Constructive Dismissal at Ocean Nutrition

I get email notifications of “recent decisions” by Nova Scotia courts that I don’t always open but yesterday I did and got sucked into reading the March 18 decision in the case of Matthews v. Ocean Nutrition Canada Limited, which led me to the original decision in the case, handed down on 30 January 2017 by Justice Arthur J. LeBlanc (six months before he became Lieutenant Governor of Nova Scotia) and the Supreme Court of Canada judgement, released in October 2020.

Having spent so much valuable Monday time reading about a court case, I now have to write about it, but I think I can justify it because first, it involves a successful constructive dismissal case, which is interesting in light of the amount of ink I spilled back in 2018 on former CBRM economic development manager John Whalley’s ultimately unsuccessful constructive dismissal suit against the municipality. And as it happens, Whalley and the applicant in this case — David “Dave” Matthews — were represented by the same lawyer, Blair Mitchell.

Second, it involves a company that was something of an Innvocorp darling — although not an Innovacorp portfolio company — and recipient of millions’ worth of conditionally repayable ACOA loans:

Ocean Nutrition Canada Ltd ACOA loans

And third, it’s a really interesting story — it’s got corporate intrigue and backstabbing, million-dollar bonuses, a literal explosion, a day in a German patent court and high-level business discussions at the Sunnyside Restaurant in Bedford.



The Matthews of Matthews v Ocean Nutrition Canada Limited, as noted, is Dave Matthews, a chemist with “decades of experience in the omega-3 fish oil industry” who, in 1997, became one of four employees at a Dartmouth-based company called Laer Products Inc.

Laer, according to Justice LeBlanc’s account, “supplied omega-3 fish oils to the veterinary industry and was developing a microencapsulation technology for the pet industry.” At the time Matthews joined the firm, it had plans to develop a new technology for manufacturing omega-3s that was “superior to traditional processes used by other players in the industry” and Matthews was given the mandate of “developing this technology and designing the plant where it would be applied.”

As LeBlanc wrote:

Before joining Laer, Mr. Matthews had experimented with the use of wiped film evaporators with fractional distillation to produce fatty oil esters from fish oil. Fractional distillation, a known process, had never been applied to the extraction of omega-3s from fish oils. After presenting the technology to ONC shareholders, Matthews was tasked with overseeing the renovation of a plant in Mulgrave for large-scale extraction of omega-3s using the wiped film evaporation and fractional distillation process.

That same year Matthews joined it, Laer was purchased by John Risley’s Clearwater Fine Foods Inc (CFFI) and Laer general manager Robert Orr worked with Risley to incorporate a new company, Ocean Nutrition Canada Limited (ONC) with Orr as president and CEO.

ONC was privately held with a single shareholder — Clearwater — until October 2005, when Richardson Capital Ltd, the private equity arm of the Manitoba-based Richardson Financial Group, bought a 22.5% stake. Richardson acquired an additional 2.5% of ONC in 2007 and in 2009, increased its holdings to 45%.

By 2012, when it was purchased by Royal DSM, ONC had plants in Dartmouth; Mulgrave; Arcadia, Wisconsin; and Piura, Peru.


Constructive dismissal

Justice LeBlanc’s decision goes into exhaustive detail about the circumstances surrounding Matthews’ employment with ONC and decision to leave, but rather than risk writing a story that runs longer than the judgement, I’m going to try my best to condense it, with the caveat that I don’t know any of the people involved in this affair from Adam and am relying entirely on the judge’s account of events.

As noted above, Richardson Capital became an ONC shareholder in 2005 and by 2009 owned a healthy 45% of the company. Private equity companies are not long-haul investors, they invest with an eye to a profitable exit, and Richardson was no exception, as Justice LeBlanc confirmed in his analysis of the case:

Richardson’s investment in ONC was accompanied by a shift in focus toward maximizing growth and profitability in order to make the company attractive for sale. Hiring decisions, formerly made by CFFI as ONC’s sole shareholder, became a combined effort.

One such combined hiring effort resulted in Daniel Emond joining ONC as chief operating officer (COO) in 2007. This marked the beginning of the end for Matthews because, as LeBlanc writes, “for whatever reason” Emond was “not impressed” with Matthews and “engaged in a course of conduct aimed at pushing Matthews out of operations and minimizing his influence and participation in the company.”

