Cansafe Inc. v. Donkin, 2011 ABQB 698

Court of Queen ’ s Bench of Alberta Citation: Cansafe Inc. v. Donkin, 2011 ABQB 698 Date: 20111114 Docket: 1103 16333 Registry: Edmonton Between: Cansafe Inc. Applicant - and - Jeffrey Donkin and Safety Buzz Ltd. Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] Cansafe asks the court for an interlocutory injunction requiring Mr. Donkin to forthwith cease working for Safety Buzz and requiring Safety Buzz to forthwith cease employing Mr. Donkin. [ 2 ] The application is denied: Cansafe has failed to establish that the balance of convenience favours the granting of an interlocutory injunction. Specifically, Cansafe has not established that Mr. Donkin ’ s employment contract with Cansafe contained a non- compete clause; in the circumstances here, the court is unwilling to infer the inclusion of such a clause in the employment relationship.

In the absence of clear evidence that such a clause existed, it is premature to grant Cansafe substantial substantive pre-trial relief. [ 3 ] Moreover, Cansafe has failed to provide an undertaking in damages. Cansafe ’ s oral tendering of such an undertaking at the

[3] Moreover, Cansafe has failed to provide an undertaking in damages. Cansafe’s oral tendering of such an undertaking at thehearing is inadequate for two reasons. First, the giving of such an undertaking must be done knowingly by the corporate applicant.Second, the respondent should be given the opportunity to consider a formal undertaking in advance of the hearing so as to be in aposition to make submissions concerning the scope and backing of the undertaking. [4] Cases and authority cited [5] By Cansafe: McDonald’s Restaurants of Canada Ltd.

V West Edmonton Mall Ltd. 1993 ABCA 218 , [1993] A.J.No. 523 (C.A.); Debra’s Hotels Inc. v Lee (AB KB), [1994] A.J. No. 748 (Q.B.) [6] By Donkin and Safety Buzz: Globex Foreign Exchange Corporation v Kelcher 2005 ABCA 419; Human ResourceCapital Group Inc. v Reis 2009 ABQB 159 [7] By the court: 364661 Alberta Ltd. v 735608 Alberta Ltd. 2010 ABCA 6, [2010] A.J. No. 5; Barton v Potash Corp ofSaskatchewan 2011 SKCA 96, [2011] S.J. No. 502 Appendix A: Extracts from May 2009 confidentiality agreement 1. Background [8] Donkin is a former employee of Cansafe.

By letter dated October 6, 2009, Cansafe made a written “Employment Offer” toDonkin offering him the position of Safety instructor/Shop maintenance - Lloydminster. The Employment Offer stated that the positionwas to commence on September 16, 2009 (sic) and was to include a 6 month probation period which would end on April 15, 2009 (sic).The “offer: Instructor/Shop” was signed by Cansafe and Donkin on October 13, 2009 and “agreed to be deemed effective on October16/09". [9] On the signature page of the Offer, there is a

section entitled, “Non-Competitive Clause”, which reads: In situations where the company invests directly in the professional skill development of an employee a non-competitive agreement maybe required.

The intent of such an agreement is not to deny a person the right to change employment but rather to protect the company from unfaircompetitive practices. (Emphasis added) [10] On May 29, 2009, Cansafe and Cansafe Proact Management Ltd. on the one hand entered into a Confidentiality, Copyrightand Non-Competition Agreement with Donkin on the other; in that document, Donkin was described as being “of Wildwolf EnterpriseInc.” Certain provisions of that agreement are excerpted in Appendix A hereto. [11] Donkin resigned his employment with Cansafe on April 29, 2011.

Cansafe asserts that, since September 6, 2011, Donkin hasbeen working for his new employer, Safety Buzz, in Lloydminster, indeed within 2 blocks of Cansafe’s head office in that city. [12] On September 23, 2011, Cansafe’s lawyers advised a lawyer they believed to represent Safety Buzz, a lawyer other than thelawyer who appears for Safety Buzz on this application, of its position that both Donkin and Safety Buzz were in breach of a non-compete agreement Donkin had entered into with Cansafe. The letter demanded that Safety Buzz immediately cause Donkin to ceaseemployment with Safety Buzz.

