Court of Queen ’ s Bench of Alberta Citation: 1400467 Alberta Ltd. v.

Adderley, 2012 ABQB 155 Date: 20120305 Docket: 1103 12774 Registry: Edmonton Between: 1400467 Alberta Ltd., Adderley Holdings Ltd., Herlick ’ s Welding Ltd., MacPherson Pipeline & Oilfield Consulting Inc., Lynco Construction Ltd. (Respondents) Plaintiffs - and - John Adderley, Colin MacPherson, Ivan Herlick, Jico Holdings Ltd., Ulster Cattle Corp., CJM Consulting Services Inc. and Clouded Moon Consulting Ltd. and Pro Canada West Energy Inc. (Applicants) Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B.

Veit _______________________________________________________

Summary

[1] John Adderley, and the other defendants, ask this court to set aside the interlocutory injunction which it granted withoutnotice to them on December 16, 2011. They allege that the following egregious errors committed by Lynco in its December applicationconstituted a breach of its duty of full and frank disclosure when the opposing parties are not present: failing to call the court’s attentionto Rule 6.4 and

article 4.01 of the Code of Conduct of the Law Society of Alberta which both require notice to be given to them, and,materially misrepresenting the factual background to the application. [2] The defendants also allege that the applicants have not, in any event, established the kind of breach of the non-competecovenants executed by the defendants that would trigger the imposition of an interlocutory injunction, as contemplated in the negativecovenants themselves. [3] Finally, the defendants argue that the form of interlocutory injunction granted is defective as being for long a period of timeand as being an expansion of the negative covenants. [4] The application to set the order aside is denied; the order of December 16, 2011 is confirmed. [5] Although this application is framed as an application to set aside the earlier order, the parties agree, and I agree with them,that the effect of the application is to require Lynco to renew its application, on notice, and to bear the burden of establishing that theexceptional remedy of an interlocutory injunction is appropriate in the circumstances; in other words, this is Lynco’s application de novo,on notice. [6] The court acknowledges that impropriety in obtaining the without notice order, in other words, that proceeding on an exparte basis, could be a basis for setting aside the order, even where the merits might otherwise justify the order.

The court concludes thatthe applicants did not act improperly in proceeding without notice: the responsibility of a lawyer in such circumstances was fullycanvassed between the applicant lawyer and the court. The conversation between the lawyer for the applicants and the lawyer for thedefendants shortly before the application was brought without notice was not, in the circumstances here, the kind of evidence that wasrequired to be brought to the court’s attention: the tone of the conversation may have given rise to a concern that the discussion wasprivileged.

In any event, even as now reported by the then lawyer for the defendants and therefore waiving any privilege, the defendantswere formally refusing to provide Lynco with its documents. Therefore, the conversation merely confirmed the applicants’ concern aboutthe status of those documents.

Indeed, evidence acquired after the without notice hearing confirms the applicants’ concerns: both heavyequipment, and, more importantly documents, including quality control packages, are missing. [7] Turning then to the merits of the application for an interlocutory injunction, the applicants have established that they areentitled to an interlocutory injunction. They have satisfied the formal provisions of the usual tri-partite test: there is a serious issue to betried and the second and third parts of the test are explicitly acknowledged by them to exist in the non-compete agreements which theysigned.

Such agreements, in the context of the sale and purchase of a business, are entitled to enforcement by the courts. The only realissue on the application is, therefore, whether the defendants have committed a prima facie breach of their covenant not to compete. Onthis issue, the court accepts the contemporary, independent evidence of the nature of Lynco’s business in 2008 when the applicantsacquired a majority interest in the company; that evidence is more persuasive than the evidence of Mr.

Adderley to the effect that Lyncowas not engaged, at the relevant time, in the kind of business in which he and his co-defendants are currently engaging. [8] As to the form of the interlocutory injunction, it is appropriate that the injunction should last no longer than the periodcovered by the negative covenants.

It is also appropriate to use the word “Lynco” in the injunction rather than the word “business” sincethe evidence establishes that, at the relevant time, “Lynco” and the “business” were co-extensive. [9] Alberta does not have a rule of practice limiting the time during which an interlocutory injunction without notice will haveeffect; the injunction granted here followed Alberta practice by including an explicit term allowing the respondents to apply to set theinjunction aside on 48 hours’ notice.

The respondents were effectively notified of the granting of the injunction on December 17, 2011.They were therefore not prejudiced by the restriction contained in the without notice order. Cases and authority cited [10] By the Applicants: Alberta Rules of Court, R 6.4; The Law Society of Alberta, Code of Conduct,

Chapter 4; Alexander v.Cherry, 2007 ABCA 128, 2007 CarswellAlta 863; Porter v. Anytime Custom Mechanical, 2007 ABCA 208, 2007 CarswellAlta 827; Duke Energy Corp. v. Duke/Louis Dreyfus Canada Corp., 1998 ABCA 196 , 1998 Carswell Alta 543; R.W.D.S.U., Local 580

v. Western Wholesale Drug Ltd., 1969 CarswellBC 49 (CA); Maligne Building Ltd. v. R., 1980 CarswellNat 223 (FCCA); Tele-Direct(Publications) Inc. v. Intra Canada Telecommunications Ltd., 1986 CarswellQue 88 (S.C.); Mercator Enterprises Ltd. v. Harris, 1978CarswellNS 167 (CA); Hart v. Brown, 1913 CarswellAlta 117 (TD); Easyhome Ltd. v. Casey, 2009 ABQB 735, 2009 CarswellAlta2185, Belron Canada Inc. v. TCG International Inc., 2009 BCSC 596, 2009 CarswellBC 1139; Genesis Canada Inc. v. Hill, 1994CarswellOnt 172 (G.D.); 364661 Alberta Ltd. v. 735608 Alberta Ltd., 2010 ABCA 6, 2010 CarswellAlta 10;.

KRG Insurance Brokers(Western) Inc. v. Shafron, 2009 SCC 6, 2009 CarswellBC 79; R.J. Sharpe, Injunctions and Specific Performance, rev. ed. (Toronto:Canada Law Book, 2009); R.J.V. Gas Field Services Ltd. v. Baxandall, 2003 ABCA 170, 2003 CarswellAlta 819; Foundation CapitalCorporation v Saxon 2011 ABQB 102. [11] By the Respondents 1400467 Alberta Ltd. and Lynco Construction Ltd.: 3058354 Nova Scotia Co. v. On*SiteEquipment Ltd., 2007 ABQB 695; Echostar Satellite LLC v. Pellettier, 2010 ONSC 2282; Alberta Rules of Court, Alta. Reg. 124/2010,Rule 6.4; Ruby v.

Canada (Solicitor General), 2002 SCC 75; Advance Rumely Thresher Co v Laclair (AB CA), 1916CarswellAlta 32, 10 Alta. L.R. 446; Alberta Treasury Branches 1999 ABQB 185 , 1999 CarswellAlta 212, 234 A.R. 201. [12] By the court: Bell Express Vu Ltd. Partnership v Rodgers 2007 O.J. No. 4569, 52 C.P.C. (6th) 312; Provincial RentalHousing Corp v Hall 2005 BCCA 36, [2005] B.C.J. No. 95.

Appendix A: Parts 7, 8, 9, and 10 of the Adderley employment contract with Lynco Appendix B: Adderley Non Competition Agreement Appendix C: Without notice order issued on December 16, 2011 Appendix D: Oral decision of the court on December 16, 2011 Appendix E: Extract from decision of the Saskatchewan court on January 20, 2012 1. Background

a) Factual [13] On December 16, Lynco et al, who knew that the respondents were represented by lawyers, made applications withoutnotice, i.e. ex parte, for replevin and for an interlocutory injunction.

The replevin issues are not dealt with by the parties or by the courtin the current application. [14] The evidence filed in support of the without notice applications included an affidavit from Douglas Golosky, the soleshareholder and director of 1400467 Alberta Ltd. and a director of Adderley Holdings, Herlick’s Welding Ltd., MacPherson Pipeline &Oilfields Consulting Inc., subsequently referred to as Holdcos, and Lynco Construction Ltd. The Holdcos were the only votingshareholders of Lynco. Mr.

