681210 Alberta Ltd., Operating As Okotoks Cinemas Plaintiff - v. -, 2011 ABQB 320

Court of Queen ’ s Bench of Alberta Citation: 681210 Alberta Ltd. (Okotoks Cinemas) v. Hunter, 2011 ABQB 320 Date: 20110511 Docket: 0301 120409 Registry: Calgary Between: 681210 Alberta Ltd., Operating As Okotoks Cinemas Plaintiff - and - Daniel J.

Hunter and Gnumedia Incorporated Defendants Corrected judgment: A corrigendum was issued on May 13, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice Hunt McDonald _______________________________________________________ Introduction [ 1 ] The Plaintiff, 681210 Alberta Ltd., operating as Okotoks Cinemas (“681") seeks damages against the Defendants Daniel J. Hunter and Gnumedia Inc., arising from what 681 says was a breach of fiduciary duty.

Specifically, 681 seeks an accounting from the Defendants for the misappropriation of a business opportunity.

History [ 2 ] This case illustrates the friction that may arise between the fiduciary duty owed to a corporation and the entrepreneurial freedom of businesspeople as individuals. [ 3 ] The Defendant Hunter was interested in starting up a movie theatre business. In approximately September of 1995 he began looking into developing a theatre in Okotoks (the Okotoks Cinemas). As Hunter lacked the required funds to finance the project, he decided to approach investors in addition to obtaining bank financing.

In order to obtain private equity financing Hunter acquired the Plaintiff 681 as a shelf corporation in early 1996. He was the sole director and only officer of the Plaintiff corporation. Around this time Hunter also drafted a business proposal, which was subsequently amended. There is some question as to whether this proposal was to be provided to the bank, to potential investors, or to both. [ 4 ] Hunter had a number of meetings with potential investors in order to promote Okotoks Cinemas.

There is a disagreement between the parties as to whether Hunter indicated that if successful, the movie theater idea could be duplicated in other centres near Calgary. As of January 1996, 681 had 11 shareholders including Hunter, who was a majority shareholder. Hunter subsequently sold some of his shares, thus reducing his position to that of a minority shareholder. There was no unanimous shareholders agreement or share purchase agreement. [ 5 ] Okotoks Cinemas opened for business as a movie theatre in April of 1996. It ran both “first-run” and “second-run” movies.

Hunter acted as the general manager of the Okotoks Cinema for approximately six years and was paid a management fee during this time period. After a disappointing start, Okotoks Cinemas eventually began to turn a small profit by 1999. Regular meetings were held approximately once a year. [ 6 ] In 1997 Cineplex Odeon opened up a large movie theatre complex in south Calgary (Canyon Meadows) which ran “first- run” movies. In December of 1999, Hunter acquired the Defendant corporation 856412 Alberta Ltd. He changed the name of this corporation to Gnumedia Incorporated on March 6, 2001.

In August of 2001 Gnumedia entered into a lease for the purpose of operating a motion picture theatre under the name of Canyon Meadows Cinemas in the existing south Calgary location. Hunter had entered into negotiations to this end in approximately June of 2001. Hunter’s dealings with Canyon Meadows were not disclosed to the shareholders of 681 at this time. [ 7 ] Canyon Meadows opened for business under Hunter on August 7, 2001, as a “second-run” theatre; that is, a theater which runs films that have already shown in the first-run theatres thus charging a lower ticket price.

From 1996 - 2001 Okotoks Cinemas ran both first-run and, on occasion, second-run movies. Canyon Meadows charged less for theatre admission than Okotoks Cinemas charged. In addition, Canyon Meadows had 10 screens whereas Okotoks only had 2 screens. Hunter gave evidence that on occasion, both theatres could have been playing the same movie at the same time. [ 8 ] Canyon Meadows was operated through Gnumedia up until August 1, 2007, when its assets were sold by way of an asset purchase agreement to Hunter’s former wife as a part of a matrimonial property settlement.

The shareholders of 681 were not advised of the Defendants’ intention to acquire and operate Canyon Meadows Cinemas until August 4, 2001 during an AGM. During this meeting Hunter raised the issue of the potential investment opportunity in Canyon Meadows. When the issue was raised, two of the shareholders became upset and an argument ensued, ending further conversation on this topic. Shortly after the argument, Hunter extended the investment opportunity to the remaining shareholders, apparently by way of either a share purchase or a share swap between 681 and Gnumedia.

At no time during the process did Hunter seek the consent of the shareholders of 681 to pursue the Canyon Meadows opportunity. The Plaintiff’s argument [ 9 ] The Plaintiff submits that Hunter breached his fiduciary duty to 681 by acquiring Canyon Meadows Cinemas on his own behalf through the use of Gnumedia instead of offering the opportunity to 681. The Plaintiff submits that the subject of growth and expansion was routinely discussed both at shareholders’ meetings, and at informal “pre-investment” meetings.

The Plaintiff submits that the topic of expansion encompassed both expanding the Okotoks Cinemas itself from two to three screens, as well as growth and expansion into other locations, including Canyon Meadows. It is the Plaintiff’s position that 681 had an active interest in expanding to

other locations. [ 10 ] The Plaintiff takes the view that Hunter used his position as president of Okotoks Cinemas and the experience that he had acquired while working there to secure the Canyon Meadows opportunity for himself without seeking 681's consent or promoting the opportunity to 681. Canyon Meadows then operated as a competitive threat to the business of Okotoks Cinemas, at times showing the same film.

The Defendants’ argument [ 11 ] The Defendants submit that when Hunter met with potential investors of 681 he was merely promoting a single location theatre venture in Okotoks, as opposed to promoting a theatre business with a view to growth and expansion to other locations, including the Canyon Meadows location.

The Defendants state that 681 was incorporated for a limited purpose of opening the Okotoks Cinemas and that this limited scope effects the nature and extent of the fiduciary duties owed. [ 12 ] The Defendants further submit that Hunter did not obtain the Canyon Meadows opportunity as a result of his position as director or manager of Okotoks Cinemas, but rather as a private member of the public. They argue that the Canyon Meadows opportunity was not a business opportunity rightly belonging to 681 and that Hunter was free to pursue it independent of 681. Issues: 1 Did Hunter owe a fiduciary duty to 681? 2.

Was there a misappropriation of corporate opportunity? 3. What damages are owed to 681? The evidence [ 13 ] There is a dearth of documentation concerning any future plans for 681's expansion. As is often the case with small corporations where the shareholders are familiar with one another, the meetings tended to be fairly informal. Indeed, during some meetings movies were shown and popcorn was served. It comes as no surprise that the records of what was discussed at such meetings are somewhat sparse.

While such lack of documentation might not be a desirable business practice, it is a reality in smaller businesses formed of friends, family and acquaintances, such as 681. [ 14 ] The Defendants argue that the existing documentary evidence should be preferred over the oral testimony of the Plaintiff’s witnesses. The Defendants submit that the oral testimony is inconsistent and is not supported by the documentary evidence. I find that the informal manner in which 681 was run dictates a real need to examine the oral evidence of the parties as to what was expressed in terms of future corporate direction.

Much in this case turns on what was, in fact, communicated to the shareholders of 681. I have reviewed the testimony of the various witnesses in some detail. Aside from Mr. Hagel, all of the witnesses were current or former shareholders of 681.

[ 15 ] Mr. Russell Kane gave evidence for the Plaintiff regarding his involvement with 681. Mr. Kane was one of the initial shareholders in 681 and in 2002 he became a director and officer of the corporation. Kane gave evidence that he learned of the Okotoks Cinemas concept in late 1995 from another potential investor, Mr. Owen Lloyd. Lloyd was in possession of a proposal he had received from Hunter, which had been drafted by Hunter. Kane expressed an interested in the proposal and stated that he met with Hunter on two occasions; January and February of 1996 to discuss possible investment.

The first meeting was at a Mr. Sub [1] restaurant in Calgary and the second meeting was at a Joey Tomato’s restaurant, again in Calgary. [ 16 ] Kane testified that the first meeting was attended by himself, Hunter, Lloyd and another potential investor named Jeff Bond. Each of these individuals, along with Gordon Winter, attended the second meeting at Joey Tomato’s restaurant. Each of the individuals present became a shareholder of 681. [ 17 ] Kane testified that he brought the initial proposal given to him by Lloyd to the meeting at Mr. Sub.