[13] On September 27, 2011, Cansafe’s lawyers advised Donkin at an address in Bonnyville that Cansafe was of the view thatDonkin was in breach of a non-compete agreement with Cansafe. A copy of the May 29, 2009 agreement was attached to the letter. Theletter demanded that Donkin immediately stop working for Safety Buzz. At the time Cansafe sent this letter to Bonnyville, Cansafeassumed that Donkin was in fact working in Lloydminster. 1.

What must the applicant for interlocutory injunctive relief establish? [14] The parties agree, and I agree with them, that the granting of interlocutory injunctive relief is discretionary and that, at aminimum, an applicant for such relief must meet a tripartite test: is there a serious or substantial issue to be tried, will the applicant sufferirreparable harm if the injunction is not granted, and, does the balance of convenience favour the applicant. [15] In 2010, in 364661 Alberta Ltd. our Court of Appeal added the following gloss to the last two grounds: 8 It is arguable whether the respondent has established a clear breach of a clear negative covenant on this record.

However, assumingthat it has, the chambers judge erred in law in failing to give any consideration to the issues of harm and balance of convenience.Although those issues may have less weight in the case of a clear breach of a clear negative covenant, nonetheless they have somesignificance and should be considered: Debra's Hotels Inc. v. Lee (1994), (AB KB), 159 A.R. 268 (Q.B.), at paras. 31,32 and 33; White Room Ltd. v. Calgary (City) (1998), 1998 ABCA 120 , 216 A.R. 44 (C.A.), at para. 33; Canada (AttorneyGeneral) v. Saskatchewan Water Corp., (SK CA), [1992] 4 W. W. R. 712 (C.A.).

Since that decision is more recent than the 1993 decision in McDonald’s Restaurant referred to by Cansafe, I prefer to rely on the 2010decision even though that decision did not explicitly over-ride, or even mention, its earlier 1993 decision. 2. The first branch of the tripartite test: Is there a serious issue to be tried? [16] There are, in fact, a myriad of serious issues to be tried.

First, dealing with the issue of the existence of a negative covenant,Cansafe asks the court to assume that Cansafe required Donkin to sign a non-compete agreement in connection with his October 2009employment contract since it had required him to sign such an agreement in connection with his May 2009 employment contract.

For thefollowing four reasons, the court is not prepared to make such an assumption. [17] First, the granting of interlocutory injunctive relief is, by its very nature, exceptional and therefore discretionary: an applicantasks for relief before the court has fully heard the parties on the merits.

Therefore, the court should not be asked to assume that a contractexists between the parties where the only written evidence of such a contract explicitly states that a non-compete agreement “may” berequired. [18] Second, because of the numerous differences between the May 2009 contract and the October 2009 contract, it is notreasonable to assume that whatever informed the parties’ decisions in May 2009 also applied in October, 2009.

One of those differencesrelates to the persons described as the employer in each of the agreements; it is not known whether the addition of Cansafe ProactManagement Ltd. in the earlier agreement constitutes a material difference between the two situations. Another difference relates to thefact that in the earlier agreement Donkin is referred to as being “of Wildwolf Enterprise Inc.”; it is not known whether that designationsuggests that while Donkin was to be employed by Cansafe he was also retaining his employment with Wildwolf.

If the latter were thecase, that might be a reason to require a non-compete clause which was not present in the October 2009 situation.

Another differencebetween the two situations is that the May 29 agreement appears to relate to the teaching of certain safety courses and the creation oftraining materials, whereas the October 2009 agreement relates to both safety instruction and shop maintenance; the difference inemphasis in employment may also be reflected in a different approach to a non-compete agreement. [19] Third, as our Court of Appeal held in Globex Foreign Exchange Corporation, although an employer may avoid problemsrelating to the lack of consideration for a material change in an ongoing employment contract by agreeing, for example, to forbear fromexercising its right to terminate an employee for a reasonable period after the material change comes into effect, Francis makes it clear the law does not permit employers to present employees with changed terms of employment, threaten to fire them

if they do not agree to them, and then rely on the continued employment relationship as the consideration for the new terms.