Golosky’s affidavit contained the following information: - in April 2008, 140 purchased 80% of the voting shares in each of the Holdcos and 80% of the Class H (non-voting) shares ofLynco for $2.7 million; this interest is hereafter referred to as the “majority interest”. The remaining 20% shareholdings in thosecompanies were owned by the individual defendants; - as a term of the purchase agreement for Lynco shares, each of the individual defendants entered into an employment agreementwith Lynco for a three year term; - the Adderley employment agreement is representative of all three such agreements.

Parts 7, 8 , 9 and 10 of that agreement arereproduced as Appendix A; - in addition to the Parts mentioned above, each agreement also contained a term to the effect that each of the individual defendants

was employed in a fiduciary capacity and would act in the best interests of Lynco, without any conflict of interest and consistently with their duties of loyalty to Lynco (article 2.5), that each of the individual defendants would not use Lynco ’ s confidential information for their own benefit or the benefit of any person, corporation, enterprise or entity, or in any way detrimental to Lynco, (article 6.3), and that all of the property pertaining to the business of Lynco remained the sole and exclusive property of Lynco and each of the individual defendants would promptly surrender any Lynco property within their control or possession to Lynco upon request or upon termination of their employment (article 6.5); - as of the same date as the purchase by 140 of the shares, each of the individual defendants also entered into a Non-Competition Agreement with 140 and Lynco; that agreement was stated to apply for a period of five years from the closing date of the purchase agreement.

A copy of the Adderley agreement, which is representative, is attached as Appendix B; - as a result of a dispute between 140 and a third party over the beneficial ownership of the majority interest, in June 2010, this court appointed the individual defendants as the sole directors of Lynco and were given the full authority to manage or supervise the management of Lynco; - in May 2011, following the resolution of the dispute between 140 and the third party, this court appointed Mr. Golosky as the sole director of the Holdcos. Mr.

Golosky, along with Carol Golosky, Richard Skinner, and the individual defendants Adderley and MacPherson, were appointed as directors of Lynco and were given full authority to manage and supervise the management of the business and affairs of Lynco on an interim basis; - in June 2011, the shareholders of Lynco passed a resolution appointing Mr. Golosky, Boyd Madson and Robert Brown as 140's nominees to the Lynco board of directors.

Adderley and MacPherson were appointed as the nominees of the individual defendants to Lynco ’ s board of directors; - Lynco operates, among other places, at Midale, Saskatchewan, a centre whose population is approximately 500 people and which has only one bank, the Midale Credit Union. The individual defendants live in or in close proximity to Midale and have dealt extensively with MCU. In 2006, the individual defendants obtained financing from MCU to operate Lynco and that financing remained in place after 140 purchased the majority interest in Lynco.

MCU is also loaning funds to the individual defendants ’ new business, started in August, 2011 under the name Pro Canada West Energy Inc. MCU is the mortgagee on title to a building owned by JICo Holdings Ltd. in Midale. JICo is a holding company controlled by the individual defendants. In April, 2008, JICo agreed to lease its premises to Lynco. The General Manager of MCU responsible for managing the Lynco accounts is Bob Harris. Bob Harris ’ wife, Jean Harris, was Lynco ’ s staff accountant. When 140 purchased the majority interest in Lynco, Jean Harris remained as an employee of Lynco.

Jean Harris had signing authority on the MCU Lynco accounts; - after June, 2011, Golosky began looking at Lynco ’ s books and records. He was concerned that Lynco ’ s equipment rentals from JICo went from approximately $900,000.00 in 2010 to approximately $5.7 million in 2011 while the individual defendants had control of Lynco.

Golosky also noted that persons related to the individual defendants appeared to have been paid significant consulting fees; - on July 6, 2011, Golosky directed Boyd Madsen to send an email to the individual defendants and to Jean Harris, advising them of the hiring of a new operations ’ manager, Edwin Flannery, advising them of operating information that had previously been requested but not obtained, telling them that their presence was requested at a meeting on July 7, 2011, and requesting itemized information, including, for example, copies of all JICo rental agreements for all equipment and tools rented from JICo by Lynco, copies of all JICo invoices submitted to Lynco for payment, etc.

At the meeting on July 7, 2011, the individual defendants and Jean Harris did not provide the information itemized. At that meeting, Golosky terminated the employment contracts of each of the individual defendants and of Jean Harris; - on July 6, 2011, Golosky notified MCU of his authority over Lynco accounts and Lynco credit cards with MCU and directed MCU to allow no further amounts or cheques to be debited against the accounts without Golosky ’ s specific written authority and to cancel all credit cards issued to any Lynco directors or employees.

Golosky believes that Jean Harris has subsequently gone to work for Pro Canada; - on July 8, 2011, without previous notice, MCU demanded repayment of the full amount of its Lynco loans. Golosky states that he believes that MCU ’ s loans were fully secured and that, to the best of his knowledge, when MCU demanded repayment, no default in payment had been made on the loans. He states that when 140 acquired a majority interest in Lynco in 2008, much of Lynco ’ s long term debt was paid off by an equity injection by himself.

He also states that, in 2010, Lynco ’ s assets, net of liabilities other than amounts payable to shareholders, were valued at over $2.5 million, which was well in excess of any amounts payable to MCU.

- MCU instructed seizure of Lynco ’ s assets, which seizure occurred on August 5, 2011. Bob Harris came to personally remove Lynco ’ s computers and servers. - by letter dated August 5, 2011, JICo served Lynco with notice that it was terminating the lease on the basis of the MCU default, and because Lynco was allegedly in arrears of rent to JICo. The lease agreement commencing May 1, 2008, established a base rent of approximately $16,500.00 per month. Commencing on May 1, 2009, the base rent would be increased by the percentage increase in Saskatchewan ’ s consumer price index.

While Lynco was controlled by the individual defendants, i.e. from 2008 to July 2011, Lynco was charged only the base rent. Effective July 1, 2011, the individual defendants caused JICo to increase Lynco ’ s monthly rent to approximately $17,500.00 per month, and to retroactively adjust the lease payments back to May 2009. Golosky believes that the retroactive adjustment were the “ arrears ” relied on by JICo to terminate Lynco ’ s lease.

At this time, Adderley and Herlick remained directors of Lynco; - on August 9, 2011, JICo instructed a bailiff to attend at the JICo premises to seize the premises notwithstanding that it had elected to terminate the lease. As part of the seizure, the individual defendants caused JICo to remove business records belonging to Lynco and a partially completed skid, the Mosaic skid, belonging to one of Lynco ’ s customers. JICo ’ s lawyer, Busse Law Professional Corporation, confirmed that JICo had seized the Mosaic skid as part of its seizure. Mr. Busse is one of the directors of Pro Canada.

Under its contract with Mosaic, Lynco had received 50% of the contract price to build the skid up front and was to be paid the remaining 50% upon delivery of the skid to the customer. The individual defendants completed the Mosaic skid despite Golosky ’ s notice to them that to do so would be in breach of their covenants; - on August 16, 2011, the individual defendants, or some of them, incorporated Pro Canada.

Golosky states that to the best of his knowledge and information, Pro Canada is directly competing with Lynco and has hired a number of Lynco ’ s former employees. [ 15 ] The other main evidence filed by Lynco in support of its application without notice of December 16, 2011, was the affidavit of Edwin Flannery, the operations manager of Lynco, whose affidavit includes the following information: - on Friday, August 5, 2011, the defendant Adderley was present during MCU ’ s seizure and was directing the bailiff about which items allegedly belonged to JICo and which items belonged to Lynco.

When told by Flannery of the strong feelings between Lynco and JICo ’ s principals, the bailiff indicated that his directions from MCU were to store the seized items at the JICo premises. Flannery is not aware of any bailee ’ s undertaking being provided by JICo to the bailiff; - on August 5, 2011, Bob Harris came to the Lynco shop and removed Lynco ’ s computers and servers.

