The Loan Approval Process

[215]       Otéra’s “production team”,[168] under the direction of the Vice‑President and Chief Investment Officer, is responsible for generating the investments or “deals” eventually entered into by Otéra. This is the team that negotiates the terms of potential loan opportunities with Otéra’s clients. Once the production team and the potential borrower agree on such terms, a non-binding letter of intent will be signed. The production team then prepares a “loan summary”.

[216]       A loan summary is a relatively detailed and lengthy document. It will describe the project as well as the borrower and offers both a financial and a risk analysis of the proposed transaction. Loan summaries are submitted by the production team to the “credit team” for analysis and a determination of whether the credit risk is acceptable. 

[217]       The purpose of the credit team is to remove the loan approval process from those responsible for generating investment opportunities. The credit team acts as a gatekeeper, ensuring the creditworthiness of proposed loans. In other words, this team confirms that the risk relating to the proposed loan is acceptable, that the properties loaned against are appropriate and that applicable policies are respected.

[218]       For an Otéra loan to go forward, it must be approved by the person or body having the requisite level of authority. At the relevant time, the Vice-President and Head of Credit had authority to approve loans of up to $30 million. Graceffa, as CEO, could approve loans of up to $50 million. Loans for amounts between $50 million and $200 million would be submitted to Otéra’s Credit Committee, which is a committee of the Board of Directors. Loans in excess of $200 million would require approval by the Board of Directors itself.

[219]       Once the loan summary is approved by the person or body having appropriate authority, Otéra and the borrower will execute a binding contract.

1.3.7.2    The Quartier St‑Jean Project

[220]       As noted, the Quartier St-Jean Project is a seniors’ residence in St‑Jean‑sur‑Richelieu. Marcantonio’s company, Les Investissements Moncalieri Inc., is an investor in the Quartier St-Jean Project and Otéra was the lender for phase I of the project.

[221]       In his testimony, Graceffa explained that he advised Otéra’s Vice-President and Head of Credit, Ms. Jo-Ann Donckers, that he was conflicted with respect to the Quartier St‑Jean Project by reason of his relationship with Marcantonio and that he could not be involved in this loan.

[222]       As a result, while the amount of the loan fell within Graceffa’s approval authority as CEO[169], on October 6, 2017, the Quartier St-Jean phase I loan was submitted to the Credit Committee for approval. The minutes of the relevant Credit Committee meeting show that Graceffa recused himself from discussions regarding this loan and exited the meeting.[170] The loan was subsequently approved by the Credit Committee.[171]

[223]       However, prior to approval by the Credit Committee, it appears that, despite the conflict arising from his relationship with Marcantonio, the loan summary for the project was signed by Graceffa.[172] He explains that this was done in error when a bundle of documents, including the Quartier St‑Jean Project loan summary, was given to him for signature.

[224]       Graceffa’s testimony on this point is corroborated by Donckers, who confirms that the conflict was known from the beginning and that this loan was not discussed with him. She also explained that one of her directors of credit had discovered that the Quartier St‑Jean Project loan summary had been erroneously signed by Graceffa and that this was subsequently corrected.[173]

[225]       I accept the testimony of Graceffa and Donckers that he was not involved in the Quartier St-Jean Project phase I loan and that his signature on the loan summary was the result of an administrative error. This error is not grounds for dismissal and, in any event, is not relied on as such in the Termination Letter.

[226]       The Termination Letter does, however, rely on Graceffa’s involvement in phase II of the Quartier St‑Jean Project.

[227]       Otéra declined to finance phase II of the Quartier St‑Jean Project as the loan amount sought by the borrower was too high for a seniors’ residence that provides services to its clients. In other words, the loan did not meet Otéra’s ratio requirements (i.e., ratio of the loan principal to the value of the asset loaned against) for the type of property in question.

[228]       Ground of Termination 3 asserts that Graceffa was involved in discussions relating to Otéra’s ratio policies for such loans with Otéra staff and with Marcantonio himself.

[229]       Graceffa testifies that his only discussion with Marcantoni relating to the Quartier St‑Jean Project was a brief one during which he advised him of Otéra’s ratio requirements for seniors’ residences and that Otéra’s policy in this regard could not be broken. Otherwise, he simply indicated to Marcantonio that he could not and would not get involved in the transaction.