Here, we do not know if Donkin was continuously employed by Cansafe from May 29, 2009 up to and including October 13, 2009, and, if so, whether there was any new consideration given for the October 13, 2009 contract terms. [ 20 ] Lastly, as can be seen from the relatively cavalier way in which the Employment Offer was drafted by Cansafe, it would not be unreasonable to assume that, even if Cansafe had intended to make a non-compete agreement with Donkin in relation to the October 2009 contract, it merely forgot to actually do so. [ 21 ] Even assuming that it was clear that Donkin has signed a non-compete agreement, there would, of course, be serious issues that would remain to be litigated relating to such a covenant, including the reasonableness of the area covered, the length of time during which the covenant operated, and the amounts established as liquidated damages. [ 22 ] All in all, there is no doubt that there are many serious issues to be tried. 3.

Does the balance of convenience favour Cansafe? [ 23 ] Whether our Court of Appeal ’ s decision in McDonald ’ s Restaurants or its decision in 364661 Alberta Ltd. eventually prevails with respect to the treatment of the second and third of the tests for interlocutory injunction, both decisions start from the proposition that the negative covenant is clear. As the Court put it in McDonald ’ s Restaurants , “ the new lease was a clear breach of a clear covenant.

If that test is met, relief might go without proof of irreparable harm. ” . [ 24 ] Here, there is no clear breach of a negative covenant since the very existence of a contractual relationship on this issue is contested. In those circumstances, the court must consider each of the tests for the granting of an interlocutory injunction. [ 25 ] Where, as here, the applicant has been unable to establish the clear existence of a contractual relationship as the basis for its application for interlocutory relief, the applicant cannot establish that it is favoured on the balance of convenience.

Even where there is a clear negative covenant, there are likely to be many serious issues that remain to be tried; however, in such a case the balance of convenience typically favours the interlocutory enforcement of the covenant. That is not the situation here. This is one of the situations which must go to trial so that a trial court can decide whether a covenant exists and, if it does, whether an injunction should be granted. 4.

In the circumstances here, it is not necessary to consider the second branch of the test [ 26 ] Having concluded that the balance of convenience does not favour the applicant, the court concludes it is unnecessary to address the issue of whether the applicant has established irreparable damage. 5.

Cansafe has failed to provide an undertaking in damages [ 27 ] In addition to satisfying the tripartite test, an applicant for an interlocutory injunction in commercial proceedings must, generally, provide an undertaking in damages. [ 28 ] As the Saskatchewan Court of Appeal recently noted in its useful review of the law concerning undertakings in damages, technically, it is more correct to say that a court cannot force an applicant to provide an undertaking in damages but that the court can refuse to grant the relief requested unless such an undertaking is given: Barton .

[ 29 ] Here, when the failure to provide an undertaking in damages was brought to the applicant ’ s attention, the applicant ’ s lawyer said that he would offer one up from the bar. With respect, I am of the view that this is not sufficient compliance with the obligation to provide an undertaking in damages. [ 30 ] As the Barton case also underlines, an undertaking in damages can have serious ramifications long after the injunction proceedings have terminated.

Since the undertaking is one given to the court, it is therefore important for the court to do what it can to ensure that the litigant giving the undertaking has done so knowingly.

The best way for the court to be satisfied that Cansafe has made a serious assessment of its obligations pursuant to an undertaking in damages is to have that undertaking in writing. [ 31 ] Moreover, an applicant ’ s undertaking in damages should be given to the respondent in advance of the hearing on notice so as to provide the respondent with the opportunity of considering if the wording of the undertaking is adequate and if the undertaking itself is sufficiently weighty given, for example, the amount of damages that might result from the granting of relief prior to trial and the ability of the giver of the undertaking to meet that kind of financial commitment.