Harris refused to allow the completion of a back-up of the computers on an external hard drive; - on August 12, 2011, Lynco asked MCU for confirmation that no confidential and proprietary information was deleted from the Lynco computers; no reply was ever received to that request; - on August 9, 2011, a different bailiff firm attended at the Lynco shop in the JICo premises in Midale, stating that he was evicting Lynco on instruction from the landlord, JICo. The locks were changed and Lynco was given ½ hour to remove personal items.

Flannery told the bailiff that certain pipe fittings located in the Lynco shop had been purchased by Lynco customers, Cenovus and Apache; the bailiff gave permission to remove those items along with the personal items. The defendant Herlick then attended the shop and told the bailiff that no pipe fittings, including the Cenovus and Apache fittings, were to be removed. The bailiff then instructed that the pipe fittings remain on the premises.

All of Lynco ’ s business records, confidential information, customers ’ quality control packages, and other property had already been seized by MCU and remained in the JICo premises. Lynco has never been provided with any listing of items seized by JICo. JICo ’ s seizure was said to be in relation to rental arrears of $185,566.34, but no demand for arrears of that amount was ever made by JICo; - from time to time, Flannery would contact the defendant Herlick to ask for various Lynco business records, including quality control reports.

Herlick said that he would not release any original records but would provide copies. Eventually, Herlick stopped taking Flannery ’ s telephone calls. On November 21, 2011, Flannery asked James Whitford, Lynco ’ s former quality control employee now working for the defendants, for an Enerplus Quality Control Package in relation to pipeline work done in the Frida Lake area. On contracts performed by Lynco, a customer typically holds back 10% of the contract price until it receives the Quality Control Package from Lynco. On November 24, not having heard from Whitford, Flannery called back.

The ensuing conversation went like this:

Any word on this? You ’ ll have to contact them. Who and can I have a number? John (Adderley) or Ivan (Herlick) on cell. What ’ s John ’ s number? I ’ m not allowed to give it out. Then how am I to call him? I ’ m not sure. Sorry but I don ’ t want to get in the middle of this stuff. - relying on the list of assets seized by MCU, 13 items of heavy equipment are either missing or are missing specific parts. In particular, Flannery has observed a 2007 GMC 5500, a 2006 GMC 550 and a 2009 Ford F550 HIAB Crane being used by Adderley ’ s new company in the Cenovus field.

Flannery also observed a 44J Wheel Loader being loaded up and driven away from the JICo premises; he does not know where the unit has gone, but it is not on site. He does not know how the keys to the units have been obtained. Flannery has been advised by a named resident in Midale that the defendant Herlick gave him a 1997 Hitachi EX 270 LC Track hoe and Stanley damper to push piles at a house site in Midale; photographs of that equipment at the house site are provided.

On August 31, 2011, MCU confirmed that the Track hoe had been removed by Herlick. - on August 31, 2011, MCU also confirmed that the personal defendants Adderly, Herlick and MacPherson “ are anxious to complete necessary finishing work on a skid that Mosaic has ordered from [Lynco]. The Credit Union understands that unless this equipment is completed to the specifications, Mosaic cannot take delivery of it. As far as the Credit Union understands, the work is being completed without use of seized equipment ” .

On September 21, 2011, Flannery saw the Mosaic skid on the back of a hauling company ’ s truck. - in July, 2011, Flannery met with representatives of Cenovus Energy to inform Cenovus of the change in management at Lynco. Cenovus had executed a Master Service and Supply Agreement with Lynco in December 2009. The Cenovus work was a 5-day a week job with one to two crews, along with equipment. Two key Lynco employees who worked in the field on the Cenovus contract were one McFadyen and one Garvey.

On August 29, 2011, Flannery met McFadyen and Garvey who told him that they were quitting Lynco and going to work with the defendant Adderley. Flannery then called Cenovus and explained that Lynco needed a few days to get a crew together since the crew that had been working on the Cenovus contract had quit that morning. A representative of Cenovus telephoned Flannery the next day to inform him that Cenovus was going to use Adderley ’ s company henceforth as it had all the men and equipment that Cenovus wanted to work on the job.

Cenovus then arranged to pick up some pipes that Lynco had been working on; the person who picked up the items was a former employee of Lynco who signed the receiving report on behalf of Pro Canada; - on December 8, 2011, Lynco paid out the full amount of the debt, interest and legal fees, totalling approximately $850,000.00, owed to MCU; MCU stated the credit union “ will there by (sic) undertake to release all security, debtors and guarantors as indicated in your letter as well as [Adderley, Herlick and MacPherson]. ” By letter dated December 9, 2011, Lynco advised MCU that representatives of Lynco would go to the MCU offices on December 13, 2011 to pick up all keys to heavy equipment stored in the yard of the JICo premises.

When Flannery attended on December 13 as Lynco ’ s representative, he was told by a representative of MCU that although MCU had keys to access the JICo premises, those keys could not be found. That representative was able to deliver only 13 keys to 24 pieces of heavy equipment seized by MCU and could not account for the missing keys. Many of the keys that were provided were duplicates only and were not the original manufacturer ’ s key. When Flannery attended at the JICo premises, some of the equipment was missing, as indicated above.

While Flannery was in the yard, the overhead door to the shop opened and a mechanic ’ s truck filled with equipment drove out of the building. The man driving the truck then locked the door to the JICo shop. Flannery followed the truck to a site approximately 3 miles out of Midale to a field where the defendant Adderley had equipment and personnel working. This prompted a renewed request to MCU to provide access to the JICo shop. The representative of MCU spoke with the defendant Adderley on the phone and asked if the mechanic who had keys to the premises would drop off the keys to MCU that afternoon.

Flannery left MCU without being provided access to the JICo premises. On December 14, 2011, Flannery returned to MCU; no keys had been delivered by Adderley or Herlick. Later that day the representative of MCU told Flannery that MCU ’ s lawyer could not reach Mr. Busse and that Mr. Busse was not in his office for the remainder of the day. [ 16 ] After reviewing the above information, and for the reasons set out in Appendix D, the court granted the without notice interlocutory injunction reproduced at Appendix C.

[ 17 ] On Saturday, December 17, 2011, Lynco gave informal notice to the defendants of the issuance of the without notice interlocutory order and couriered the materials to the defendants on December 19, 2011. Information to Pro Canada about the developments in the proceedings affecting them were couriered on December 20, 2011, and delivery was actually made to Pro Canada on December 22, 2011. [ 18 ] On January 16, 2012, the applicants appeared before me, together with the defendants, to obtain an order for possession pursuant to Rule 6.51(3) of the Rules of Court.

At that time, the defendants indicated that they were intending to bring a motion to set aside the interlocutory injunction on March 15, 2012, and had no interest in appearing before this court prior to that date. The parties agreed to an arrangement whereby all deadlines in the Rules would be waived.

At the request of the applicants, the court subsequently forwarded to counsel for both parties information about when the court could make itself available to counsel prior to March 15, 2012. [ 19 ] On January 17, 2012, the defendants appeared before a Saskatchewan court to obtain a stay of this court ’ s interlocutory order.

On January 20, 2012, a Saskatchewan granted the request for a stay; an extract from its reasons is attached as Appendix E. [ 20 ] Counsel for the defendants informed the court on February 16, 2012 that, despite the fact that Saskatchewan had stayed the operation of the without notice interlocutory injunction, Cenovus, an Alberta company, was taking the position that it was bound by the Alberta court ’ s order and was therefore no longer assigning work to the defendants ’ company, Pro Canada. [ 21 ] In support of their position relative to their application to set the without notice interlocutory injunction aside, the defendants filed affidavits.

One of those was from Stuart Busse, sworn on February 9, 2012, who had been for some time the lawyer for JICo Holdings Ltd. Mr. Busse ’ s affidavit provides the following information: - following the seizure of Lynco ’ s assets by MCU in August 2011, it appeared to Busse and the defendants that Lynco was committing

an act of bankruptcy and so it was considered necessary to effect a landlord distraint for rent arrears to gain priority over unsecured creditors of Lynco; - shortly before December 13, 2011, he was informed by the individual defendants that Lynco had paid out the line of credit at the MCU and that MCU had released its equipment both inside and outside JICo ’ s Midale shop. In the late afternoon of December 13, 2011, he received a telephone call from a person who identified herself as the applicants ’ lawyer.