Following that meeting, he was provided with a revised proposal (Exhibit 1, Tab 6). He stated that during the meeting, Hunter described the concept behind the Okotoks Cinemas and stated that there would be an opportunity to expand the business to other possible locations. Kane stated that during this meeting the possibility of expansion into Cochrane and Canmore was discussed, as neither location had a movie theatre at the time. [ 18 ] Kane stated that during the subsequent meeting at Joey Tomato’s, the issue of expansion was once again raised.

He stated that Hunter had discussed taking the Okotoks model and replicating it to other locations. There was also discussion about growing the Okotoks Cinemas from a two to a three screen theatre over time. Kane stated that at no point during the meetings did Hunter ever indicate that 681's business was going to be limited to the single Okotoks theatre. Kane stated that his decision to invest was based, in part, on the possibility of future expansion.

On cross examination he agreed that there was nothing in either the initial or subsequent proposals stating that the aim of 681 was to expand into other opportunities outside of Okotoks. [ 19 ] Kane stated that in reviewing the proposal he understood that Hunter’s role was going to involve managing the operations at Okotoks Cinemas as well as looking for opportunities for expansion. [ 20 ] Kane stated that once Okotoks Cinemas got up and running, the first shareholders meeting was held in November of 1996. At this point in time the disappointing initial financial results were discussed.

Kane stated that Hunter indicated that 681 might improve its profitability if it shifted its focus from first-run to second-run movies, as the acquisition costs were cheaper. Okotoks Cinemas had already been showing some second-run movies by this point in time. [ 21 ] Kane said that during the November 1996 meeting Mr. Winter, another shareholder of 681, raised the Canyon Meadows location during a discussion about expansion. Winter indicated that a building (Food Depot) [2] had just been vacated and was for lease.

As indicated above, in the fall of 1997 Cineplex opened up a movie theatre in Canyon Meadows at the Food Depot location. According to Kane, Winter indicated that given the large size of the Food Depot location, an entertainment venue could be created, including a roller skating rink. During cross examination, Kane confirmed that specific details, such as financing, were not discussed in relation to any plans for expansion.

I note that during his examination for discovery, Kane could not recall whether it was Winter or himself that had brought up the Food Depot location. [ 22 ] Kane indicated that the first AGM was held in August of 1997. Kane stated that during this meeting, an issue was raised with respect to Hunter’s salary in that certain shareholders did not understand why Hunter was drawing a salary when he was not necessarily at the theatre on a day to day basis.

Kane stated that Hunter replied to this inquiry by stating that he “wasn’t there to flog popcorn and pop” but rather that his role included overseeing the operations and looking for opportunities for expansion. [ 23 ] Kane stated that during the 1997 AGM the shareholders discussed the missed expansion opportunity at Canyon Meadows, as well as discussing other expansion options, including Canmore and Cochrane. He stated that once again, there was a discussion regarding expansion of the Okotoks Cinemas to three screens. [ 24 ] The second AGM was held in October of 1998.

Kane stated that in addition to discussing financial and operational results, the issue of Hunter’s salary was once again raised. Kane indicated that by this point in time, Hunter had taken on employment with Schlumberger and was not actually in Okotoks but instead was running the business from afar. Kane stated that in response to this query,

Hunter indicated that he was still able to oversee operations and he was still there to help the business grow, which included looking at other opportunities. [ 25 ] Kane gave evidence that during the second AGM the Canyon Meadows Cineplex was discussed. In particular, he stated that the fact that the Cineplex was struggling due to competition from a nearby Famous Players cinema (the Coliseum) was brought up.

At that time, Canyon Meadows Cineplex was operating as a first-run theatre with 10 screens. [ 26 ] Kane gave evidence that based on financial statements presented at subsequent AGM’s, the financial position of Okotoks Cinemas began to improve over time. He also stated that there were discussions amongst the shareholders during each AGM about the potential for the expansion of 681 into other locations. [ 27 ] Kane stated that during a shareholders’ meeting in March of 2001, Hunter was explicitly given direction from the shareholders to pursue expansion.

Kane said that while this was an unusual time to call a shareholders’ meeting, Hunter had called the meeting in order to discuss a couple of different options regarding expansion. Kane explained that by this time, the financial position of Okotoks Cinemas was improving such that expansionist opportunities could be legitimately explored. During this meeting Kane stated that Hunter basically asked for a “show of hands” to see if there was additional capital available to authorize him to go out and explore additional options for the growth of 681.

Kane stated that while there was no written resolution, there was a vote and the shareholders approved this idea. Kane stated that during this meeting, he indicated that he was prepared to put more capital into 681 in order to finance an expansion. Kane indicated that at no point during which expansion plans were being discussed, did Hunter ever indicate that any opportunities would have to be pursued through a business separate from 681. [ 28 ] On cross examination Kane indicated that while he would take notes during the various shareholders’ meetings and AGM’s, no notes were taken during the March 2001 meeting.

However, Kane rejected the suggestion by Hunter’s counsel that the meeting did not in fact occur. Kane further agreed that there was no written documentation with respect to representations made by Hunter that there was to be any expansion of 681 beyond the Okotoks area. [ 29 ] The next AGM was held in August of 2001. During this meeting the issue of dividend cheques was raised for the first time. Kane stated that following the close of the AGM, Hunter indicated that he had acquired the Canyon Meadows theatre and that he did not require any additional capital to assist him in this acquisition.

Kane stated that he was shocked by this statement and that a fellow shareholder, Owen Lloyd, indicated that Hunter should have pursued this opportunity on 681's behalf. Kane stated that Hunter simply left the meeting after this exchange. [ 30 ] Kane further stated that following this meeting, Hunter approached himself, Gord Winter, Jeff Bond and the Featherstones (as current shareholders of 681) and offered them the opportunity to acquire an interest in Canyon Meadows. This offer was not extended to all of the shareholders.

Kane indicated that he was not interested in this venture as it had not been extended to all of the shareholders of 681. [ 31 ] The following AGM was in November of 2002, for which Kane had drafted an agenda. During this meeting the current Board of Directors of 681 was dissolved and a new Board was elected. Kane, Lloyd and Winter were elected as directors and Hunter was not re- elected. Kane indicated that Hunter was upset by this fact and resigned as general manager of Okotoks Cinemas following the meeting.

Kane further indicated that following the meeting, there was an attempt to discuss the Canyon Meadows situation with Hunter but that Hunter refused to talk about it. Kane stated that following Hunter’s resignation, Lloyd took over the role of general manager of Okotoks Cinemas. [ 32 ] Kane gave evidence that during the period when both Okotoks Cinemas and Canyon Meadows were both being operated by Hunter, there were times when both cinemas would show the same film.

Tickets for a film were cheaper at Canyon Meadows than at Okotoks Cinemas. [ 33 ] Gordon Winter was called by the Plaintiff as a current shareholder and secretary of 681. He assumed the position of secretary in November of 2002 and has been a shareholder since the inception of the company. Winter recalled attending a pre-investment meeting with Hunter at Humpty’s restaurant in February of 1996. He stated that Kane was not present at this meeting. Winter stated that he had received a copy of the proposal dated February 1, 1996 but did not receive any subsequent version of this document.

[ 34 ] Winter stated that during this pre-investment meeting Hunter verbally outlined his plans for the Okotoks location as well as stating that he would like to use the business model contained in the proposal to expand into other locations. Winter stated that locations such as Canmore, Cochrane, High River and Black Diamond were mentioned as examples. Winter testified that Hunter had indicated that the proposal had been drafted to obtain bank financing.

He stated that during this meeting Hunter did not indicate that he would be managing 681 for a short while and then moving onto other opportunities in his private capacity. Winter indicated that he believed that his initial capital investment would be used by 681 to develop both Okotoks Cinemas and to pursue additional opportunities once Okotoks became profitable. [ 35 ] Winter gave evidence as to what was discussed at the subsequent AGM’s and shareholders’ meetings.