[230]       On the other hand, it appears that Graceffa expensed a dinner with Marcantonio to Otéra.[174] The note accompanying Graceffa’s request for reimbursement describes the expense as dinner with Marcantonio relating to “St‑Jean‑sur‑Richelieu”.

[231]       Evidently, it would have been preferable for Graceffa to avoid any discussion whatsoever with Marcantonio in relation to phase II of the Quartier St‑Jean Project. Moreover, it was improper for Graceffa to expense a dinner with one of his private business partners. While Marcantonio was a client of Otéra’s, Graceffa’s outside business interests with him precluded him from participating in loans involving Marcantonio. There would thus appear to be no justification for expensing a meal with Marcantonio to Otéra. Moreover, it was inappropriate to justify the dinner as relating to a project from which he was admittedly disqualified.

[232]       That said, the expense was approved and, in any event, is not per se relied on as a ground of termination.

[233]       On the evidence, it appears that Graceffa’s discussions with Marcantonio relating to phase II of the Quartier St‑Jean Project consisted simply of providing him with relatively neutral information regarding Otéra’s loan ratio policies for a certain class of building. In this regard, I note that while Marcantonio was called to testify by the Defendants, no questions were asked of him in respect of his discussions with Graceffa relating to phase II of the Quartier St‑Jean Project. Graceffa’s testimony regarding the nature and extent of such discussions thus stands uncontradicted.

[234]       Finally, in her testimony Donckers confirmed that Graceffa had not been involved in the phase II Quartier St-Jean Project loan opportunity. In view of the foregoing, despite the fact that Graceffa ought to have been more circumspect in his dealings with Marcantonio in respect of phase II of the Quartier St‑Jean Project, I find that he did not involve himself improperly in a loan opportunity from which he was disqualified by reason of his conflict of interest.

[235]       This aspect of the third Ground of Termination relied on by the Defendants does not constitute a serious reason justifying dismissal without notice under article 2094 CCQ.

[236]       I add that some time was spent at trial exploring several Otéra loans in which Marcantonio or his firm acted as a broker, thus earning a commission.[175] Graceffa participated by approving or recommending four of these transactions.[176]

[237]       The Defendants cannot invoke Graceffa’s participation in these transactions to bolster their grounds of termination. Graceffa’s participation was known to Otéra prior to termination—his signatures are on the loan summaries for all to observe—as was his relationship with Marcantonio. Nonetheless, these transactions were not relied on as a ground for dismissal in the Termination Letter. Moreover, the Defendants’ complaints regarding the loans where Marcantonio or his firm were brokers are not intimately related to Ground of Termination 3 as formulated in the Termination Letter.[177]

1.3.7.3    Graceffa’s Disclosures of his Relationship with Marcantonio

[238]       There is no doubt that Graceffa’s business relationships with Marcantonio gave rise to a potential conflict of interest within the meaning of paragraph 7.1 3) of the Otéra Code of Ethics.[178] There is also no doubt that Graceffa was obliged to disclose his relationship with Marcantonio in both Appendices 1 and 4 of the Code.[179] Such disclosure ought to have included both the real estate that Graceffa owned with Marcantonio and his involvement in Marcantonio’s private lending activities. Similarly, these interests ought to have been disclosed in Section 3 of Appendix B to the Otéra Directors’ Code of Ethics.[180]

[239]       In the April 2012 Memo, Graceffa disclosed that he owned apartment buildings with Marcantonio.[181] This information was attached to Graceffa’s 2012 Appendix 1 disclosure. Disclosure of the Marcantonio relationship ought also to have been included in Appendix 4, ought to have been repeated on an annual basis,[182] and ought to have been included in Graceffa’s disclosure as an Otéra director (Appendix B—Section 3).[183] That said, this aspect of the Marcantonio conflict was disclosed and was known by Otéra. In the circumstances, Graceffa’s failure to assiduously complete the requisite forms might have warranted a reprimand, but no more.

[240]       What of Graceffa’s failure to disclose his involvement in Marcantonio’s private lending business? In the 2007 MCAP Memo, Graceffa disclosed this lending activity to MCAP, his employer at the time.[184] He explained that:

My family and I are also involved in second mortgage lending. Thomas Marcantonio (Canada ICI) originates these transactions and also participates in these loans along with other Canada ICI individuals.[185]

[241]       MCAP’s President signed the 2007 MCAP Memo, thereby confirming that these activities did not violate its code of conduct. Although some MCAP documents found their way into Graceffa’s employment file at Otéra,[186] this memorandum did not. Graceffa’s secondary lending activities were thus unknown within Otéra.