He told the applicants ’ lawyer that JICo had no interest in the outside equipment but was not prepared to “ have just anyone show up at any time of day or night and remove equipment without signing a receipt for it and allowing someone from JICo to accept that receipt. I specifically said that all we need to do was sort out a protocol for this to take place ” . As to the Lynco property that was in the shop area, “ I claimed was subject to the Landlord distraint and we would have to discuss how and when that property might be released ” .

He also told the applicants ’ lawyer that “ she should be cautious as the 80% purchase of Lynco shares had not been completed . I advised that there was still unpaid the approximate sum of $800,000.00 out of $2,700,000.00 plus or minus purchase price. I went on to advise Ms. Plante that I felt that the common law right of equitable lien prevailed and that [the individual defendants] could have ownership of Lynco back in full as the law is that a person cannot claim full ownership until such time as they have paid for the items (Mr. Busse states that he advised Ms. Plante that “ she could find a recent

article on this subject under the heading of “ New life to an old remedy ” by a University professor, Ms. Cotton. “ I explained that she could Google that quotation and find the article. ” Mr. Busse may be correct that Ms. Cotton is a university professor, but the

article itself posted from Google states that she is a member of the bar of Alberta. Mr. Busse appears to have been incorrect in referring to the

article as “ recent ” ; the latest decision mentioned in the

article was issued in 1990, and the

article refers to the 1990 decision of the Supreme Court of Canada as “ recent ” , with the inference being that the

article itself was written shortly after 1990, or well over two decades ago.) Further our conversation ended on a tone of “ let ’ s talk ” about the situation and the potential of doing further business together. Had Ms.

Plante advised me that she wanted to take the matter before the Court in Alberta we could have prepared a response and dealt with the application in a timely manner. ” ; - on January 25, 2012, JICo authored correspondence indicating that it objected to sending a cheque to Lynco in relation to the completion of the Mosaic skid, stating that JICo was entitled to $60,000.00 for the work it did on the skid and that it may also be entitled to a share of any profit that was made on the skid.

On January 27, 2012, an arrangement was made amongst the parties whereby the final payment for the Mosaic skid was forwarded to Lynco ’ s lawyers to be held in their trust account on the trust condition that it would not be released to Lynco without JICo ’ s agreement or a court order. [ 22 ] John Adderley filed two affidavits, sworn on February 8, 2012, in support of the application to set aside the without notice interlocutory injunction.

In those affidavits, he provides the following information: - prior to April 2008, the business carried on by Lynco was “ ‘ facility construction ’ which means that it built piping and stands and

related structures for companies based upon designed plans ” ; - the “ related services ” referred to in the Non-Competition Agreement was “ the support for testing and necessary certification for the completed construction to assist in the facility being put to use by our customers.

This is often referred to as ‘ Commissioning ’ ” ; - he provided a list of jobs that Lynco was doing from April 2006 to April 2007; - the first payment for closing the share purchase deal came 6 months late and occurred in October 2008 and consisted of approximately $2,100,000.00 which was substantially less than the full purchase price. The full purchase price for the shares has never been paid - the Mosaic job was completed in November 2010 (sic); - “ at no time did anyone refuse to supply any financial information.

Any complaint was that they asked for so much information that it was not possible to supply such in a timely manner and they then threatened to come up with a reprimand for failure to supply the information ” ; - “ Lynco then (it is not clear about the time frame, but may be a reference to the period when Adderley was fired) took all of the corporate financial records from Midale Saskatchewan, and I have no idea where they have gone after that and I do not have control of any records. I have spoken with Colin MacPherson and Ivan Herlick and they have advised me of the same. . . .

At no time did we refuse to deliver the (financial) records back to Lynco as we had not removed them ” ; - “ following the seizure of Lynco assets by the Midale Credit Union and JICo stopping Lynco from renting our equipment it appeared that Lynco was doing very little, if any, work in the Midale area ” ; - “ about 1 week after the Midale Credit Union seizure and there was no response on the line of credit issue, JICo stopped Lynco from using JICo ’ s equipment.

After a week or so and after attempts by JICo to get paid for back rental of the shop and equipment and Lynco ’ s apparent act of bankruptcy by failing to pay the line of credit and having its assets seized, JICo had Lynco removed from JICo ’ s property and its equipment returned ” ; - “ JICo decided that it would finance and complete the skid and deliver it to Mosaic under the original purchase order but to ask Mosaic to effect payment jointly to JICo and Lynco such that JICo could recover the completion costs and ensure that the balance would be applied to the line of credit which was outstanding at the Midale Credit Union; - information was coming from the Midale Credit Union to [me and the other individual defendants] regularly and appropriately concerning the line of credit until the line of credit was paid off sometime in mid-December 2011; - from information provided to him by the Midale Credit Union concerning accounts receivable of Lynco, “ I have concluded that Lynco was not conducting any active business or if it was, accounts were not being generated or were being generated in the name of other companies ” ; - Lynco did not do work for Cenovus prior to December 2009; - it was agreed between Wayne McFayden, a former employee of Lynco, Adderley and Stuart Busse that a new company would be formed called Pro Canada West Energy Inc. and that this company would be owned 50% by Busse;

- the work being done by Pro Canada West for Cenovus has been from the beginning general oilfield maintenance and repairs; it has not done anything that is the “ Business ” of Lynco as described in the non-Competition Agreement; - Pro Canada is one of two companies doing the bulk of the work in the Cenovus field near Weyburn, Saskatchewan, and the other company is Carson Energy Services which is a much larger company than Pro Canada.

There was a discussion concerning a number of our employees being transferred to Carson Energy ’ s employment along with certain of our equipment; - “ I have been told by representatives of Cenovus that once the Alberta injunction is removed that Pro Canada will be put back to work as soon as mobilization is able ” ; - the work that Pro Canada was doing for Cenovus when the Alberta injunction was granted was moving rocks from the community pasture that is part of the Cenovus field, cleaning up pipe line right of way, and installing fibre spar pipe by normal pipeline work.

Pro Canada was earning an average approximately $60,000.00 per day from Cenovus for this work. [ 23 ] The applicants filed some additional evidence in support of their position on the February 16, 2012 application. In his February 1, 2012 affidavit, Mr. Flannery provided the following information: - Lynco ’ s website was created in 2006 before the majority shares in Lynco were sold to 140 in April 2008. The website was never updated because the business and services provided remain the same. The web-site states: Lynco Construction Ltd.

Lynco has a team of seasoned professionals in facilities and pipeline construction. Lynco ’ s middle management and construction supervisors provide projects with the skills necessary to lead dedicated teams of foreman, welders, operators, laborers and construction personnel to consistently perform to the highest standards in the industry. Some of Lynco ’ s core values are to maintain quality work within expected timelines while focusing on continually improving the clients ’ expected total installed cost.

Lynco ’ s most valued asset is it ’ s people and therefore its highest core value is the continual improvement of its outstanding safety record. Company History Founded in 1997 by president, Colin MacPherson, the original company in Wapella, SK performed pipeline construction and maintenance work for a number of clients including TransCanada Pipelines Ltd., Ledcor Maintenance, SaskEnergy, TransGas, Navigo Energy, Acclaim Energy, Progress Energy and Creswick Petroleum. Services provided by Lynco included the provision of welding crews, maintenance crews, lease construction activities, and road building.

In 2004, Lynco grew to meet its clients ’ demands to carry even larger projects. John Adderley and Ivan Herlick, two very well respect artisan welders and supervisors each with a vast multitude of diverse experience joined Colin and Lynco blossomed to a company with the ability to provide shop fabrication and site construction of upstream oil and gas process facilities in excess of $25 Million TIC. In 2006, Darcy Thiele, a Professional Engineer with much experience in upstream oil and gas as well as refinery processes became the fourth member of this team.

By establishing its facilities in Red Deer, Alberta and Midale, Saskatchewan, Lynco is focused on developing facilities in the hearts of the Alberta and Saskatchewan oilfields in order to serve its clients with more dependable and cost effective services and products. In 2005, a new 12,000 ft2 shop was added to the existing facilities to provide a total shop space of over 23,000 ft2 split over 3 buildings, one dedicated to stainless steel fabrication.