His evidence in this regard was similar to that of Kane’s; namely, that the financial position of 681 was discussed and that the discussion would then turn to expansion opportunities. Winter stated that these discussions would include both the expansion of Okotoks Cinemas from two to three screens as well as expansion into other locations. It was Winter’s perception that opportunities for expansion were not being actively pursued during the early years because 681 had failed to turn a profit at this time. [ 36 ] Winter stated that the issue of Hunter’s salary was also frequently raised during these meetings.

He echoed Kane’s testimony that when questioned about his salary during the second AGM, Hunter stated that he was there “to operate and expand the business and not to slog popcorn.” [ 37 ] Of note, Winter recalled bringing up the former Food Depot location on Macleod Trail near Canyon Meadows and stating that it was large enough for several movie theatres as well as an entertainment complex. He stated that this occurred during the November 1996 shareholders’ meeting. Winter stated that he came to know about the Food Depot location by reading about it in the papers and by physically viewing the location.

Winter indicated that he raised the Food Depot location as he thought it was a feasible location with a reasonable price. Winter indicated that Hunter had stated that he “would look into” this opportunity. [ 38 ] In discussing the threats from theatres in the south of Calgary, Winters indicated that Hunter’s view was that Okotoks could remain competitive if it maintained a low price and showed comparable films. [ 39 ] In addressing the March 2001 meeting, Winter stated that Hunter had called a special meeting on this date and that it took place in a restaurant.

He stated that the point of this meeting was to discuss expansion and that during the meeting Hunter indicated that he was looking to pursue expansion opportunities and that he wanted to know if the shareholders were able to provide capital to this end. Winter stated that Hunter was purposing to finance such expansion by having additional capital injected into 681, as opposed to obtaining financing through a new venture.

Winter stated that he understood these opportunities would be pursued through 681 as there was talk of dilution of share value, as well as how the finances would be handled if additional capital was injected. Winters stated that at the end of this meeting a vote was held, with everyone present voting in favour of expansion on a financial level.

Winter stated that he recalled Bond expressing some concern over the possible share dilution and that Bond mentioned that he might have to cash in his RRSP’s to come up with the funds. [ 40 ] Turning to the August 2001 AGM, Winters indicated that this meeting was fairly brief and that close to the end of the meeting Hunter informed the attendees that he was opening up the Canyon Meadows location as a personal venture.

Winter recalled having Lloyd inquire why the opportunity was not being pursued on behalf of 681 with Hunter replying that he did not require any additional capital to pursue this opportunity. [ 41 ] Winter stated that following this meeting Hunter offered him an opportunity to invest in Canyon Meadows through a share trade structure whereby Canyon Meadows shares would be acquired in exchange for Okotoks Cinemas shares. Winter stated that he did not believe that this opportunity was extended to every shareholder of 681.

Winter stated that during the 2002 AGM Hunter was not re- elected as a director and that he became upset and resigned as manager of Okotoks Cinemas. [ 42 ] Jeffrey Bond was one of the initial shareholders in 681. He invested in the company after attending two separate pre- investment meetings with Hunter, being the Mr. Sub meeting in January 1996 and the subsequent meeting at Humpty’s. [ 43 ] Bond stated that during the Mr. Sub meeting he was provided with a proposal regarding the Okotoks Cinemas opportunity.

He stated that during this meeting, Hunter indicated that the ultimate goal was to expand 681 and open up several movie theatres, including theatres beyond Okotoks. Bond stated that he recalled discussing Cochrane as a possible suitable future location during this meeting. Bond stated that Hunter’s “vision” of expansion was re-stated during the Humpty’s meeting for the benefit of investors who

were not present at the first meeting. Bond indicated that it was his belief that future expansion was to take place through the use of 681's profits in running the Okotoks location. He stated that Hunter never indicated that 681 was going to be limited to a single theatre in the Okotoks area. [ 44 ] Bond’s evidence regarding what was said during the various shareholders’ and annual meetings was fairly consistent with that of Kane’s and Winter’s. He indicated that during the early years profitability was a main concern, with some discussion of showing more second-run movies.

He also stated that the issue of expansion - both by adding a third screen to Okotoks Cinemas and in other locations - was regularly raised. Bond specifically remembered Winter raising the Food Depot location as a possible venue for expansion during the November 1996 meeting. Bond recalled Hunter stating that he would “look into it” and report back to the group. [ 45 ] Bond indicated that Hunter suggested that Okotoks Cinemas could compete with Canyon Meadows Cineplex by offering cheaper prices. [ 46 ] Bond also recalled that Hunter specifically calling a meeting in March of 2001 held in Earl’s.

He stated that during this special meeting, Hunter indicated that the Canyon Meadows Cineplex location was not doing well financially and that it may be a business opportunity worth looking into. Hunter also discussed expanding the Okotoks Cinemas from two to three screens. Bond stated that Hunter asked about the possibility of injecting further capital into 681 in order to pursue an expansion opportunity. Bond stated that possible amounts of capital were discussed but that nothing was decided upon.

Bond indicated that Hunter suggested that rather than pay out dividends, the retained earning might be used to investigate other opportunities. [ 47 ] Bond stated that he was concerned in that Hunter indicated that if the existing shareholders could not come up with capital, their existing shareholding in 681 would be diluted. Bond stated that he was specifically concerned in that he did not have access to additional capital at this point in time and that he worried about possible share dilution. He specifically recalled stating that he would look into taking money out of his RRSP’s, if need be.

Bond stated that following this discussion, there was a vote following which all shareholders present indicated that they gave Hunter permission to proceed with expansion opportunities. [ 48 ] Bond was not present at the 2001 AGM. He stated that following this meeting Hunter had called his wife and had offered to buy back his shares at cost. This deal was rejected. [ 49 ] Owen Lloyd is a current director and president of 681. He was voted in as director following the November 2002 AGM. He was one of the initial shareholders in 681.

Lloyd stated that he first became aware of the opportunity for investment in 681 in late 1995 following a chance meeting with Hunter while at Big O Tires. On cross examination Lloyd indicated that during his discussion with Hunter at Big O Tires, Hunter indicated that he wanted to expand the business to over 50 theatres. [ 50 ] Lloyd stated that he attended both the Mr. Sub and the Humpty’s restaurant pre-investment meetings.

He stated that the information exchanged at both pre-investment meetings was substantially similar in that Hunter went over the proposal and then indicated that he planned on opening up additional theatres over time, as conditions permitted. Lloyd indicated that during these meetings possible locations in Canmore, Cochrane, Strathmore and south Calgary were discussed. During cross examination Lloyd indicated that both himself and Kane received a commission for bringing investors into the Okotoks Cinemas operation. [ 51 ] Again, Lloyd’s evidence was similar to that given by Kane, Winter and Bond.

He stated that after a disappointing first six months, there was a discussion about increasing second-run movies. He also stated that he was present at the meeting where Winter brought up the possibility of obtaining the Food Depot location and that Hunter indicated that he would look into it. Hunter later indicated that the venue was being developed as Canyon Meadows Cineplex.

I note that Lloyd’s evidence in this regard differs from his evidence during examination for discovery, wherein he indicated that the first time he had heard about Canyon Meadows was during the August 4, 2001 meeting, when Hunter indicated that he had secured the opportunity for himself personally. [ 52 ] Lloyd also indicated that Hunter’s salary was discussed at the first AGM.

He stated that Hunter indicated that his job was to oversee operations and look for other opportunities and not to “sling popcorn.” [ 53 ] During cross examination Lloyd agreed that there was a discussion in 1999 about selling Okotoks Cinemas.

[ 54 ] Lloyd attended the special meeting at Earl’s in March of 2001. He stated that during this meeting Hunter indicated that he was interested in increasing the capital in 681 in order to pursue other opportunities. Lloyd stated that Hunter specifically referenced the addition of the third screen in Okotoks as well as general opportunities given that Cineplex was experiencing financial hardship.

