Case Study – Breach of Contract, Loss of Compensation
We provided a unique problem-solving approach to determining the loss of compensation in a civil action following a family dispute resulting in a breach of contract.
2. **Client Background**
Our clients were Son-in-law and Daughter. Son-in-law was a professional petroleum engineer who operated a company, EngineeringCo, offering engineering and management services to companies exploring for and producing oil and natural gas (E&Ps). Both Son-in-law and Daughter worked as employees in EngineeringCo. Dad, father of Daughter, had a company, AssetCo, which owned the rights to produce and sell oil and natural gas. In 2002, Dad wanted to retire. Dad kept ownership of AssetCo but asked Son-in-Law and Daughter to manage AssetCo on his behalf so he could retire comfortably. Dad said he would compensate Son-in-law and Daughter in the future for their services. Son-in-law and Daughter agree to manage AssetCo on behalf of Dad in return for future compensation. Son-in-law and Daughter did not take a wage, salary or other financial benefit for their activities in managing AssetCo. In 2017, Dad gets dementia and then dies intestate. Step-Mom, Dad’s wife, sells AssetCo with no warning to Son-in-law and Daughter. Step-Mom refuses to compensate Son-in-law and Daughter for the services they rendered to AssetCo. During the 15 year period, Son-in-law and Daughter effectively managed AssetCo, growing the value of its assets and retained earnings.
Son-in-law and Daughter wanted compensation for their services rendered over the period in which they managed AssetCo for the benefit of Dad, and by extension, Step-Mom. Son-in-law and Daughter were unsure how to determine the value of their compensation. They thought that they should be paid as employees to AssetCo.
The Heads of Damages we calculated for the Report was Loss of Compensation and Loss of Investment Interest. We disagreed with the methodology to calculate Son-in-law and Daughter as employees to AssetCo. Son-in-law and Daughter had jobs in EngineerCo. EngineerCo provided similar services to other E&Ps. Our methodology to determine the Loss of Compensation for their services was as if AssetCo was a client for EngineeringCo. I relied upon rates published by a reputable third party, Canadian Association of Management Consultants (CMC). CMC publishes an annual survey of the rates its professionals charge for their services. I adjusted the applied hourly rate of similar services published by the CMC for inflation and applied to the hours of work per year estimated by Son-in-law and Daughter to determine the annual compensation. Loss of Investment Interest was determined as incurred an additional loss related to the loss of Compensation. Acknowledging Son-in-law and Daughter were not compensated for their services at the time these were delivered they were unable to enjoy the benefits of that compensation. Accordingly, an analysis was undertaken to determine the compounded value of the loss of investment interest. The rate of return of investment interest was determined pursuant to the Judgment Interest Regulation for Alberta.
The civil action was resolved through a judicial dispute resolution (JDR).The Judge found in favour of Son-in-law and Daughter and awarded Loss ofCompensation that was lower than the amount found in our expert report, but greater than expected. Our clients were pleased with the outcome.