This new facility open design shop was constructed with Radiant Floor Heating, 2 - 15 tone overhead cranes, and overhead doors located and the front and back to provide a layout conducive to mass production of piping spools. The entire layout and construction of this new shop reflects Lynco ’ s philosophy of commitment to utilizing cutting edge technologies to supply an improved product to its clients while maintaining or improving cost and schedule.

The main key to meeting the philosophy has always been Lynco ’ s people. Lynco ’ s entire workforce is a family of energetic and outstanding individuals who are capable and adept at supporting the ever-growing demands of an expanding business while maintaining Lynco ’ s highest value - SAFETY. Combining Lynco ’ s Alberta and Saskatchewan shop facilities are situated on 45 acres of land which allow for ample outdoor materials storage as well as Lynco ’ s unheated building storage.

This space is pertinent to Lynco ’ s near-future expansion plans which include the addition of dedicated painting and coating facilities as well as spool and vessel heat treating facilities. [ 24 ] In a further affidavit sworn on February 11, 2012, Mr. Flannery provides the following information: - he notes that “ business ” in the agreement under consideration is not limited to a particular industry although Lynco does most of its work in the oil and gas industry.

In the oil and gas industry, “ upstream involves everything required to get the oil and gas from the source to the refinery plant and “ downstream ” includes everything done at the refinery and beyond to get the product to the final user. ” Lynco has always done oilfield maintenance and repair as part of its upstream operations.

The photographs shown on Lynco ’ s website show Lynco doing the dirt work and pipe work that Pro Canada is now doing for Cenovus; - he annexes invoices provided by Lynco to one of its customers during the one year prior to 2008; the services charged to that customer are mainly for oilfield maintenance and repair; - in December 2008, with the input of both the majority and the minority shareholders, Lynco put together a Confidential Information Package for distribution to a number of prospective lenders.

In it, the following representations were made: Lynco ’ s revenues are derived from both maintenance related projects and construction projects; Lynco was founded in 1997 by MacPherson and performed pipeline construction and maintenance work; Lynco ’ s business operations are fully integrated and include plant shut down and maintenance, filed maintenance, facility construction, pipe fabrication and assembly, pressure vessel manufacture, modular fabrication, highly skilled welding to a broad customer base of major energy and mineral producers. - in addition, the brochure indicated that Lynco ’ s principal competitors include Carson Welding and Maintenance, now operating as Carson Energy Services Ltd.; - Adderley had full access to Lynco ’ s accounting records until Adderley ’ s employment was terminated in July 2011.

Financial statements prepared by MNP and provided to Lynco in May 2011 after Lynco paid MNP in excess of $21,500.00, show that when Lynco ’ s majority interest was sold in 2008, current bank indebtedness was approximately $2 million, and long term debt was approximately $1.8 million. A year later, in April 2009, all of the current bank indebtedness had been paid off and the long term debt had been reduced to $661,751.00. In 2010, the long term debt was further reduced to approximately $400,000.00 and the operating line of credit was approximately $500,000.00.

When Lynco paid out the full indebtedness to MCU in December 2011, the full amount of the indebtedness plus accrued interest was approximately $700,000.00. When Adderley left Lynco in July 2011, Lynco ’ s current accounts receivables alone were in excess of $1 million, and its property, plant and equipment were valued in excess of $1 million. As of June 7, 2011, Jean Harris prepared a list of Lynco ’ s top 10 customers and its top 10 vendors or suppliers.

Both Cenovus and Mosaic are in the top 10 customers and JICo is one of the top 10 suppliers; - although Adderley now claims that he was not paid the full purchase price for the sale of the majority interest in Lynco, Adderley has never before made any such claim and does not do so in his Statement of Defence in the underlying action, or in a counterclaim. The transaction closed almost four years ago; - quality control assurance is a key requirement of any project that Lynco provides to its customers and is mandated by regulatory

and legislated requirements such as vessels and boiler codes; - he acknowledges that Lynco did take some of its financial records from the Midale shop when Flannery met with the Adderley defendants in July 2011, but only took some of the financial records for audit purposes.

Lynco ’ s greater concern are the records that were in the JICo building and which were not contained on Lycno ’ s computers, including records for safety and welding, QC packages, employee files, vendor invoices, and master service agreements with various customers. [ 25 ] On February 16, 2012, the court concluded that, even though Lynco ’ s application for contempt had been filed first, it would be more sensible, more economical and fair, to hear the defendants ’ application first as the decision on that application could have ramifications on the other pending matters.

b) Regulatory [ 26 ] Rule 6.4 of the Alberta Rules of Court reads as follows: Despite any other rule to the contrary, notice of an application is not required to be served on a party if an enactment so provides or permits or the Court is satisfied that (

a) no notice is necessary, or (

b) serving notice of the application might cause undue prejudice to the applicant. [ 27 ] Part of the commentary to

article 4.01 - The Lawyer as Advocate - in the Law Society of Alberta ’ s Code of Conduct reads as follows: A lawyer must not communicate with a tribunal respecting a matter unless the other parties to the matter, or their counsel, are present or have had reasonable prior notice, or unless the circumstances are exceptional and are disclosed fully and completely to the court. 2.

Who bears the burden on this application? [ 28 ] Although this application is framed as an application by the defendants to set aside the court ’ s earlier order, the parties agree, and I agree with them, that the effect of the application is to require Lynco to renew its application, on notice, and to bear, anew, the burden of establishing that the exceptional remedy of an interlocutory injunction is appropriate in the circumstances; in other words, this is a fresh hearing of Lynco ’ s application with no deference granted to the December 16, 2011 decision. [ 29 ] In light of the agreement between the parties, it is not necessary to extensively justify the conclusion reached in relation to the burden.

Nevertheless, the court adopts the treatment of this issue at para. 11 of Bell Express Vu. [ 30 ] Even though the matter is heard de novo on this application, so that any defects in the original application might be said to have been cured by the mere fact of the defendants appearing at this hearing on notice, the defendants are entitled to raise what they consider to be egregious errors made on the original application; as they correctly observe, courts have sometimes set aside an ex parte interlocutory injunction because of some defect on the original application, even though the application might otherwise have been granted on the merits: Provincial Rental Housing . 3.

Was proceeding without notice in the circumstances here an error justifying the setting aside of the interlocutory injunction? [ 31 ] As both the Rules of Court and the professional Code of Conduct acknowledge, the requirement of notice, although typical, is not universal. In the circumstances here, the court was satisfied on December 16, 2011, and remains satisfied as of February 16, 2012,

that giving notice in December 2011 to the defendants of the application for an interlocutory injunction would have caused the plaintiffs undue prejudice. [ 32 ] Is the situation here one where Lynco was entitled to apply without notice to the respondents? [ 33 ] The defendants note that Alberta ’ s Rules 9.15 and 9.16 state that a court may set aside, vary or discharge a without notice order “ because information arose or was discovered after the order was made ” , and “ on other grounds that the Court considers just ” .

We look to the case law to provide an understanding of what might be considered “ just ” in any particular circumstance. [ 34 ] Although the court is only hearing the application to set aside the without notice interlocutory injunction on February 16, 2012, that is two months after the order was granted, the parties were before the court on January 16, 2012, that is 30 days after the order was granted. Rule 9.15(2) states that the application to set aside a without notice order must be made within 20 days after the date the order first came to the applicant ’ s attention.

According to the evidence before me, notice was first given to the defendants on December 17, and a formal copy of the order was served on them on December, 2011.

However, Rule 9.15 states that the court is entitled to establish a different time line for such applications; the court considers that, in the circumstances here, the order consented to by the parties relieved the defendants from compliance with the deadline set out in Rule 9.15(2). [ 35 ] Although the case law sometimes describes the only basis for avoiding notice as extreme urgency, or words to that effect, it would probably be more correct, although less economical, to use a cumbersome phrase such as “ undue prejudice that cannot be remedied by giving notice ” , i.e. where the requirement to give notice would defeat the whole purpose of the application, to describe the situation where a party can proceed without notice: see, for ex. comments at para. 18 of Bell Express Vu .