Lloyd stated that the proposition was put to a vote and that each of the shareholders present indicated that they could contribute additional capital to 681. [ 55 ] Lloyd gave evidence that he was in attendance during the August 2001 AGM. He stated that this meeting stood out in two respects: first, the dividend cheques were issued for the first time, and second, Hunter announced that he had acquired the Canyon Meadows property.

At this point in time Lloyd stated that he queried as to why the Canyon Meadows opportunity was not obtained for 681 and was told that Hunter did not require any of 681's money to pursue the opportunity. Lloyd stated that both he and Hunter were quite upset following this exchange. [ 56 ] At no point did Hunter subsequently contact Lloyd and ask if he was interested in participating in the Canyon Meadows deal. [ 57 ] Lloyd indicated that during the 2002 AGM the current Board was dissolved and Hunter was not re-elected as a director.

Lloyd indicated that at this point Hunter became upset and resigned as general manager of Okotoks Cinemas. Lloyd indicated the during this meeting the shareholders received a second dividend cheque, with dividends being declared by Hunter. On cross examination Lloyd stated that he was not aware of Okotoks Cinemas and Canyon Meadows running any films simultaneously while Hunter acted as general manger of Okotoks. [ 58 ] Daniel Hunter gave evidence on behalf of himself and the Defendant Gnumedia.

Hunter stated that after obtaining his Masters of Business Administration he started looking at various options to start up his own business and decided he would like to open a movie theatre. After some initial market research, he decided he would like to open a theatre in Okotoks. Hunter gave evidence as to his initial involvement in establishing Okotoks Cinemas. He gave detailed evidence as to the proposals used for fund-raising. I note that Hunter personally guaranteed the bank loan for the project. [ 59 ] The evidence given by Hunter was often in stark contrast to that given by the other shareholders of 681.

The main point of divergence was whether Hunter ever suggested to the shareholders of 681 that he would be pursuing an expansion into other venues on 681's behalf. Hunter’s evidence in this regard was that any opportunities for the expansion of 681 were limited to the addition of a third movie screen in Okotoks. Hunter’s evidence was that while he personally envisaged opening up additional move theatres, this was never communicated to shareholders as an opportunity for 681. [ 60 ] Hunter gave unique evidence regarding the role of the Theatre Agency.

He stated that he had contracted with an agency to negotiate agreements for the leasing of motion pictures for Okotoks Cinemas and to fix play dates for the theatre. Hunter stated that his contract with the Theatre Agency gave the Agency these powers exclusively and that Hunter was prohibited from negotiating or entering into an agreement with any motion picture company.

It was Hunter’s evidence that the Theatre Agency would chose the two movies to be shown on the screens at Okotoks. [ 61 ] Hunter stated that following a chance meeting with Lloyd in the Big O Tire store, he again met with Lloyd and some potential investors at a Mr. Sub restaurant. He stated that during this meeting the primary focus was the opening of Okotoks Cinemas . Hunter stated that during this meeting he indicated that if the Okotoks venture was a success, it might be duplicated in other locations, such as Canmore or Cochrane.

Hunter stated that at this point in time none of the potential investors had indicated that they were committed to the venture and that he was not discussing expansion as a possible project for this group. Rather, he stated that the focus was on Okotoks Cinemas alone. [ 62 ] In addressing the first shareholders’ meeting of November 13, 1996, Hunter indicated that at this point he was disappointed in how Okotoks Cinemas was performing financially. During this meeting he indicated that he was contemplating moving more towards a second-run focus.

Hunter stated that no possibility of expansion was discussed, as Okotoks Cinemas was not in a financially viable position at this time. Hunter further indicated that during this meeting Winter brought up the possible expansion into the Food Depot location and that Hunter informed him that Cineplex was already in that location. He stated that one of the shareholders subsequently brought up the idea of pursuing a bowling alley or roller skating rink and that Hunter replied that he was only interested in the movie theatre business.

He stated that at no time did he ever indicate that he would investigate any opportunity at Food Depot further, as he had already known for the previous two years that Cineplex was going to build a movie theatre in that location.

[ 63 ] Hunter gave evidence that in April of 1997 he began investigating an opportunity for a discount theatre in downtown Calgary as a partnership with an individual named Leonard Binning. Hunter indicated that at the end of the day, this venture was not feasible given the upturn in the Calgary real estate market. Hunter indicated that he subsequently looked at another opportunity on Elbow Drive in Calgary that he ultimately did not pursue.

Hunter indicated that as far as Okotoks Cinemas was concerned, his focus in terms of expansion was limited to adding an additional third theatre. [ 64 ] Hunter indicated that in January of 1998 he took a job with Schlumberger which necessitated a relocation to Kelowna. He stated that while he still retained some duties, he had his brother come in and work as the general manager. Hunter was relocated back to Okotoks in the summer of the same year.

Hunter indicated that during his absence, the majority of the general manager’s fee was paid to his brother. [ 65 ] Hunter stated that he attended the AGM of October 1998 and that during this meeting the amount of his salary was again called into question and that a disagreement ensued. Hunter stated that he had initially told the shareholders that he would only be there for a maximum of two years and that his initial plan has always been to start up the Okotoks Cinemas and then move on to other businesses.

Hunter indicated that the night before this meeting one of the shareholders (Leaney) had called him up and threatened to kill him because he was unhappy with how the theatre was being run. Hunter stated that during either this AGM or the next AGM, he used his line of credit to buy out Leaney as well as Tracy and Carla Spackman, two other shareholders. [ 66 ] Hunter indicated that in the fall of 2000, he entered into negotiations with the landlord of the building leased by Okotoks Cinemas, a Mr. Hagel, to sell the balance of his shares.

Hunter stated that he was no longer interested in being a shareholder of 681 as the business was not doing well and he was tired of having to deal with Lloyd, whom he stated was constantly unpleasant. [ 67 ] Hunter gave evidence that at two different points in time Kane had mentioned possible locations for additional movie theatres - one in Canmore and the other in Ontario.

Hunter stated that in discussing the Canmore location with Kane, Kane enquired as to whether this second location would be run through 681 or through a different company to which Hunter replied that it would be set up through a different company with a new round of financing which would require additional investment from a group of investors.

It appears that both of these discussions took place outside of any AGM or shareholders’ meeting. [ 68 ] Hunter denied that the alleged meeting in March of 2001, whereby he allegedly asked for a show of hands from those shareholders willing to invest additional capital into 681 in order for him to pursue additional opportunities for expansion, ever happened. He stated that in reality, during this period he was interested in selling his shares in 681. [ 69 ] Hunter stated that the AGM of August 4, 2001 was brief because 681's financial statements had not yet been prepared.

He stated that this meeting was held primarily to distribute the divided cheques. Hunter stated that at the end of this meeting he informed the group about the opportunity at Canyon Meadows and stated that he thought it might make a good second-run theatre. He stated that he wanted to share this opportunity with the group to show appreciation for their initial investment in 681 and because he felt bad that Okotoks Cinemas was not performing as well as he had hoped. Hunter stated that upon this announcement Lloyd went “ballistic” and began yelling and being verbally abusive.

Hunter stated that after trying to communicate with Lloyd unsuccessfully, he simply left the building. Hunter gave evidence that after this meeting he contacted certain individual shareholders in order to canvass their interest though either a share purchase or a share swap. He stated that he did not want Lloyd or another shareholder named Lee Jesson to be involved as he wanted no further contact with these individuals. [ 70 ] Hunter stated that the next AGM was held in November of 2002 at an Earl’s restaurant.

Hunter stated that during this meeting he was removed as a director and that a new Board of Directors was established. Hunter stated that during this meeting Lloyd again raised the issue of Canyon Meadows and Jesson indicated that if Hunter did not “give them” the opportunity at Canyon Meadows the group was going to court and that they had all agreed “to say the same thing so that we’ll get you.” Hunter understood this to be a threat and he resigned as general manager and left the restaurant. [ 71 ] Hunter stated that he was very upset after this meeting and that he feared immediate repercussions.

He stated that in order to protect himself he transferred all of the money out of 681's account into his own personal account. He stated that over the next couple of days the parties entered into negotiations and that eventually his shareholder interest was bought out at a price of 22 cents per share. Hunter was subsequently removed from any further financial obligations for 681.

