Manson Insulation Products Ltd. v. Crossroads C&I Distributors, 2012 ABQB 3

Court of Queen ’ s Bench of Alberta Citation: Manson Insulation Products Ltd. v. Crossroads C&I Distributors, 2012 ABQB 3 Date: 20120109 Docket: 0903 17546 Registry: Edmonton Between: Manson Insulation Products Ltd. Plaintiff - and - Crossroads C&I Distributors, Yellow Cross Operating GP Inc. carrying on business under the firm name and style of Crossroads C&I Distributors, Johns Manville Canada Inc., Johns Mannville and Johns Manville Corp.

Defendants And Between Crossroads C&I Distributors and Yellow Cross Operating GP Inc. carrying on business under the firm name and style of Crossroads C&I Distributors Plaintiffs by Counterclaim (Defendants) Manson Insulation Products Ltd., Manson Insulation Inc., Shawn Tilson, Keith Eaman and 518162 Alberta Inc. Defendants by Counterclaim (Plaintiffs) _______________________________________________________ Reasons for Judgment

of the Honourable Mr. Justice G.H. Poelman _______________________________________________________ TABLE OF CONTENTS I. Introduction.............................................................................................................. Page: 3 II. Proposed Amendments........................................................................................ Page: 3 III. Legal Principles for Amendments to Pleadings................................................. Page: 4 IV. Inducement to Breach Contract............................................................................ Page: 4 V.

Conspiracy.............................................................................................................. Page: 6 VI. Unlawful Interference with Economic Interests.................................................... Page: 9 VII.

Summary and Directions.................................................................................... Page: 10 I. Introduction [ 1 ] The Plaintiff Manson Insulation Products Ltd. (“New Manson”) applies for leave to make substantial amendments to its Amended Statement of Claim.

Many of the amendments, including the addition of Knauf Insulation GmbH (“Knauf”), are no longer contested. [ 2 ] New Manson commenced this action on November 6, 2009, seeking to enforce and obtain damages for breach of a “Distribution Agreement” made June 6, 2008 between Manson Insulation, Inc. (“Old Manson”) and Crossroads C & I Distributors Inc. (“Old Crossroads”).

Under the Distribution Agreement, Old Manson appointed Old Crossroads as exclusive distributor of insulation products and the parties undertook minimum supply and purchase obligations to each other. [ 3 ] Old Manson and Old Crossroads had a business relationship for many years before the Distribution Agreement.

Through that relationship, Old Manson provided industrial insulation products to Old Crossroads. [ 4 ] Shortly after the Distribution Agreement was made between Old Manson and Old Crossroads, Crossroads C & I Distributors (“New Crossroads”) acquired the assets of Old Crossroads, including its position as buyer under the Distribution Agreement. Shortly after that transaction, New Manson acquired the assets of Old Manson, including the position of seller under the Distribution Agreement.

[ 5 ] The product purchased from Old Manson (before and after the Distribution Agreement was made) was insulation made from glass fibres manufactured by a flame-attenuated process at a facility in Brossard, Quebec. By the end of 2008, the Brossard facility was closed and New Manson provided a different glass fibre insulation product that proved unsatisfactory to New Crossroads’ customers. The replacement product was manufactured by Knauf at facilities in Indiana.

In October 2009, New Crossroads began to purchase its products from another distributor, the defendants Johns Manville Canada Inc., Johns Manville and Johns Manville Corp. (collectively, “Manville”). II. Proposed Amendments [ 6 ] The disputed amendments proposed by New Manson may be summarized as follows: (

a) Yellow Cross Operating GP Inc. (“Yellow Cross”), the general partner of New Crossroads (a limited partnership), induced New Crossroads to breach the Distribution Agreement, such breaches including providing confidential information to and dealing with Manville and failing to respond adequately to customer expectations and complaints regarding New Manson’s products. (

b) Yellow Cross and Manville intentionally and unlawfully interfered with New Manson’s economic interest in its distribution relationship with New Crossroads by having New Crossroads and Manville enter into another distribution agreement by which New Crossroads would purchase insulation product from Manville rather than New Manson; used unlawful means to further their economic interests, namely breaching obligations of confidentiality, inducing breach of the Distribution Agreement and conspiring to displace New Manson as supplier of insulation product purchased by New Crossroads. (

c) Yellow Cross and Manville intentionally and unlawfully interfered with Knauf’s economic interest in its manufacturing relationship with New Manson by using the same or similar unlawful means. (

d) Manville, Yellow Cross and New Crossroads unlawfully conspired to have New Crossroads and Manville enter into a distribution relationship replacing the one between New Crossroads and New Manson and unfairly compete with New Manson and Knauf in the sale of insulation. In furtherance of their conspiracy, they committed a number of unlawful acts. [ 7 ] The Plaintiffs confirmed in oral argument that while the proposed amendments are extensive, they do not plead new facts. In essence, they allege new causes of action based on facts already pleaded. III.