Very occasionally, time constraints alone may be sufficient.

More frequently, there is a concern that giving notice may precipitate the damage which the application is intended to prevent.. [ 36 ] The parties agree, and I agree with them, that the law requires a litigant who applies for substantive relief without having given notice of its application to the potentially affected party to fully disclose to the court all of the information known to the applicant relevant to the application including facts and law which go against the applicant ’ s interest. [ 37 ] The defendants argue, correctly in my view, that impropriety in obtaining a without notice order, in other words, that proceeding improperly on an ex parte basis, could be a basis for setting aside the order, even where the merits might otherwise justify the order. [ 38 ] The defendants allege that the applicants acted improperly in bringing an application without notice and specifically, first that the applicants did not establish that giving notice would cause them undue prejudice and that they did not refer the court to the professional obligations relating to giving notice, and second, that they failed to bring to the court ’ s attention evidence that would have resulted in the dismissal of their application. [ 39 ] I agree that if the applicants had failed in the ways indicated by the defendants that those failures would have been sufficiently serious to result in the setting aside of the without notice order even if the underlying merits of the application would support the granting of the order. [ 40 ] However, I have concluded that the applicants did not commit either of the breaches alleged by the defendants.

As to the issue of advising the court of the usual requirements concerning notice, there was no explicit reference by the applicants to the professional code of conduct or indeed to the Rules requiring notice.

Nonetheless, a review of the transcript of the without notice proceedings establishes that the court did indeed discuss the issue of notice with the applicants and did receive from the applicants argument concerning the necessity of proceeding without notice. [ 41 ] The transcript of the reasons given by the court on December 16, 2011 establishes that the court did expressly turn its mind to the issue of whether proceeding without notice was permissible in the situation before the court and concluded that proceeding in that way was justified.

The court specifically invoked the problems disclosed in the tendered evidence concerning quality control packages and other information that was under the control of the defendants and was not being made available to the applicants. The failure to provide that information to the applicants naturally had some financial effect on the applicants.

Much more importantly, however, the failure to provide that information had negative consequences on the clients, or former clients or customers of the applicants: those customers had environmental and regulatory obligations which it was the duty of the applicants to support. The failure to provide

information about jobs which had been completed could well have had dramatic consequences for the customers.

Lynco ’ s failure to protect its customers ’ interests might have devastating future repercussions on Lynco ’ s ability to regain the trust of customers and clients. [ 42 ] I note, as well, that the evidence obtained between the without notice hearing and the with notice hearing merely confirms the concerns expressed at the without notice hearing: photographs presented in the applicants ’ evidence for the on notice hearing establish the absence of some of the documents for which requests had been made. [ 43 ] The second issue relates to the failure of the applicants to bring to the court ’ s attention at the without notice hearing the conversation between the lawyer for the applicants and the lawyer for the respondents.

I begin by observing that lawyers demonstrate a healthy reluctance to bring to the court ’ s attention communications, especially oral communications, between lawyers relating to a matter before the court. For example, there is no effective ability in recalling oral communications to confidently assert whether the communication was with, or without, prejudice; as the correspondence submitted on this application demonstrates, that characterization of communication may be important in relation to whether the communication can be disclosed to the court or whether it is protected by some form of privilege.

In that context, Mr. Busse ’ s own affidavit discloses that he was making attempts at settling the dispute between the parties; the applicants ’ lawyer might then have concluded that the conversation was privileged and should not be reported to the court. [ 44 ] Since the defendants have now disclosed the telephone communication, it is clear that they are not relying on any kind of privilege and the court is now entitled to consider that conversation in determining whether the order should have been granted without notice. It is true that Mr. Busse reports that he told Ms.

Plante that Lynco could have their heavy equipment back as soon as a protocol was developed for the transfer of that equipment. The issue of the availability of the equipment was not a concern of the court in relation to proceeding without notice: indeed, although it is time consuming and expensive to track down heavy equipment, the court assumes that such tracking down will eventually be possible. Incidentally, however, the additional evidence provided for the on notice hearing establishes that, indeed, some of the heavy equipment which was stored on the JICo premises has gone missing. [ 45 ] Even Mr.

Busse ’ s report of his conversation with Ms. Plante indicates that as late as the date of that conversation, he was not agreeing to turn over the documents, protocol or no protocol. On the contrary, he maintained that the documents inside the JICo property were subject to a valid landlord distraint and he declined to offer up those documents to Lynco. In

summary, therefore, the after-obtained evidence merely supports the applicants ’ contention on December 16, 2011 that giving notice of their application to the defendants was likely to cause them undue prejudice. [ 46 ] For those reasons, the court concludes that there was an adequate basis for proceeding without notice on December 16, 2011. Having come to that conclusion, the next step is to determine whether the applicants have demonstrated, as of February 16, 2012, with the evidence that they have presented, and the evidence presented by the defendants, that they are entitled to an interlocutory injunction. 4.

Is there a proper basis for granting an interlocutory injunction in the circumstances here? [ 47 ] The court concludes that the applicants have established that they are entitled to an interlocutory injunction: there is a serious issue to be tried, the non-compete clause in the circumstances here was part of a purchase agreement and must therefore be treated differently from a non-compete agreement in an employment context, and the clear and explicit wording of the non-compete agreement deals comprehensively with the second and third factors which the court must consider in such applications - irreparable harm and balance of convenience.

The only real issue for determination on the application is whether the applicants have proved at least a prima facie breach of the non-compete clause.

The court concludes that the evidence establishes that Lynco ’ s business prior to the acquisition by the applicants of the majority interest in the company in 2008 is the same business in which the individual defendants and the corporate defendant Pro Canada are currently engaging. [ 48 ] The defendants argue that an interlocutory injunction should not be granted here because the applicants have failed to meet the generally accepted tri-partite test: they assert that the applicants have failed to show a strong prima facie case, and that the two remaining branches, the irreparable harm and the balance of convenience do not favour the applicants.

a) The first branch of the test: a serious issue to be tried [ 49 ] The defendants state that the first branch of the test for an interlocutory injunction is that the applicant must establish that it has a strong prima facie case. With respect, as the defendants themselves acknowledge, in 2010 our Court of Appeal dealt with the

enforcement of negative covenants and held that the first part of the tripartite test is “ raises a serious issue ” . Indeed, the weight of the case law establishes that the first part of the test is merely to establish that there is a serious issue to be tried, and that the onus in relation to the first branch is not particularly onerous. [ 50 ] Here, it is obvious that there is a serious issue to be tried, as the applicants allege a shameless breach by the defendants of a non-compete agreement for which the defendants were paid $2.7 million.

b) The second and third branches of the test [ 51 ] The defendants rely on a recent decision from our Court of Appeal, 364661 Alberta Ltd., to argue that the applicants must satisfy the second and third branches of the tripartite test even if they are the beneficiaries of a restrictive covenant. With respect, although the decision on which the defendants rely deals with an alleged breach of a restrictive covenant, it does not deal with a non- compete covenant obtained as an adjunct to the purchase of a business.

Contemporary case law outlined by me for the benefit of the defendants on December 16, 2011, including the decisions in Doerner and Burgess in the Supreme Court of Canada, establishes that non-compete negative covenants have unique public policy aspects and that, within the general category of non-compete agreements, non-competes in employment contracts must be treated differently from non-competes which arise as part and parcel of the sale and purchase of a business.

As I explained at the time, my understanding of the case law was that, typically, non-competes in employment situations do not deserve the exceptional protection that would be afforded by an interlocutory injunction, whereas, for the policy reasons described in the case law and which I endorse, non-competes arising from the sale and purchase of a business typically do deserve the exceptional protection of an interlocutory injunction. As is obvious from the purchase and sale event and the wording of the non- compete documents, here, the non-compete covenant was part of what was purchased for $2.7 million.

The agreements themselves are clear and unambiguous: they establish that the parties knowingly assert that irreparable damage to the purchaser will be presumed from a breach of the non-compete covenant and that the balance of convenience favours the granting of an interlocutory injunction. In other words, the defendants themselves provide the evidence that is conclusive with respect to the existence of the second and third branches of the tri-partite test.