At the hearing on notice, the court would hear submissions on such issues. [ 32 ] In

summary, in the circumstances here, a secondary reason for the court ’ s denial of the relief requested is the failure to have provided an undertaking in damages. 6. Costs [ 33 ] If the parties are not agreed on costs, I may be spoken to within 30 days of their receipt of this decision. Heard on the 2 nd day of November, 2011. Dated at the City of Edmonton, Alberta this 10 th day of November, 2011. J.B. Veit J.C.Q.B.A. Appearances: Hendrik Kruger, Davis LLP for the Applicant, Cansafe Inc. Natalie D. Tymchuk, Emery Jamieson LLP for the Respondents, Jeffrey Donkin and Safety Buzz Ltd.

Appendix A Extracts from: CONFIDENTIALITY, COPYRIGHT, AND NON-COMPETITION AGREEMENT . . . WHEREAS it is a condition of the employment with the Corporation that the employee enter into a confidentiality, copyright protection and non- competition agreement on the terms and conditions hereinafter set forth; 1.

INTERPRETATION . . . 1.1.2 “ Business ” means the business of training, or the development of training materials carried on by the Corporation. 1.1.3 “ Restricted Period ” means the period commencing on the date of cessation of employment by the employee for the Business and ending immediately 24 months thereafter. . . . 2.

NON-COMPETITION, COPYRIGHT, AND CONFIDENTIALITY 2.1.0 Term - The employee agrees that he/she will not, at any time during the Restricted Period, either directly or indirectly, engage in any business which competes with the Corporations operation of business (or any portion thereof) as such business may operate from time to time during the currency of this agreement anywhere within 150km of any permanent operating location of the Corporation, in either of the provinces of Alberta or Saskatchewan.

Specifically, the employee agrees that he/she will not at any time during the Restricted Period, present, teach or instruct any courses to which he/she has been trained by the corporation, or any courses for which the corporation has paid for the employee to be trained in. . . . 2.2. Reasonableness of Covenant - The employee hereby acknowledges and agrees with the employer that the covenant set forth in

Section 2.1.0 & 2.1.1 is reasonable in the circumstances and necessary to protect the economic position of the Corporation and that the breach by the employee of such a covenant would cause the Corporation and it's business irreparable harm which could not adequately be compensated for by damages. 2.3.0 Adjustment of Covenant - each of the parties of this covenant hereby agree: 2.3.1 If the geographic area encompassed by the agreement as set forth in

section 2.1.0 is at any time determined to be unreasonable by a court of a competent jurisdiction adjudicating upon the validity of the covenant, then the geographic area shall be reduced to the area that the court of competent jurisdiction so determines to be reasonable.

2.3.2 If the restricted period in

section 1.1.3 is at any time determined to be unreasonable by a court of a competent jurisdiction adjudicating upon the validity of the covenant, theil the restricted period shall be reduced to a period that the court of competent jurisdiction so determines to be reasonable. . . . 3.0 REMIDIES (sic) ON BREACH 3.1 Liquidated Damages - The employee acknowledges that it would be difficult to measure or calculate the damage to the business should he/she breach his duties pursuant to this Agreement or his/her duties at common law or in equity and that any such breach would result in irreparable harm to the business.

The employee agrees to pay the Corporation as liquidated damages for each breach of the non-competition or confidentiality provisions under this agreement the sum of five thousand ($5,000) dollars. . . . 3.3 Injunction - The employee acimowledges that the monetary damages to the corporation for breach of this agreement alone would not be adequate remedy and the Corporation has a proprietary interest in its business operations, customers and training materials that would be affected through continued breach of this agreement.

Accordingly, the employee agrees that if he/she shall, in breach of his/her obligations under this Agreement or his duties at common law or in equity, the Corporation shall be entitled, in addition to all other remedies available, to an injunction or other appropriate judicial order restraining any such breach or the continuation thereof without showing or proving actual damage, if any, sustained by the Business.