[242]       Although the conflict of interest resulting from the secondary lending activities ought to have been disclosed, on its own, this lack of disclosure does not warrant the ultimate sanction of dismissal.

[243]       First, the reality is that the existence of a conflict of interest relating to Marcantanio was disclosed and known. What was unknown was the full extent of the activities giving rise to that conflict. As a result of the conflict that was disclosed, Graceffa ought not to have participated in any Otéra transactions involving Marcantonio.

[244]       The fact that the conflict was more extensive than disclosed does not alter the basic measure required to manage the conflict—exclusion of Graceffa from such transactions. As we have seen, this was done for the Quartier St‑Jean Project.

[245]       Second, the fact that the private lending activity was disclosed to and accepted by MCAP—a subsidiary of Otéra—is an attenuating factor that would render the ultimate sanction of termination without notice disproportionate in respect of the mere failure to disclose these activities.[187] 

[246]       Much time was spent at trial delving into the details of Graceffa’s private lending activities with Marcantonio. It was suggested by the Defendants that it was altogether improper for Graceffa to engage in these activities.

[247]       I refrain from making any finding in this regard. While undisclosed to Otéra during Graceffa’s active employment, as a result of the investigation, the private lending activities were known to the Defendants prior to termination.[188]

[248]       The mere fact that Graceffa engaged in these activities is not invoked in the Termination Letter in support of the decision to dismiss without notice. As the existence of these activities—as opposed to a failure to disclose them—is not intimately related to a Ground of Termination, they cannot be relied upon by the Defendants as a serious reason for termination without notice.

1.3.7.4    Conclusion on the Marcantonio Conflict

[249]       Graceffa’s failure to disclose his private lending activities and his haphazard approach to completing the requisite declarations regarding Marcantonio in accordance with the various codes of ethics—like his failure to disclose his Sainte Gabrielle involvement—are breaches of the codes of ethics and of his employment contract.

[250]       On their own, these breaches do not give rise to a serious reason for dismissal without notice. That said, when combined with Ground of Termination 1—which I have found constitutes a serious reason within the meaning of article 2094 CCQ—they compound the permanent damage caused to the relationship of trust that must exist between an employer and its senior executives.

2.        The Reasonable Notice Period

[251]       I have found that the Defendants have established the existence of a serious reason justifying the termination of Graceffa’s employment without notice. As a result, it is unnecessary to determine what would constitute reasonable notice in the circumstances had Graceffa been entitled thereto.

[252]       It is also unnecessary to determine the remuneration to which Graceffa would have been entitled during such notice period.

3.        Graceffa’s Subsidiary Claims Under the Employment Contracts

[253]       I now turn to Graceffa’s subsidiary claim that, irrespective of the legality of the termination, he is entitled to certain amounts pursuant to his employment contracts with Ivanhoé Cambridge and Otéra.

[254]       The amounts so claimed are as follows:

      From Ivanhoé Cambridge:

1. $460,000 representing Graceffa’s base salary for a period of one year;
2. $1,173,000 representing Graceffa’s annual bonus for 2018, payable in April 2019;
3. $400,000 representing Graceffa’s special bonus payable in April 2019; and

      From Otéra:

4. $339,163 representing the co-investment portion of Graceffa’s annual bonuses for 2016 and 2017; and
5. $375,120 representing Graceffa’s long‑term bonus for 2015.[189]

[255]       I find that prior to termination, during the period in which Graceffa had voluntarily stepped aside from his duties while the internal investigation was ongoing, he ought to have received his 2018 annual bonus and his 2019 special bonus. Ivanhoé Cambridge had agreed to pay Graceffa his contractual remuneration during that period and could not unilaterally withhold portions thereof.

[256]       However, Graceffa has not proven that his 2018 annual bonus would have been in the realm of $1.17 million. Nor is he entitled to the other amounts claimed.

3.1   The Claim for Base Salary

[257]       Graceffa claims his base salary of $460,000[190] for a full year following his termination. This claim is based on the text of his employment contract with Ivanhoé Cambridge.