LeBlanc gives a number of examples of Emond’s attempts to sideline Matthews, none of which was particularly subtle — he stepped on Matthews’ toes by ordering equipment for the Mulgrave plant; he told Matthews’ underlings to report directly to him, Emond; and he chipped steadily away at Matthews’ responsibilities until the chemist, who had once headed a “mini-department” of 60 people, found his workload reduced to “one or two hours per day.” In his testimony about this situation, Martin Jamieson, the CEO brought on in 2010 when Robert Orr became board chair, made the wonderfully zany claim that Matthews had nothing to complain about as his job description was clear, he was supposed to be out there “innovating and searching out ‘newness.'”

LeBlanc, in tones as dry as burnt toast, writes:

[Jamieson] confidently described the position as “a very privileged and senior role where the expectation of the individual is to be a self-starter, to create, to go to areas where the company has previously not gone.” He then conceded that he was not with ONC at the time the position was created, had no involvement in drafting the job description and had not, at any time, informed Matthews of his expectations for the role or the NET Department in general.



Matthews grew increasingly unhappy and after a bunch of to-ing and fro-ing between all the main players — including talk of Orr and Matthews overseeing a new joint venture with PEI’s Biovectra — he resigned from ONC on 24 June 2011.

Five days later, he met Robert Orr and John Risley at the Sunnyside Restaurant in Bedford to discuss his options for the future. Orr, according to an email he sent after this meeting, thought Matthews was willing to consider returning to work in some capacity and on 6 July 2011, he sent Matthews an email spelling out four possible — and lucrative — future options.

What Orr didn’t know was that Matthews had actually already found a new job — he’d flown to Peru and on June 22 signed a contract with TASA, a “leading Peruvian fishing company” that counts fish oil among its key products. Matthews testified in court that he’d hadn’t lied about this (he apparently just hadn’t mentioned it) and that he had made no promises to Orr and Risley.

On 9 August 2011, Matthews filed his application against ONC. Orr tried to convince him to drop the lawsuit but Matthews refused and was eventually validated in that decision because, after hearing nine days’ worth of testimony, Justice LeBlanc concluded that Matthews had indeed been constructively dismissed.

There are two tests for this, one of which has two branches: you must prove the employer has made a “unilateral change amounting to a breach of the employment contract” and that “a reasonable person” in the same position as the employee would “feel that the essential terms of the contract had been substantially changed.” Having agreed ONC had substantially changed Matthews’ contract, LeBlanc then writes:

I have no difficulty concluding that a reasonable person in Dave Matthews’ position would feel that the essential terms of the contract had been substantially changed. Any employee who had previously mentioned to their superior that they could use more work, only to have their workload further reduced to one to two hours per day, without prior consultation or any suggestion that alternate work was forthcoming, would feel that the employer had substantially changed the employment contract. I find that Mr. Matthews has established constructive dismissal under the first branch of the test.

Although “not obliged to do so,” LeBlanc also found that Matthews had established constructive dismissal under the second branch of the test; namely, that ONC had “pursued a course of conduct that demonstrated an intention to no longer be bound by the contract.”

LeBlanc did not believe Matthews’ allegation that Emond and other ONC executives had dismissed him to deny him the bonus to which he was entitled under his long-term incentive plan or LTIP (about which, more below) but he did rule that Matthews was entitled to that LTIP.



In September 2007, Matthews entered into a long-term incentive plan (LTIP) with ONC. Robert Orr testified that John Risley, who owned 55% of ONC through Clearwater:

…was generally averse to the creation of stock options, preferring other means of retaining and compensating senior management who had created value for his companies. Early on, when ONC was wholly owned by CFFI, there was a high degree of trust among senior management that Mr. Risley would look after those people who contributed to the development of his companies. According to Orr, Risley’s word was his bond. However, when ONC began to grow, Mr. Orr recommended the introduction of a formal compensation structure.