Legal Principles for Amendments to Pleadings [ 8 ] I set out the legal principles for applications to amend pleadings in an earlier decision in this action. [1] I will not repeat them here. The parties agree on the principles to be applied to the contested amendments on this application, namely that the court should take a generous approach toward proposed amendments and should only reject those that are “hopeless,” that is, clearly and obviously invalid. [2] IV.

Inducement to Breach Contract [ 9 ] The challenge to the amendments pleading that Yellow Cross induced New Crossroads to breach the Distribution Agreement is based on the assertion that the limited partnership, New Crossroads, and its general partner, Yellow Cross, “are one.” The plea that Yellow Cross induced New Crossroads to breach the Distribution Agreement amounts to an allegation that “Yellow Cross induced itself.” That allegation, it is argued, is hopeless because the tort of inducing breach of contract requires, among other elements, that the relevant defendant caused a third party to breach its contract with the plaintiff; and that the tort, by its very nature, requires a separation of identity between the alleged inducer and the party alleged to have been induced.

[ 10 ] New Manson does not dispute that the tort requires the party alleged to have induced the breach to be different from the party bound by the contract. Thus, the issue turns on whether it is legally possible for a general partner to be liable for inducing the limited partnership to breach a contract with another party. [ 11 ] It is well established, as New Crossroads and Yellow Cross submit, that for many purposes a partnership and its partners are treated as one.

New Manson argues that this principle is not directly applicable to a limited partnership; rather, a limited partnership is a hybrid between an ordinary partnership and a corporation and has a separate legal existence. It relies for this proposition on Marigold Holdings Ltd. v. Norem Construction Ltd. [3] and Devon Canada Corp. v.

PE-Pittsfield, LLC. [4] However, on my reading, those cases confirm the separate identities of the limited partnership and its limited partners. [5] For most purposes, the general partner has the same powers, rights and responsibilities as a partner in an ordinary partnership, and is thus liable to the full extent of its assets for the debts and obligations of the business. [6] [ 12 ] In support of their argument that they “are one,” Yellow Cross and New Crossroads rely upon Said v.

Butt [7] for the principle that no action lies against a director, officer or employee for inducing the company to breach its contract with a third party where the director, officer or employee is acting within the scope of his authority, in the interests of the company, and not for personal gain.

They further submit that this principle has even greater cogency in the case of a limited partnership where the law draws no distinction between the general partner and the partnership, unlike in the corporate context where the law draws a bright line distinction between the corporation and its members. [ 13 ] However, it has been questioned whether the Said v.

Butt principle, which protects individuals involved in a corporation from liability in the context of a corporation established for the purpose of limiting liability, should apply to partnerships where partners do not enjoy the same limited liability. [8] Quite apart from the applicability of the corporate principle to limited partnerships, the rule in Said v. Butt allows for exceptions. As noted above, it is premised on the individual acting bona fide within the scope of authority.

That exception has been recognized as allowing actions in the tort of inducing breach of contract. [9] Corporate directors may lose immunity from the tort of inducing breach if they fail to act bona fide within the scope of their authority in the best interests of the company. [10] Further, as noted in General Electric Capital Canada Inc. v. Deloitte & Touche LLP , “where properly pleaded, officers or employees can be liable for tortious conduct even when acting in the line of duty.” [11] [ 14 ] In my view, reading these proposed pleadings generously, they cannot be considered hopeless.

The authorities have not established that a general partner can never be liable for the tort of inducing a limited partnership to breach a contract with another party. New Manson’s proposed pleadings allege that “there was no bona fide justification for Yellow Cross’s conduct” in intentionally and wrongfully inducing New Crossroads to breach the Distribution Agreement by using its influence and control.

The conduct in which New Crossroads and Yellow Cross are alleged to have engaged includes improper disclosure of confidential and proprietary information to Manville, making false statements about the quality of New Manson’s product and refusing to deal with customer concerns about the New Manson products.

These allegations, combined with the allegation of lack of bona fides , at least raise the possibility that Yellow Cross acted outside the proper scope of a general partner advancing the legitimate interests of the limited partnership. [ 15 ] Thus, leave is granted for the proposed amendments alleging inducement of breach of contract, set out in paras. 68 and 69 of the draft pleading. V.

Conspiracy [ 16 ] The Defendants oppose some of the amendments alleging conspiracy because, they argue, these allegations merge with other causes of action also pleaded in the Amended Statement of Claim. [ 17 ] Canada Cement LaFarge Ltd. v.

British Columbia Lightweight Aggregate Ltd. [12] set out two types of conspiracy: “predominant purpose” conspiracy, in which the predominant purpose of the Defendants’ conduct is to cause injury to the Plaintiff by means either lawful or unlawful; and “unlawful means” conspiracy, where the Defendants’ conduct is directed towards the Plaintiff, the Defendants know that injury is likely to occur and the means employed are unlawful.

[ 18 ] The Plaintiffs’ proposed amendments plead only unlawful means conspiracy, and there is no disagreement between the parties about the elements that must be proved to succeed. [ 19 ] The particulars of unlawful means upon which the Plaintiffs rely in their proposed amendments are the same wrongs that have already been pleaded against the Defendants as giving rise to the actions of breach of contract, breach of duties of good faith, breach of obligations of confidence, inducing breach of contract and unlawful interference with economic interests. [ 20 ] The Defendants argue that the conspiracy claim is superfluous because the Plaintiffs will either (1) recover damages for the unlawful conduct by means of the other causes of action, or (2) their allegations regarding the unlawful conduct will fail in which case the conspiracy action will also fail for want of unlawful means.