[258]       Paragraph 18 of the employment contract provides that Ivanhoé Cambridge may terminate Graceffa for cause without notice, and indicates the amounts to which Graceffa is entitled in such case. It reads as follows:

18. Ivanhoé Cambridge peut mettre fin à votre emploi pour une cause juste en tout temps et sans préavis, auquel cas vous ne recevrez que votre salaire de base et toutes vacances à payer. Vous serez couvert par le régime d’avantages sociaux jusqu’à la date du congédiement (la période de couverture comprend le jour de congédiement). Les causes justes de congédiement comprennent, sans limitation, les situations suivantes :

1. la négligence volontaire ou l’incapacité d’effectuer l’essentiel de vos tâches pour des raisons autres qu’une maladie ou une incapacité;
2. une faute grave concernant la propriété, les affaires ou les transactions d’Ivanhoé Cambridge;
3. tout cas de vol, de fraude, de manque d’honnêteté ou de conflits d’intérêts dont vous êtes responsable;
4. toute déclaration de culpabilité relative à une infraction au Code criminel qui est liée à votre emploi;
5. toute conduite jugée par un tribunal compétent comme étant une cause juste de congédiement.

[Emphasis added.][191]

[259]       Graceffa relies on the words “auquel cas vous ne recevrez que votre salaire de base” to argue that even in the case of dismissal for cause, he is entitled to his base salary for an entire year. I do not accept that construction of paragraph 18 of the employment contract.

[260]       There are two ways to read the relevant words of paragraph 18. Graceffa reads them as providing him with a form of automatic but limited notice—one year of his base salary—in the event of dismissal for a serious reason. Alternatively, the words at issue can be read as stipulating that Graceffa will be paid his base salary earned up to the date of dismissal, just as he is entitled to receive vacation pay earned up to that date.

[261]       In my view, the latter reading is the only reasonable one available.

[262]       The opening words of paragraph 18 constitute contractual confirmation of Ivanhoé Cambridge’s right under the ordinary law (article 2094 CCQ) to terminate Graceffa’s employment without notice for a serious reason. Graceffa’s reading of the clause limits that right in a significant way, to the point of defeating it, by providing him with a form of notice irrespective of the grounds relied on for termination.

[263]       Parties may well decide to depart from article 2094 CCQ and agree in advance on a form of notice even in the case of dismissal for cause. However, given the fundamental importance of an employer’s prerogative to terminate for a serious reason, one would expect them to use exceedingly clear language were that their intent. That clarity of expression is absent from paragraph 18.

[264]       Moreover, the non‑exhaustive grounds of dismissal enumerated in paragraph 18 include such matters as theft, fraud, or the commission of a criminal offence related to the employment. Yet, on Graceffa’s reading, Ivanhoé Cambridge would have agreed in advance to pay his base salary for a year, even in the event of dismissal for misconduct of that sort.

[265]       Such a reading of paragraph 18 would produce a result that is at odds with the standards governing employment relationships in Quebec and that is commercially unreasonable. As such, it is unlikely to reflect the common intent of the parties[192] and clear language would have to be used to compel such an outcome.

[266]       I find that paragraph 18 of the employment contract entitles Graceffa to any portion of his base salary earned but unpaid at the time of termination for cause. This reading of the words relied on by Graceffa is consistent with the remainder of the text which provides that he will receive vacation pay earned up to that point, and that his benefits will end on the day of termination.

[267]       In sum, contrary to Graceffa’s reading, paragraph 18 is intended to confirm Ivanhoé Cambridge’s prerogative to terminate for cause without notice. It thus seeks to put an end to Graceffa’s remuneration at the date of termination, entitling him only to such amounts earned up to that moment.

3.2     Graceffa’s Annual Bonus for 2018

[268]       In addition to his base salary, paragraph 5 of Graceffa’s employment contract with Ivanhoé Cambridge also provides that he could receive an annual bonus referred to as the “régime d’intéressement annuel”:

5. Vous serez admissible à participer au régime d’intéressement annuel (« RIA ») de la Société, en conformité avec les termes de ce régime, tels qu’ils peuvent être modifiés de temps à autre. Le pourcentage cible du RIA pour votre poste se situera à 80% de votre salaire de base et sera payé en 2019 pour l’année 2018, proportionnellement à la partie de l’année pendant laquelle vous aurez travaillé, selon les conditions du régime en vigueur. Vous pouvez vous référer au portail pour plus de détails.[193]

[269]       Graceffa argues that his 2018 annual bonus was earned and payable in April 2019 when he had voluntarily stepped aside with pay. Accordingly, irrespective of whether he was terminated for cause at the end of May 2019, Ivanhoé Cambridge should have paid him his annual bonus in April.