[ 72 ] Hunter gave evidence that he first became interested in purchasing the Cineplex site in Canyon Meadows in June of 2001 after reading an

article about how Cineplex Odeon was in bankruptcy. Hunter stated that he was in discussions throughout July and August of 2001 with the landlord of the Cineplex complex and that he was informed that Cineplex was going to be locked out if it failed to pay rent on August 1 of that year. Hunter stated that he disclosed this opportunity at the August 4, 2001 AGM and that he received the keys to the Cineplex property on August 7, 2001.

Hunter stated that details of the Canyon Meadows deal were still unsettled at this time as the trustee in bankruptcy was involved. [ 73 ] While Hunter was the sole director, shareholders and controlling mind of Gnumedia, he did not act as manager of Canyon Meadows. Rather, Canyon Meadows employed Ed Sykens. Mr. Sykens was an assistant general manager at Okotoks Cinemas and subsequently became the assistant manager at Canyon Meadows. [ 74 ] Both Carla and Tracy Spackman testified for the Defendants.

While both individuals were very forthright in their evidence, their testimony did not do much to assist the Court as both individuals had a limited recollection of their involvement in 681. In addition, the Spackmans did not attend any of the pre-investment meetings with the other shareholders. According to the Spackmans, they ceased being shareholders in 681 in 1998 and have had no involvement with the company since that point in time. Tracy Spackman indicated that he did not recall any discussions regarding possible expansion into other venues at any AGM.

He further indicated that he did not recall any discussions as to the expansion of Okotoks Cinemas itself. [ 75 ] Bruce Hagel gave evidence on behalf of the Defendants. Hagel purchased the building which houses Okotoks Cinemas in 1998 and was 681's landlord following this period. Hagel indicated that he had expressed an interest in purchasing Hunter’s shares in 681 in August of 2000. This purchase did not occur as Hagel’s father passed away in September of 2000 and he was away for a period of time.

Hagel stated that he recalled attending a meeting with Hunter, Kane, and possibly Lloyd at an Earl’s restaurant, although he was unsure of the date. Hagel indicated that the meeting would have addressed the possible share purchase. Hagel stated that they may have discussed a possible expansion of the Okotoks Cinemas during this meeting. This was the only meeting that Hagel attended.

Again, while very forthright in his testimony, I do not find that Hagel’s evidence does much to assist the Court given the time frame of his involvement, other than to provide additional evidence that Hunter was looking to dispose of his interest in 681 during this period. [ 76 ] I turn now to the question of whether and in what capacity Hunter owed a duty to 681. [ 77 ] It is clear that as the sole director and officer of 681, Hunter owed the corporation a fiduciary duty to act in its best interests. Alberta’s Business Corporations Act , R.S.A. 2000, c.

B-9 codifies this duty and provides that every director and officer of a corporation owes a fiduciary duty to that corporation. This means that in exercising their duties, a director must act honestly and in good faith, putting the best interests of the corporation first. [ 78 ]

Section 122 of the Act provides, in part, that:

(1) Every director and officer of a corporation in exercising the director's or officer's powers and discharging the director's or officer's duties shall (

a) act honestly and in good faith with a view to the best interests of the corporation, and (

b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(2) Every director and officer of a corporation shall comply with this Act, the regulations, articles, bylaws and any unanimous shareholder agreement. [ 79 ] The common law has extended the duty to act in good faith to key employees of a corporation. It is clear that Hunter was acting as director, officer and key employee of 681 from incorporation until November of 2002. It is also clear that Hunter failed to appreciate the distinction between any of these roles. His own evidence was that "I didn't consider myself a director or officer at all, I

considered myself the manager of Okotoks Cinemas. So, to me, it was just what the lawyer said when he incorporated the document." Ofcourse, ignorance of the legal distinction between such roles does not relieve Hunter of any of his obligations. Any analysis mustconcentrate on Hunter’s functional as opposed to titular role. It is clear from the evidence that Hunter wore a number of hats during hisinvolvement with 681.

In his direct evidence he described the “management team” of 681 as “myself, as the general manager anddirector.” It is obvious that Hunter lacked an appreciation of the differences between his role as employee versus director or corporateofficer. [80] It is clear that certain of Hunter’s duties were managerial in nature, such as organizing the theater’s cash floats, cleaning,ordering and regulating concession supplies, making popcorn, organizing the staff, etc. For a period of time he even ran the projector.Hunter was also preforming additional duties in his role as an officer.

Of note, the shareholder reports were authored by Hunter in hiscapacity as President of 681. He also re-negotiated loans on behalf of 681. Hunter also worked alongside the Theatre Agency indetermining the optimal movie mix for the two screens. [81] Given the nature of the business, Hunter was often performing multiple roles at the same time. In other words, Hunter “ran theshow” so to speak.

I accept the testimony of the various shareholders of the Plaintiff that when questioned about his management fees,Hunter indicated that his duties included overseeing operations as opposed to simply “slinging popcorn.” [82] While Hunter’s evidence was that he only considered himself to be the general manager of 681, I find that at all relevanttimes, he was acting as the directing mind of 681 and indeed was virtually indistinguishable from the company. Hunter made it clear thathe was going to run 681 in accordance with his “vision”.

He owed 681 a duty to act in its best interests. [83] Having found that Hunter owed a fiduciary duty to act in the best interests of 681, this Court must next address whetherHunter appropriated for his own benefit an economic opportunity rightly belonging to the corporation. The main issue in the case at baris whether the Canyon Meadows opportunity rightly belonged to 681. [84] There is no absolute rule regarding multiple directorships and the issue of whether there has been a breach will turn of thefacts.

Rather, the corporate opportunity doctrine provides that a fiduciary may not place himself in a position of conflict of interest withhis corporation: M.V. Ellis, Fiduciary Duties in Canada, looseleaf (Toronto: Carswell, 2004) at 15-10.2. Here, there is a question as towhether Hunter could act in the best interests of both corporations. I find that he could not. [85] The nature of the conflict between the business person as individual entrepreneur and the business person as director and officer was aptly described by J.

Anthony VanDuzer, The Law of Partnerships and Corporations, 3rd ed. (Toronto: Irwin Law, 2009) at352: A second situation in which a conflict between personal interests of a fiduciary and her duty to the corporation arises where the fiduciaryconsiders investing or otherwise taking advantage of some project or opportunity in which the corporation has an interest. This situationarises frequently since one of the principal tasks of management is to make choices about what projects the corporation should invest in,such as acquiring an asset, establishing a business, or entering a contract.

If fiduciaries were permitted to invest personally in projects tothe exclusion of the corporation, there is a risk that, in pursuit of their self-interest, they would appropriate to themselves valuableinvestment opportunities that they should have sought for the corporation. The fiduciary duty prohibits fiduciaries from allowing theirpersonal interest to conflict with their duty to the corporation in this way. [86] The leading authority respecting usurpation of a corporate opportunity is Canadian Aero Service Ltd. v. O’Malley, (SCC), [1974] S.C.R. 592 (“Canaero”).

The defendants in Canaero were senior managerial officers with the plaintiffcompany who were actually involved in negotiations for the corporate opportunity on behalf of the plaintiff company prior to resigningin order to form the defendant company. The Court in Canaero describes the nature of the fiduciary’s obligation as follows, at p. 607: An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and seniorofficers shows the pervasiveness of a strict ethic in this area of the law.

In my opinion, this ethic disqualifies a director or senior officerfrom usurping for himself or diverting to another person or company with whom or with which he is associated a maturing businessopportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignationmay fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, orwhere it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

[ 87 ] In determining whether the defendants breach their fiduciary duty, the Court reviewed a number of factors, holding, at p.620: [...] The general standards of loyalty, good faith and avoidance of a conflict of duty and self-interest to which the conduct of a director or senior officer must conform, must be tested in each case by many factors which it would be reckless to attempt to enumerate exhaustively.