The way the LTIP worked, 2% of company value in excess of $100 million created by a “realization event” (a public offering or a sale) would be distributed among “a limited number of executives.” As the longest-serving ONC manager, Matthews stood to benefit handsomely from this agreement, but there was a catch: to collect, the individual had to be in the employ of ONC at the time of the “event.”

In May 2012, Royal DSM, a Dutch multi-national in the middle of a buying spree, closed a deal to buy ONC for $540 million. “Mr. Matthews,” who had left almost exactly a year earlier, “did not share in the profits.”

But Justice LeBlanc — by means of a very long and precedent-heavy amount of reasoning — determined that despite not having been an ONC employee at the time of the sale, Matthews was entitled to:

…15 months’ reasonable notice along with compensation for the loss of the payout he would have received under the LTIP ($1,086,893.36, less applicable tax deductions) and the short term bonus plan (STIP) during the notice period.

Because Matthews had begun his “more lucrative” job with TASA — starting at USD$220,00 annually compared to CAD$142,000 at ONC — any salary or benefits “in excess of what he would have earned at ONC during the reasonable notice period must be deducted from his damage award.”

LeBlanc left it to counsel to calculate exact amount owed Matthews.



ONC appealed Justice LeBlanc’s ruling in February 2017 and in May 2018, the NS Court of Appeal released its decision: the majority agreed Matthews had been constructively dismissed, but disagreed that he was entitled to compensation for his lost LTIP payment:

The Court of Appeal ordered Mr. Matthews to repay to ONC any amounts received from it, including any amount received under the LTIP. The Court of Appeal declined to award costs of the appeal to either party.

Matthews was granted leave to appeal to the Supreme Court of Canada which, in October 2020, set aside the judgement of the Court of Appeal and restored the trial judgement “with costs throughout.”

The decision caught the attention of the law blogs, so I’m going to crib from the Gowling WLG blog to explain the Supreme Court’s reasoning. ONC argued — and the Court of Appeal agreed — that Matthews wasn’t entitled to his LTIP payment because he had been dismissed before the “realization event.”

But the Supreme court found that Matthews was entitled to damages for the loss of his LTIP payment, resulting from the breach of his employment agreement:

In reaching that conclusion, the Supreme Court reiterated that it is an implied term of every employment agreement that an employee receives reasonable notice upon termination, unless otherwise limited by contract. Employees dismissed without reasonable notice are entitled to damages for the breach of this implied term, and those damages are “fully loaded,” meaning that they include all salary and benefits including bonuses that an employee would have earned had the employee continued to work through the reasonable notice period.

The Supreme Court clarified that the issue was not whether Mr. Matthews was entitled to an LTIP payment, but rather if he was entitled to damages for Ocean’s failure to provide him with reasonable notice, in breach of his employment contract.

All that remained was to determine the value of the costs, and that job fell to Justice Glen G. McDougall. It was Justice McDougall’s March 18 decision that started all this. In his introduction he stated:

Over the ten years since the application was filed, a tremendous amount of time and effort has been expended to bring this matter to a final resolution. At times, the proceedings were not simply contentious, they were rather fractious. Unfortunately, this spilled over and affected the manner in which the parties’ counsel dealt with one another. I am sure the parties and their counsel look forward to moving on.

The decision goes into great detail about the disputes between the lawyers and finds McDougall sounding very frustrated at times:

I am concerned about the lack of attention paid to the rules of affidavit evidence in this proceeding. A judge should not need to point out to the parties on the first day of a hearing that their affidavits are brimming with potentially inadmissible evidence. An application in court is intended to be an efficient, cost-effective alternative to a trial. That intention is frustrated when arguments are made during the hearing, or after the hearing, on the admissibility of evidence that has been in the hands of the parties for more than a year.

It also cites a lot of case law, which I always find interesting, but will not try your patience recounting because this has been long enough.

In the end, Justice McDougall awarded Matthews costs worth $189,000.

Re-reading my introduction, I realize I’ve delivered on the corporate intrigue and backstabbing, the business meeting at the Sunnyside Restaurant and the million-dollar bonus but I still owe you an explosion and a day in German patent court, so I’m going to do a part two — and I’ll throw in one of the Walmart Waltons, a snake bite and some thoughts on the actual efficacy of omega-3 supplements.