[270]       Graceffa calculates that the amount of his 2018 bonus would have been $1,173,000. While at Otéra, he achieved on average an 85% percentile ranking with respect to his bonuses. According to Graceffa, at Ivanhoé Cambridge this ranking would correspond to a bonus of 255% of his base salary of $460,000, thus producing the sum claimed.

[271]       Paragraph 5 of the employment contract provides that Graceffa’s annual bonus is governed by Ivanhoé Cambridge’s annual bonus policy. The policy explains that this bonus is one of the principal components of its global compensation program and that it is aimed at reinforcing the corporation’s values and culture and at rewarding employees’ contributions to its success.[194]

[272]       The policy further identifies the various components that enter into the calculation of an employee’s bonus. These include Ivanhoé Cambridge’s financial results and the individual employee’s performance. According to the policy, annual bonuses are paid out in April, upon approval by the human resources and compensation committee.[195]

[273]       In February 2019, Graceffa and Ivanhoé Cambridge agreed that he would step aside from his position as Head of Business Units, while the Otéra internal investigation was ongoing. However, it was further agreed that Graceffa would continue to receive his remuneration in accordance with his employment contract. An annual bonus was part of that remuneration and, in the ordinary course, Graceffa would have received his 2018 annual bonus in April 2019.

[274]       There is no evidence to suggest that when Ivanhoé Cambridge and Graceffa agreed that he would step aside from active duties, they further agreed that he would only receive part of his contractual remuneration, to wit his base salary to the exclusion of his annual bonus. It is thus unclear upon what basis Ivanhoé Cambridge chose not to pay Graceffa a bonus in April 2019, while he was still an employee.

[275]       The Defendants rely, in this respect, on the portion of Ivanhoé Cambridge’s annual bonus policy that addresses what is to occur upon termination of the employment relationship:

Si votre emploi est terminé par la société sans motif, vous recevrez une prime au prorata de la partie de l’année pendant laquelle vous aurez travaillé. Si votre emploi est terminé avec motif, vous ne recevrez aucun paiement.[196]

[276]       As Graceffa was terminated for a serious reason, it follows, according to the Defendants, that pursuant to the bonus policy he is not entitled to his 2018 annual bonus.

[277]       This argument ignores the first sentence of the relevant portion of the annual bonus policy. The words “au prorata de la partie de l’année pendant laquelle vous aurez travaillé” in the first sentence make clear that the policy is referring to the bonus in respect of the year during which the employment was terminated.

[278]       In other words, the policy provides that an employee terminated without cause is entitled to the proportion of the bonus that corresponds to that portion of the year worked prior to the termination. On the other hand, an employee terminated with cause is not entitled to any bonus for that year. Concretely, an employee terminated without cause at the end of May 2019, would be entitled to approximately 5/12 of the annual bonus otherwise payable for 2019. Were that employee terminated for cause, she would not be entitled to a 2019 bonus.

[279]       The policy simply does not address the fate of an unpaid annual bonus for the year preceding termination with or without cause.

[280]       The Defendants subsidiarily argue that one component of the bonus calculation is a multiplier based on the individual employee’s performance. According to the Defendants, in the case of a termination for cause that multiplier is necessarily zero, thereby reducing any annual bonus for the year preceding termination to nil.

[281]       In this respect the bonus policy provides that the individual employee’s performance is measured against three criteria: achievement of individual objectives, mastery of skills and global contribution.[197]

[282]       No evidence whatsoever was adduced by the Defendants regarding Graceffa’s individual objectives at Ivanhoé Cambridge and whether these were met in 2018. Similarly, no evidence was adduced by the Defendants suggesting that Graceffa skills were lacking or that his global contribution in 2018 was deficient. On the contrary, Ivanhoé Cambridge’s president and CEO testified on discovery that Graceffa was a good employee and was very professional.[198]

[283]       Similarly, no evidence was adduced in support of the Defendants’ assertion that Graceffa’s dismissal for a serious reason necessarily implies that his individual performance for 2018 disentitled him to an annual bonus.[199]

[284]       In short, the Defendants’ argument that termination for cause automatically disentitles Graceffa to an annual bonus in respect of a year prior to his dismissal is unsupported by the evidence. I thus find that Graceffa ought to have received a bonus for 2018 in April 2019, at a time when he and Ivanhoé Cambridge had agreed that he would step aside but would continue to receive his remuneration.