Among them are the factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director's or managerial officer's relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or, indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company, and the circumstances under which the relationship was terminated, that is whether by retirement or resignation or discharge [ 88 ] While these are not the sole factors to be examined in determining whether liability for personal use of a corporate opportunity exists, they provide the Court with a useful foundation for analysis.

As such, I shall examine each of the above criteria in turn in determining whether, at the end of the day, it was unfair for Hunter to have obtained the Canyon Meadows opportunity for himself. a. position held [ 89 ] It is not disputed that Hunter was the sole director and officer of 681 from incorporation in 1996 until November 7, 2002. During this time period he also served as its general manager. As discussed above, Hunter failed to appreciate the legal distinction between these roles.

Indeed, it was Hunter’s own evidence that in operating 681, he made no distinction between the position of officer, director or general manager. While Hunter gave evidence that he did not consider himself as a director or officer, he continually authored reports to the shareholders in his capacity as President of 681. Moreover, I find that his comments that his role in 681 included more than just “slinging popcorn” evidences an intention to oversee operations in addition to performing managerial functions.

Again, Hunter was often wearing multiple hats at any given moment. b. nature of the opportunity [ 90 ] This factor is really the crux of the matter; that is, was the Canyon Meadows opportunity the type of opportunity that 681 would otherwise normally be interested in? In looking at the history of incorporation, I turn first to the written documentation. [ 91 ] While the business proposal drafted by Hunter has evolved through a number of revisions, I note a number of similarities between drafts.

Each version of the proposal is entitled “ Okotoks Movie Theatre” and in each version the “business concept” states that the aim is “to provide the people of Okotoks and area with a selection of first-run movies in high quality theatres at a reasonable price” (Emphasis added).

This wording, or course, supports Hunter’s argument that the opportunity for 681 was limited to the Okotoks area. [ 92 ] The “business concept” contained in the proposal is reflected in a special resolution of the shareholders of 681 dated effective January 16, 1996 which states that “...Hunter has full authority as Director to use the funds paid into this Corporation for shares to administer and develop the business of the Corporation, begin [sic] a cinema business in Okotoks Alberta.” [Exhibit 1, Tab 1 ] Again, the wording of the resolution reflects a limitation to the Okotoks area. [ 93 ] As noted, there is no shareholders’ agreement or share purchase agreement.

The only minutes are those which were taken by Kane and reproduced in the “note reports” [Exhibit 1, Tab 2]. Hunter, as Secretary of 681 did not take minutes of any meetings. The annual shareholders’ reports authored by Hunter do not mention any plans for expansion into other geographic locations. [ 94 ] While I agree with the Defendants that the written documentation is restricted in location to the Okotoks area makes no mention of expansion into other markets, I do not agree that the documentary evidence tells the whole story. Rather, it must be examined in accord with the oral testimony.

[ 95 ] Each of the shareholders who testified on behalf of 681 gave evidence that Hunter discussed expansion into other centres both during the pre-investment meetings and during the shareholders’ meetings and AGMs. Hunter’s evidence was that no such discussions occurred, and that if expansion was indeed discussed, it was clearly limited to himself in his personal capacity. [ 96 ] The note reports taken by Kane supports the testimony of 681's witnesses to some extent.

The notes corresponding to the November 16, 1996 meeting states “discussed other locations and expansion as the means of survival for the theatre.” The notes for the August 1997 meeting read “...also discussed other locations, and replicating the model used.

The locations revolved around the closed [sic] Food City closure, and included smaller markets such as Cochrane, and Canmore.” The October 17, 1998 notes read “discussion about location, expansion to a degree, the need for a larger site.” The note reports also confirm that Hunter was looking to sell off his shares in 681 in the spring of 2001. [ 97 ] There is little documentation outside of the business proposal itself concerning what was discussed during the pre-investments meetings. The evidence of Hunter as opposed to the witnesses for 681 differs as to what exactly was said.

In assessing the credibility of each witness, I acknowledge that there was a marked animosity between Hunter and Lloyd generally throughout their dealings with one another. Each of the witnesses for 681 gave similar evidence that Hunter explained that his vision was to expand outside of Okotoks and replicate the business model in other markets. I was especially impressed by the evidence given by Winter whom I found very candid.

His testimony was clear that during the pre-investment meetings Hunter stated that he would like to use his business model to expand into locations and that areas such as Canmore, Cochrane and High River were discussed. [ 98 ] Winter also stated that various discussions regarding expansion were had during the shareholders’ meetings or the AGMs. He stated that such discussion involved both expansion of the Okotoks Cinemas itself and expansion into other locations. Again, Winter’s evidence was supported by the other shareholders.

While much was made during cross examination as to whether these conversations actually happened during or after the AGM or shareholders' meetings on an informal basis, I do not think much turns on this distinction.

Given the fact that the group was small and the meetings themselves often informally held (no official minutes, no agenda, held in restaurants or the theatre) it would be a likely practice to continue to discuss business "off the record" so to speak. [ 99 ] In attempting to explain the version of events as put forward by Winter, Kane, Bond and Lloyd, Hunter alleged that the shareholders threatened to “get him” and to collude in lying to this Court as to the reality of the situation, i.e. saying that certain discussions or meetings took place when in fact they never did.

As I understand it, Hunter’s evidence in this regard was raised for the first time at trial, after each of these witnesses had completed giving evidence in chief and on cross examination. Allegations of perjury are very serious indeed and I have no difficulty in finding that such threatening statements were not made. Rather, I find that in giving such evidence, Hunter has seriously undermined his own credibility. [ 100 ] I accept that Hunter represented that such expansion would be pursued though the Plaintiff corporation.

I do not accept Hunter’s evidence that while he indicated that if Okotoks Cinemas was a success, it might be duplicated in other locations such as Canmore or Cochrane, he was not discussing expansion as a possible project for the 681 but rather as a separate endeavor. [ 101 ] The evidence suggests that the most probable version of events was that while the initial meeting focused on the investment in Okotoks Cinemas and in getting the theatre up and running, the long term vision of expansion into other locations was communicated to the potential shareholders.

This “vision” was described in such a fashion to make potential investors believe that it would include 681. As such, I find that the business purpose of 681 included the possibility of expansion or investment in locations other than Okotoks.

While I do not accept the testimony of Lloyd, who indicated that the ultimate goal include expansion to over 50 theatres, I do find that expansion into certain communities was discussed. [ 102 ] I agree with counsel for Hunter that in order to attract liability, there must be something more than a simple discussion of concepts or future ideas or dreams regarding corporate direction. Hunter claims that 681 is arguing that because he had not specifically told investors that the scope of the business was limited to Okotoks Cinemas alone, that the scope of the business was thus open to expansion beyond Okotoks.

I agree with counsel that defining a business concept through the elimination of a potential universe of possibilities is dangerous in that it may lead to unlimited exposure as well as stifling the entrepreneurial spirit. However, I find that the discussions as to 681's business direction went beyond mere “pillow talk..” On the whole of the evidence, I find that looking for additional investment opportunities in the movie theatre industry was inside the scope of Hunter’s self-described duties. [ 103 ] I turn next to looking at the Canyon Meadows deal itself.

The Defendants correctly argue that a mere dream or abstract concept cannot properly be labelled a business opportunity properly pursuable by the Plaintiff corporation. The Court in Canaero stated that when looking at a business opportunity, the “ripeness” and “specificness” of the opportunity should be examined.

[104] Again, there is conflicting evidence respecting the Canyon Meadows opportunity. Each of the shareholders who testified onbehalf of 681 indicated that during the November 1996 shareholders’ meeting, the group discussed the possibility of expanding into therecently vacated Food Depot location in south Calgary. While Hunter agreed that the Food Depot location was discussed during themeeting, he expressly denied ever telling the other shareholders that he would investigate this opportunity. Rather, he said that at thispoint in time he was already aware that the opportunity was being pursued by Cineplex.

Hunter’s evidence in this regard is supported bythe business proposal dated 1996 which states, under the “possible threats” heading that “there is a Cineplex Odeon Theater proposedfor a southern Calgary location.” Following Cineplex’s acquisition of the Food Depot location, Hunter’s report to shareholders datedAugust 29, 1997 discusses the fact that Cineplex will be opening a theatre at Canyon Meadows and then states that “you will recall thatthis expansion was expected.” [105] The Canyon Meadows location was thereafter discussed by the group from time to time.