Despite having had these references to what I considered to be the governing case law for a period of approximately two months, the defendants did not identify any case law that might throw a different light on the legal basis for deciding these issues. I therefore conclude that there is no legal analysis other than the one employed at the without notice hearing which must be applied to the circumstances here. In the result, the applicants have established the existence here of the formal elements of the tripartite test.

The only question is whether the applicants have demonstrated an apparent breach of the negative covenant such as would trigger the remedy of interlocutory injunction as described in the non-compete agreements signed by the defendants. [ 52 ] Here, the main evidence tendered by the defendants concerning the nature of the work done by Lynco at the time of the sale of the majority interest in the company comes from John Adderley.

He states that the business of Lynco at the relevant time was “ building piping and stands and related structures for companies based upon design plans ” and he asserts that neither he, nor any of the individual defendants nor Pro Canada have engaged in that business since August 2011. [ 53 ] With respect, on the issue of the nature of Lynco ’ s business at the relevant time in 2008, I prefer the evidence presented by Mr. Flannery on behalf of the applicants consisting of the evidence of Lynco ’ s website in 2008 and of Lynco ’ s invoices for a period immediately preceding the relevant date in 2008.

The evidence presented by the applicants is contemporary with the relevant period and is independent, arising as it does from a public website and corporate records. As the saying goes, a picture can be worth a thousand words, and the pictures on the website show Lynco doing the kind of dirt work which it was doing for Cenovus when the injunction was obtained. [ 54 ] That the defendants have breached even their own characterization of Lynco ’ s business is conclusively established from their own evidence concerning their finishing of the Mosaic skid: that is clearly work that comes within Mr.

Adderley ’ s statement of what Lynco did, and even according to Mr. Adderley ’ s evidence, he and the others did work on the skid in breach of their negative covenant. Mr.

Adderley alleges that he was forced to breach his covenant because he was fired by Lynco; however, his argument does not address either the specifics of the $2.7 million he received for his promise, or, from the law ’ s perspective, at least equally important issue of the need to protect purchase and sale agreements from the perspective of having healthy competition in Canadian industry. [ 55 ] As a very minor factor in considering whether the applicants have proved the kind of breach of the non-compete that would trigger the remedy which the defendants agreed would be appropriate, the court also notes the evidence concerning Cenovus ’ decision not to continue awarding Pro Canada work .

Cenovus is a sophisticated player in the oil and gas industry, the evidence establishes that it is conversant with the notions of upstream and downstream work in the oil and gas industry. It ’ s apparent conclusion that the work which it was awarding was work that was within the ambit of the interlocutory injunction is one small piece of information in support of the applicants ’ position. It is not weighty information because, as a sophisticated party, Cenovus may simply have acted prudentially in attempting to avoid become embroiled in litigation.

[ 56 ] Overall, however, the court concludes that the applicants have established that the defendants have committed at least a prima facie breach of the negative covenants which they executed and for which they were paid. Based on all of the evidence available before the court as of February 16, 2012, the court concludes that the applicants have established their entitlement to an interlocutory injunction: the granting of the interlocutory injunction without notice on December 16, 2011 is confirmed. 5.

Is the form of the injunction granted improper either because it is ambiguous or because it extends for too long a period of time? [ 57 ] The defendants raise two concerns with respect to the form of the injunction granted. The court concludes that although the without notice interlocutory injunction would, on its face, last until 2013 - when the negative covenant expired - in the circumstances here, which included the ability of the defendants to contest the granting of the order on 48 hours ’ notice, the injunction was not overly long.

Now that the interlocutory injunction has been confirmed on notice, the court maintains that, for clarity of enforcement, the fact that the interlocutory injunction does not exceed the contractual non-compete period should be explicit in the order. The court concludes that a reference in the order to “ Lynco ” rather than to “ Business ” is supported by the evidence and should be maintained. [ 58 ] The defendants argue that, if granted at all, an interlocutory injunction should be time limited. I agree.

In the circumstances here, the without notice interlocutory injunction explicitly stated that the defendants could move to set the injunction aside on 48 hours ’ notice. They did not attempt to do so. Even the Saskatchewan court noted, in mid-January 2012, that it was puzzling that the defendants had not yet moved to set the injunction aside. It is even more puzzling when one recalls that the defendants were actually before the very judge who granted the without notice order on January 16, 2012 and did not ask to have their motion to set the order aside heard without delay. As is discussed in the next

section of this decision, in Canada there are alternative mechanisms chosen by the courts to ensure that orders made without notice are re-heard on notice as soon as possible. In Alberta, for example, in family law matters, where litigants are often unrepresented, a court which makes an order without notice sets the date on which the matter will be re-heard on notice.

In commercial matters, however, Alberta practice has not been to limit the time during which a without notice order will be effective: in commercial matters, one typically expects that the parties will be represented and that their lawyers will make the arrangements for the hearing of the matter which will be most suitable for the clients. For example, there is sometimes a need to have cross-examination or questioning on affidavits and that cannot be accommodated within a short period of time; an obligation to come back to court to obtain an extension of a time period is costly to all parties.

Although Alberta commercial practice could always be reviewed, I have concluded that the provision in the circumstances here which allowed the defendants to come back on 48 hours ’ notice was adequate protection of their rights. [ 59 ] The defendants also allege that the use of the word “ Lynco ” in the order itself constituted a subtle expansion of the actual terms of the non-compete covenant which was unwarranted. With respect, I disagree. The defendants themselves provided argument during the February 16, 2012 hearing about the care that was taken to ensure that none of Mr.

Adderley ’ s other business ventures were caught by the non-compete covenant. Those submissions only reinforce the notion that the $2.7 million purchase price in 2008 for the majority interest in Lynco was for Lynco ’ s business as of that date. The evidence establishes that, between the time it was formed in 1997 and 2008, the scope of Lynco ’ s business grew; the expansion of the business into certain specific fields as a result of the association with Lynco of individuals with particular talents only expanded Lynco ’ s capacity.

The evidence establishes that Lynco never abandoned any of the areas of work in which it engaged in 1997 and that it has not, since 2008, initiated areas of work in which it was not involved as of the date of the sale of the majority interest. There were doubtless new contracts negotiated after 2008; the Cenovus contract is an example of just such a new contract. But, for the reasons given above, the Cenovus contract does not represent a new “ business ” in which Lynco became active, but was merely new work in which Lynco engaged as part of its business.

In the result, the use of the word “ Lynco ” in the form of order is not objectionable. [ 60 ] As to the clarity of the order, the very interest of the defendants requires that a link be clearly established between the negative covenants and the business of Lynco in 2008. Mr. Adderley, and the other defendants, who are all obviously capable individuals should not be prevented from engaging in work different from Lynco ’ s business. The form of the order is not objectionable in the way in which it refers to the kind of work which in enjoined. 6.

Should the Alberta courts amend the Alberta Rules of Court to impose a maximum duration to an interlocutory injunction imposed without notice? [ 61 ] In some jurisdictions, like Ontario, a rule of practice limits the temporal effect of ex parte interlocutory injunctions: WHERE MOTION MADE WITHOUT NOTICE

Maximum Duration 40.02

(1) An interlocutory injunction or mandatory order may be granted on motion without notice for a period not exceeding ten days. R.R.O. 1990, Reg. 194, r. 40.02 (1) . Extension

(2) Where an interlocutory injunction or mandatory order is granted on a motion without notice, a motion to extend the injunction or mandatory order may be made only on notice to every party affected by the order, unless the judge is satisfied that because a party has been evading service or because there are other exceptional circumstances, the injunction or mandatory order ought to be extended without notice to the party. R.R.O. 1990, Reg. 194, r. 40.02 (2) .