[285]       On the other hand, Graceffa’s proposed calculation of his 2018 annual bonus requires me to extrapolate the amount of the bonus he ought to have earned at Ivanhoé Cambridge from his historic performance and bonus rankings at Otéra. I decline to follow such speculative reasoning.

[286]       In the absence of direct evidence on a number of the components that would enter into the calculation of Graceffa’s 2018 annual bonus in accordance with Ivanhoé Cambridge’s policy, I have little choice but to arbitrate. The only sound basis for doing so is to rely on the agreed annual bonus target of 80% of Graceffa’s base salary found in paragraph 5 of his employment contract. I will thus award Graceffa $368,000 on account of the 2018 annual bonus that Ivanhoé Cambridge ought to have paid him in April 2019.

3.3   The Special Bonus

[287]       Graceffa’s employment contract also provides that Ivanhoé Cambridge will pay him a special bonus (“prime spéciale”) of $400,000 in each of April 2019, 2020, and 2021.[200]

[288]       In his testimony, Graceffa explained—and the Defendants agree—that this special bonus replaced long-term bonuses that he had earned when he was an Otéra employee and that he did not wish to forego upon joining Ivanhoé Cambridge.

[289]       In addition to their annual bonus programs, both Otéra and Ivanhoé Cambridge have long‑term bonus programs (“régime d’intéressement à long terme”) that are aimed at employee retention. These bonuses are earned in a given year, vest on December 31, three years later, and are paid out in February of the following year. For instance, in 2015 Graceffa earned 200,000 “units” under Otéra’s long‑term bonus program. These units were to vest on December 31, 2018, and would be paid out in February 2019.[201]

[290]       As noted, in February 2019, Graceffa and Ivanhoé Cambridge agreed that he would step aside during the Otéra internal investigation, but would continue to receive his remuneration. In the ordinary course, Graceffa ought to have received his special bonus of $400,000 in April prior to his termination in late May.

[291]       The Defendants nonetheless argue that Graceffa is not entitled to his April 2019 special bonus. They submit that payment of the special bonus is contingent upon Graceffa achieving the performance objectives set by Ivanhoé Cambridge’s President and CEO.[202] According to the Defendants, in view of his dismissal for cause, Graceffa necessarily did not meet his performance objectives and is thus not entitled to his special bonus for 2019.

[292]       As is the case for the annual bonus discussed above, no evidence was adduced regarding the performance objectives set for Graceffa by Ivanhoé Cambridge’s President and CEO. Similarly, no evidence was adduced in support of the assertion that Graceffa’s dismissal for a serious reason necessarily implies that he failed to meet those objectives and is thus disentitled to the April 2019 special bonus provided for in his employment contract. On the contrary and as noted, Ivanhoé Cambridge’s President and CEO during the relevant period testified that Graceffa was a good employee.[203]

[293]       As a result, Graceffa is entitled to payment from Ivanhoé Cambridge of his $400,000 April 2019 special bonus that was due prior to his dismissal. On the other hand, following his termination for a serious reason in May 2019, and pursuant to paragraph 18 of the employment contract, he is not entitled to the special bonuses payable in April 2020 or April 2021.

3.4   The Co‑Investment Portion of the 2016 and 2017 Otéra Annual Bonuses

[294]       Pursuant to Otéra’s compensation policy for executives, a fixed percentage of Graceffa’s annual bonus would be deferred for a 30‑month period and paid out with a return based on the returns generated by Otéra and by the Caisse over the deferral period.[204] The parties referred to the deferred portion of Graceffa’s annual bonus as “co‑investment”.

[295]       Graceffa calculates that the deferred portions of his 2017 and 2018 Otéra annual bonuses, together with the applicable return thereon,[205] amount to $339,163. According to Graceffa, this amount would have been payable following the termination of his employment ($164,743 in August 2019 and $174,420 in August 2020).