Kane’s evidence was that the locationwas discussed during the October 1998 meeting in relation to the fact that Cineplex was thought to be struggling due to competition froma nearby Famous Players cinema. [106] Both Bond and Lloyd gave evidence that the Cineplex/Canyon Meadows location was specifically brought up during the March2001 special meeting allegedly called by Hunter wherein he requested an additional injection of capital to allow him to exploreexpansion opportunities.

The other shareholders did not state that Canyon Meadows was specially raised at this point in time and I findthat Bond and Lloyd may have been confused in this regard. [107] While I am not prepared to find that the Canyon Meadows opportunity was specifically discussed during the March 2001meeting, I reject Hunter’s assertion that the meeting itself never took place and is a fabrication of the other shareholders. I find that themeeting was called by Hunter and that he canvassed the group regarding their willingness to inject further capital into 681 in order toenable him to explore expansion opportunities.

In finding that this meeting did in fact occur, I was impressed by Bond’s recollection thathe was concerned about coming up with the funds and was considering withdrawing money from his RRSP rather than risk sharedilution. Winter also had a specific recollection of Bond raising this concern during the meeting. [108] I accept that following the meeting, the shareholders indicated to Hunter that they were willing to inject additional capital into681.

I also accept that the exact amount of capital required was not discussed, nor did Hunter specifically address which opportunities hemight explore using this future cash injection. [109] The issue then becomes whether Canyon Meadows can be considered a “ripe” or “mature” business opportunity. In this regard,the case at bar can be distinguished from Canaero. In Canaero, the plaintiff corporation clearly had both a prior and continuing interestin the particular corporate opportunity.

The defendants had actually assisted in developing the opportunity on behalf of the plaintiff,which had spent years developing the opportunity and had submitted a bid for the project, which the defendants were ultimatelysuccessful in obtaining. There is no doubt that the opportunity in Canaero was a mature one. The Court expressly found that the plaintiffCanaero had “devoted itself to originating and bringing to fruition a particular business deal.” In the case at bar, 681 had not clearlydevoted itself to pursuing the Canyon Meadows opportunity.

Rather, discussion regarding expansion into other locations was had on amore general level, as opposed to pursuing a “particular” deal. [110] A number of cases discuss the requirement of a “mature” or “ripe” opportunity. In Donor Gateway Inc. v. Passero (2007), (ON SC), 28 B.L.R. (4th) 309 (Ont. Sup. Ct. Jus.) the Court found that an idea alone was insufficient to constitute amaturing corporate opportunity and that a corporation must be able to show that it was actively pursuing the opportunity at the time itwas diverted.

Specifically, the Court noted as follows, at para. 9: While there was evidence that [the corporate opportunity] was discussed from time to time, the evidence fails to show that [the plaintiffcorporation] evidenced an intention to seize the opportunity and run with it during the four years prior to [the defendant’s departure].There was little or no evidence of [the plaintiff corporation’s] efforts or thought given to pricing, product development, contact lists, anda host of other matter. [111] The concept of a mature opportunity was also discussed in Physique Health Club Ltd. (c.o.b. Physique Fitness Store) v.

Carlsen(1996) 1996 ABCA 358 , 193 A.R. 196 (ABCA) leave to appeal dismissed: [1997] S.C.C.A. no. 40, where the Court held that amere idea which had not been developed by the plaintiff corporation was not a “maturing business opportunity” as per Canaero. Rather

the store owner and defendant employee had “talked about moving to a more visible location” which is what the defendant eventuallydid. I find that Physique Health Club can be distinguished in part on the facts in that it dealt with a managerial employee who was not adirector or officer. The Court discussed the nature and scope of any fiduciary obligations owed by such an employee in thecircumstances.

Unlike the case at bar, Physique focused on whether certain information obtained while at work was confidentialinformation as opposed to the usurpation of a business opportunity. [112] The Plaintiff relies heavily on Slate Ventures Inc. v. Hurley (1997), (NL CA), 37 B.L.R. (2d) 138 (NFCA)wherein the Court found that when the defendant Hurley personally acquired a slate quarry (Allison Quarry) he breached a fiduciary dutyhe owed as a director to Newfoundland Slate Inc. Hurley incorporated Newfoundland Slate Inc. in order to develop slate quarries in thatprovince.

He had already been active in this industry for a number of years. Hurley was the sole director and shareholder ofNewfoundland Slate. [113] Hurley lacked the capital required to bring a particular quarry (Nut Cove) into operation and as such, sought outside investors.An investor named John McAsphalt incorporated Slate Ventures Inc. (SVI) for the purpose of investing in Newfoundland Slate.

SVIentered into a share purchase agreement with Newfoundland Slate and the same companies also executed a shareholders agreementcontaining a covenant by Hurley that he had no information or knowledge of any facts relating to the business, which if known to SVImight reasonably deter it from completing the transaction.

Of note, the share purchase agreement described the business ofNewfoundland Slate as “the development of slate quarries under the control of the Corporation or its Subsidiaries and the production andsale of slate and related products worldwide.” [114] Following the share purchase with SVI, Hurley attempted to negotiate the purchase of another slate quarry called the “Bryantproperty” in his own name. However, as he lacked the funds the parent company of SVI completed the purchase in order to prevent itfrom being acquired by a potential competitor.

Following this transaction Hurley commenced negotiations to purchase the AllisonQuarry. He held an exploration licence for this area prior to the incorporation of Newfoundland Slate.

Newfoundland Slate attempted toprevent Hurley from negotiating the Allison Quarry purchase in his own name but was unsuccessful because Hurley participated in thevote. [115] The Court in Slate Ventures ultimately held that the Allison Quarry was an opportunity rightfully belonging to the corporateplaintiff, notwithstanding the fact that the opportunity was not considered “ripe.” Rather the Court held, at para. 34, that: Given that Hurley knew that SVI and Newfoundland Slate were interested in acquiring other slate quarries and that SVI had discussedwith him other such possible acquisitions, the above stated "strict ethic" would likewise apply in this matter to potential opportunities, aswell as "maturing" ones. [emphasis added] [116] There are numerous differences between Slate Ventures and the case at bar.

In Slate Ventures, the share purchase agreementbroadly defined the business of Newfoundland Slate as developing, producing and selling slate and related products world wide. In thecase at bar, there is no shareholders agreement or share purchase agreement, and the business plan authored by Hunter restricts theconcept of cinema development to the Okotoks area. In addition, SVI’s purchaser of the Bryant property evidenced an active intention topurchase additional slate quarries.

In the current case, the plaintiff had not acquired any additional theatres prior to Hunter’s acquisitionof Canyon Meadows. [117] However, despite these differences, I find the reasoning in Slate Ventures compelling.

While the written documentation alonedoes not support 681's claim that it was interested in pursuing additional cinematic opportunities beyond Okotoks, I find that the ‘vision’expressed to the potential shareholders during the pre-investment meetings along with the plans for future expansion discussed duringvarious shareholders’ meetings and AGM’s places the acquisition of additional theatres squarely line with the “general business pursuits”of 681.

The fact that, unlike in Slate Ventures, additional acquisition had not already taken place is a reflection of the past financialposition of 681 as opposed to any lack of interest in exploring additional investment opportunities in nearby theatres. [118] Given the facts of this case, I do not find the lack of maturity or specificity fatal to 681's claim. Rather, I find that although 681had failed to actively pursue opportunities in other locations, this was due in large part to lack of funds.

I have found that Hunter’s“vision” was to start up a theatre business in Okotoks and, if successful, to replicate the model elsewhere. As with many new businesses,the early years did not see 681 turning a profit. The financial statements indicate that it did not begin doing so until 1999 and even at thispoint profitability was not a constant. As such, it was realistic for 681 to forgo actively pursuing another opportunity until it was in astronger position financially to do so. The lack of funds largely accounts for the Plaintiff’s failure to seize an opportunity in another

location. It was only when Hunter became aware of an opportunity that did not require a large amount of capital that he proceeded with expansion, albeit solely on his own behalf. [ 119 ] The Defendants rely, in part, on Re Sports Villas Resort Inc ., 2000 NFCA 11, 185 Nfld. & P.E.I.R. 281 . Here, the respondents were members of the board of directors and shareholders of Sports Villas, a golf course and resort destination.