(3) An extension may be granted on a motion without notice for a further period not exceeding ten days. R.R.O. 1990, Reg. 194, r. 40.02 (3) . Labour Injunctions Excepted

(4) Subrules (1) to (3) do not apply to a motion for an injunction in a labour dispute under

section 102 of the Courts of Justice Act. R.R.O. 1990, Reg. 194, r. 40.02 (4) . [ 62 ] There is no such rule in Alberta. Members of the bar will doubtless bring to the court ’ s attention any broad support for the adoption of such a rule in this province. 7. Costs [ 63 ] If the parties are not agreed on costs, I may be spoken to within 30 days of the release of this decision. Heard on the 16 th day of February, 2012. Dated at the City of Edmonton, Alberta this 2 nd day of March, 2012. J.B. Veit J.C.Q.B.A. Appearances: Jeremy H. Hockin, David P. Wedge, Parlee McLaws LLP

for John Adderley and the other defendants Carmen L. Plante, Nigel J. Forster, Bishop & McKenzie LLP for the plaintiffs Appendix A

PART 7 INTELLECTUAL PROPERTY AND BUSINESS OPPORTUNITIES 7.1 You agree not to take or omit to take any action if the result would be to divert from the Company to your personal benefit, or to the benefit of any third party, any opportunity which is within the scope of the Company ’ s Business. 7.2 You agree that the Company shall be entitled to the sole benefit and exclusive ownership, throughout the world in perpetuity, of all designs, plans, discoveries, inventions, improvements, innovations, developments, and adaptations (collectively, the "Developments") conceived, developed, made or discovered by you at any time or place during your employment with the Company, or its predecessor, with regard to any system, software, method, trade secret, Confidential Information, technique, plant, machinery, process or other product, service or property owned, licensed or used by the Company or its predecessor, including, without limitation, all patent, copyright, trade mark and other intellectual property rights therein, and the right to commercially exploit any or all of the Developments, and to adapt or modify any or all of the Developments in any manner whatsoever; subject only to any limits imposed by law; and to that end, you hereby grant, transfer and assign to the Company, without reservation, exclusively and forever, throughout the world, all of your right, title and interest in and to the Developments. 7.3 At the request of the Company, at any time during your employment and thereafter, you shall perform all acts and execute all documents required by the Company to give full effect to this

Part 7. 7.4 You hereby forsake the right to institute, maintain or permit any legal action asserting that the exercise by the Company of any of the rights granted by you to the Company pursuant to this

Part constitutes an infringement of your moral rights and you hereby waive (and confirm that you have waived) all moral rights that you have or in the future may have to the Developments.

PART 8 NO UNFAIR COMPETITION 8.1 In this agreement, the following terms have the following meanings: (a) "Company's Business" means: the business of providing upstream and process facility fabrication and construction in Alberta and Saskatchewan by the Company or its predecessor prior to the Transaction, and includes any new business developed or commenced after the Transaction and while you are employed. (b) "Restricted Period" means: the period of time during which you are employed with the Company and twelve (l2) months following the end of your employment, regardless of the reasons therefore and however caused. 8.2 You covenant and agree that you will not, during the Restricted Period. without the prior written consent of the Board, directly or indirectly, either individually or in partnership or jointly or in conjunction with any other person or persons, firm, partnership, corporation, or other legal entity, whether as owner, principal, fiduciary, agent, shareholder or in any other capacity whatsoever, carry on, be engaged in, employed by, or have any ownership interest in any business competitive with the Company's Business within Alberta,

Saskatchewan and Manitoba. 8.3 You agree that, during the Restricted Period, you shall not make statements to any third party which disparage, degrade or belittle the reputation of the Company.

PART 9 NO SOLICITATION 9.1 You covenant and agree that you will not, during the Restricted Period. without the prior written consent of the Board. directly or indirectly, either individually or in partnership or jointly or in conjunction with any other person or persons, firm, partnership, corporation, or other legal entity, whether as owner, principal, fiduciary, agent. shareholder or in any other capacity whatsoever: (

a) encourage any of the Company's customers to terminate or reduce their relationship with the Company; (

b) call upon, divert, take away, or solicit. any customers of the Company, who were customers as of the date of termination, where such solicitation or other action relates to or involves any business or activity which is the same as the Company's Business; (

c) solicit, hire, or retain any employee or independent contractor of the Company in connection with a business competitive with the Company's Business; or (

d) encourage any customer, supplier. employee or independent contractor of the Company to reduce, cease or end their employment or engagement with the Company.

PART 10 ACKNOWLEDGEMENT OF REASONABLENESS 10.1 By signing this agreement, you agree and acknowledge that the terms, including the duration and geographic limitations, set out in

Part 8 and

Part 9 hereof are reasonable and properly required for the adequate protection of the business interests of the Company; that the Transaction, from which you benefited directly, would not have been completed had you not agreed to those terms; and that you have prior experience and can carry on business and earn an income exclusive of the matters and activities prohibited by the provisions set out in

Part 8 and

Part 9 hereof, and your ability to work or earn a living will not be unduly compromised by the enforcement of such covenants. 10.2 You agree and acknowledge that the terms set out in

Part 8 and

Part 9 are in addition to, and not in substitution for, any restrictive covenants contained in a separate instrument delivered by you pursuant to a series of transactions that included the Transaction. Appendix B NON-COMPETITION AGREEMENT THIS AGREEMENT is made effective this 30 th day of April, 2008 JOHN ADDERLEY ( “ Employee ” )

- and - 1400467 ALBERTA LTD. (the “ Purchaser ” ) - and - LYNCO CONSTRUCTION LTD. (the “ Company ” ) RECITALS A. Pursuant to a Share and Asset Purchase Agreement dated April 30, 2008 (the "Purchase Agreement"), the Purchaser has purchased a substantial interest in the Company, and the Company is the employer of the Employee. B. It is a condition precedent to the Closing under the Purchase Agreement that the Employee enter into this Agreement in favour of the Purchaser and the Company.

AGREEMENTS In consideration for the payment of $10.00 and other good and valuable consideration by the Purchaser to the Employee, the receipt and sufficiency of which is acknowledged by the Employee, the parties agree as follows: 1.

Definitions . Unless otherwise defined in this Agreement, capitalized terms used in this Agreement will have the meanings given to them in the Purchase Agreement.

In this Agreement, the following terms will have the following meanings: (a) "Business" means the business carried on by the Company as providing upstream and process facility fabrication and construction in Alberta and Saskatchewan and providing related services; (b) "Control" includes, without limitation, directly or indirectly owning shares having more than 50% of the votes entitled to be cast to elect the directors of a corporation and "Controlled" includes, without limitation, a corporation which is under Control; (c) "Person" means an individual, a corporation, a society, a partnership, a government or any government department or agency, a trustee, any unincorporated organization and includes the heirs and legal representatives of an individual; (d) "Restricted Area" means anywhere in the Province(

s) of Saskatchewan and Alberta; (e) "Restricted Period" means the period from the date of the Closing Date to the fifth (5th) anniversary of the Closing Date; and (f) "Restricted Products and Services" means the following products and services: (

i) distributing products that are distributed as part of the Business during the Restricted Period; and

(ii) providing services related to those services provided by the Company as part of its Business during the Restricted Period. 2. Non-Competition Covenant . The Employee will not, without the prior written consent of the Purchaser, during the Restricted Period, and within the Restricted Area: (

a) directly or indirectly manufacture, sell, provide, distribute, or facilitate in any manner (including the lending of money or the guaranteeing of any debts or obligations) the manufacture, sale, provision, or distribution of any of the products or services of the Business, either individually or in partnership, or jointly or in conjunction with, any other Person; or (

b) directly or indirectly assist (as a director, employee, officer, shareholder, partner, or in any other capacity) any Person to manufacture, sell, provide, or distribute any of the products or services of the Business; or (

c) have any direct or indirect interest or concern (as a director, employee, officer, shareholder, partner, or in any other capacity) in or with any Person, if any part of the activities of that Person consists of the manufacture, sale, provision, or distribution of any of the products or services of the Business, or the facilitation in any manner of the sale or provision of any of the products or services of the Business; if that manufacture, sale, provision, distribution, or facilitation, is competitive with all or any part of the Restricted Products and Services offered by the Company during the one (1) year period prior to the Closing Date. 3.

Non-Solicitation . During the Restricted Period the Employee will not without the prior written consent of the Purchaser: (

a) directly or indirectly solicit any customer of the Business; (

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