The respondents subsequently engaged in developing a golf course approximately 220 kilometres away which the applicants alleged was operated in a similar fashion and was in direct conflict with Sports Villas. In finding that no such breach had occurred, the Court underscored that the fiduciary corporate duty did not preclude multiple memberships on the board of directors of various corporations.

The Court opined, at para. 60, that: ...it must also be recognized that it is equally of societal interest not to draw the net of proscribed activity too tightly insofar as the permissible limits of a director's association with other business ventures is concerned. This stems from the general interest of leaving sufficient latitude to those who have the aptitudes and inclinations to involve themselves in a wide variety of business activities to do so without casting in their way obstacles beyond those necessary to assure, or legitimately foster, fair and honest dealings with companies whose affairs they direct.

Entrepreneurs such as those involved in the Terra Nova venture who are endowed with those aptitudes and inclinations should be given sufficient latitude to respire, within the bounds of reasonable good faith obligations to their existing commitments, in the overall interests of breathing life into the economy. [ 120 ] I find that Sports Villas can be distinguished in a number of important regards. First, the Court of Appeal accepted the trial judge’s finding that there was no agreement between the parties that involvement in all future golf courses by the parties would be though Sports Villas.

The Court found this to be an important point, holding at para 70 that: It must be conceded that if the contemplated scope of Sports Villas' activities included all future golf developments, argument might indeed be mounted that Mr. Dobbin's involvement in Clovelly represented an appropriation by him of an opportunity which the principals, including himself, had agreed would belong to Sports Villas, and that he was accordingly in conflict, irrespective of the distance between the two golf courses.

Indeed, in that circumstance, such an action might well be considered as infringing the honesty and good faith requirements exacted of all directors under s. 203 of the Corporations Act. Moreover, the situation would then be akin to Slate Ventures, where this Court, through the judgment of Gushue C.J.N., upheld a decision declaring a director in breach of his corporate fiduciary duty when he personally acquired a slate quarry and ordered the property be transferred to the company, the object of whose incorporation was to develop slate quarries in Newfoundland.

Slate Ventures affords an instance where a director was considered in conflict, and in breach of his fiduciary duty, because he had appropriated a maturing business opportunity to his own personal use.

In so doing, it is relevant to note that Gushue C.J.N. relied on the same passage from Canadian Aero reproduced in para. 49 of this judgment which asserts that the "strict ethic" embodied in a director's fiduciary duty forbids usurping "a maturing business opportunity." The opportunity was a "maturing" one because a company's specific object was to develop any such quarries. [ 121 ] I have already found that in the case at bar, Hunter verbally assured investors that he would be pursuing additional opportunities on 681's behalf and even went so far as to actively solicit an additional injection of capital for this purpose.

This is in contrast to the facts in Sports Villas , where the Court found that no such agreement regarding future expansion existed. [ 122 ] Second, the Court noted that the distance between the two golf courses (220 kilometres) was such that there was no potential for conflict between the two.

While I agree with the Court’s direction that both actual and potential conflict must be avoided (see paras. 53 and 55) I find that the potential for actual conflict is much greater in the present case, with multiple witnesses giving evidence that the drive time between Okotoks and Canyon Meadows is approximately 20 - 25 minutes and that many residents of Okotoks commute to Calgary for work. [ 123 ] Part of evaluating the nature of the corporate opportunity involves determining whether the opportunity acquired did, or could possibly, compete with the interests of the beneficiary company.

In this instance, Hunter initially identified the Cineplex Odeon in the Canyon Meadows location as a “possible threat” to the Okotoks cinemas in his business proposal. Specifically, the proposal states that notwithstanding the proposed Cineplex south location, Okotoks can retain a competitive advantage by, in part, maintaining a cheaper ticket price. This business strategy was confirmed by Hunter during cross examination.

It is hard to accept the Defendants’ submission that no conflict of interest arose in acquiring a relatively close theatre which charged a cheaper ticket price and on occasion played the same films. [ 124 ] In addition, Hunter identified two weaknesses of 681 and raised these concerns with the shareholders. He believed that Okotoks Cinemas was failing to maximize its revenue due to the fact that with only two screens it was selling out too often and could only offer a limited selection of films. A nearby theatre with 10 screens would arguably not face the same limitations.

[125] I further note that the “note reports” taken by Kane demonstrate that there was some early discussion as to whether Okotoksshould move to more of a second-run cinema. Any subsequent re-examination of this issue may have been made while Hunter was thedirector and officer of a second-run cinema.

As the Court in Slate Ventures makes clear, one element of this consideration includesacquiring a business opportunity in order to keep the competition at bay. c. relationship of the fiduciary to the opportunity [126] The Defendants further argue that liability should not attach as Hunter did not become aware of, or pursue, the opportunitywhile in his position as a fiduciary. The Defendants argue that a fiduciary is only liable to account for a profit if such profit is made byreason and in the course of the fiduciary relationship.

The Defendants submit that Hunter became aware that Canyon Meadows was in afinancial predicament as a member of the general public while reading a newspaper

article in June of 2001 and that he entered intodiscussion with the landlord of the Cineplex cinemas shortly thereafter. [127] The Defendants rely, in part, on Physique Health Club, supra, where our Court of Appeal listed a number of principlesemerging from the existing case law on fiduciary obligations, including the following, at para. 4(2): In opportunity cases, there must be a misuse of the fiduciary's power before liability attaches. Trophy Foods Inc. v. Scott et at (1995)1995 NSCA 74 , 140 N.S.R. (2d) 92 (C.A.) at page 105; Sure-Grip Fasteners Ltd. v.

Allgrade Bolt & Chain Inc. (1993), 45C.C.E.L. 276 at 288. Specifically, Hallett J.A. writing for the Court in Scott v.

Trophy Foods Inc. (1995), 1995 NSCA 74 , 123 D.L.R. (4th) 509(NSCA) held, at para. 54 that: ...it seems to me that in opportunity cases for liability to attach to a person branded as a fiduciary, his power, be it legal or practical, musthave been the actual cause of acquiring the benefit; there must be a misuse of the fiduciary's power before liability attaches. [128] The Defendants further argue that Hunter alone had given evidence on how and why he was successful in obtaining the CanyonMeadows deal and that it was based solely on his entrepreneurial skills and personality, as opposed to any link to his position at OkotoksCinemas. [129] While little evidence was lead as to what exactly transpired between Hunter and those individuals involved in the CanyonMeadows deal, I do note that the following information was provided to Leonard Binning and Pacific Concessions Inc. when Hunterdrafted the Ninth Avenue Theatre Proposal (Exhibit 1, Tab 8): Mr.

Hunter is currently President of Okotoks Cinemas a twin screen first run movie theatre in Okotoks, Alberta. The Cinema has been inoperation since April 19, 1996. Mr. Hunter initiated the project was the project manager, general contractor and General Manager. He isalso a majority shareholder of Okotoks Cinemas. Mr.

Hunter has a Master of Business Administration from the university of Calgaryspecializing in new venture development. [130] That fact that Hunter had previously touted the fact that he was the President of Okotoks Cinemas in attempting to secure aseparate theatre deal lessens the likelihood that he did not use this fact in an attempt to impress the individuals looking to divestthemselves of the Canyon Meadows location.

It is, however, undisputed that the Canyon Meadows opportunity did not come to Hunter’sattention because of any position held with Okotoks Cinemas, thus distinguishing this from cases such as Canaero or Peso Silver MinesLtd. v. Cropper, (SCC), [1966] S.C.R 673. [131] Again, the Plaintiff relies on Slate Ventures for the proposition that a fiduciary may have to disgorge a profit even if thecorporate opportunity did not arise exclusively as a result of this position. In Slate Ventures both the trial judge and the Court of Appealfound that Hurley had not acquired the information about the opp

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