The principle of merger on which the Defendants rely was expressed by Denning L.J. as follows: [W]hen a tort has been committed by two or more persons an allegation of a prior conspiracy adds nothing. The prior agreement merges in the tort. A party is not allowed to gain an added advantage by charging conspiracy when the agreement has become merged in the tort . . . .

When the court sees attempts of that kind being made, it will discourage them by striking out the allegation of conspiracy, on the simple ground that the conspiracy adds nothing when the tort has in fact been committed. [13] [ 21 ] However, the Plaintiffs say this court must allow the pleadings at this stage, based on Hunt v. Carey Canada Inc. , [14] where Wilson J. held that while the merger doctrine might prevent success in conspiracy at conclusion of the case, it was premature to make that finding on pleadings.

It could not be determined before trial whether the Plaintiff would necessarily succeed in persuading the court that the facts as pleaded established the commission of independent torts. [15] [ 22 ] In my view, Hunt v. Carey Canada Inc. is not determinative in this case. First, it concerned a statement of claim where both the predominant purpose and unlawful means forms of conspiracy were pleaded. [16] It is in this light that Wilson J.’s comments must be read. Some of the allegations ultimately might not have been proved to be torts, but could still be acts in furtherance of a predominant purpose to injure.

Further, as noted in a number of other cases, there was not a complete overlap between the acts alleged as torts and those alleged as the unlawful means necessary to found the conspiracy claim. [17] Thus, in Hunt v. Carey Canada Inc. , it appears that the defendants, who were involved in mining, producing and supplying asbestos products, were sued in negligence.

It was further alleged that all of the defendants conspired to withhold information about the dangers of asbestos and that conspiracy led to the plaintiff’s disease. [18] [ 23 ] The weight of authority dealing with unlawful means conspiracy claims, where there is complete overlap between the means alleged and other causes of action pleaded on the same facts, holds that the conspiracy claim must merge into the other causes of action. In Hovsepian v.

Westfair Foods Ltd. , Hart J. dealt with the same issue that arises on this application: The Defendants claim that the conspiracy allegations are “merged” in the other allegations in the Claim, because the conspiracy allegations are based on the identical factual and legal arguments as the other allegations. The Plaintiffs state that the application of the doctrine of merger is itself a triable issue that should not be decided at this stage. [19] He agreed with the restrictive

interpretation of Hunt v. Carey Canada Inc. found by the Ontario courts, and held that the conspiracy allegations merged with the other allegations and therefore must be struck on that basis. [20] [ 24 ] In addition to Ward v. Lewis , Hovsepian v. Westfair Foods Ltd. , and the Ontario cases relied upon by Hart J., the merger principle was applied by the British Columbia Court of Appeal in Bank of Montreal v. Tortora . [21] It held that because the unlawful acts alleged to constitute the conspiracy were also pleaded as acts constituting breach of contract and breach of fiduciary duty, the conspiracy plea merged with those causes of action. The conspiracy plea was therefore struck out.

[ 25 ] The Plaintiffs submit that WIC Premium Ltd. v. General Instrument Corp. [22] supports a broader application of Hunt v. Carey Canada Inc . in Alberta, and thus precludes the application of merger to limit allegations at the pleadings stage. In my view, WIC Premium is weak authority for that proposition. Like Hunt v.

Carey Canada Inc ., it dealt with a predominant purpose conspiracy where the acts in furtherance of the conspiracy need not be tortious to perfect the claim. [23] That is different from an unlawful means conspiracy, where the conduct relied upon to establish the conspiracy must be proved to be unlawful; and if it is also relied upon as a separate cause of action (usually a tort), then it is duplicitous to rely on the same wrong for two causes of action. [ 26 ] Thus, to the extent each of the Plaintiffs New Manson and Knauf seek leave to amend the pleadings to rely upon torts committed against themselves to found the conspiracy claim, those amendments are not allowed.

Each of the Plaintiffs may rely upon unlawful acts committed against the other Plaintiff to found allegations of conspiracy against itself. The Defendants do not dispute that, to this extent, amendments pleading conspiracy should be allowed. VI.

Unlawful Interference with Economic Interests [ 27 ] The elements of the tort of unlawful interference with economic interests are (1) interference by the defendant through unlawful conduct with the actions of a third party in which the plaintiff has an economic interest, (2) an intention by the defendant to cause loss to the plaintiff, and (3) resulting economic harm. [24] [ 28 ] The Defendants argue that the proposed amendments pleading unlawful interference with economic interests must fail as being hopeless for the following reasons: (

a) To the extent they relate to Yellow Cross, it cannot interfere with relations between New Manson and New Crossroads because Yellow Cross (as general partner) does not have a separate legal identity from New Crossroads (the limited partnership) and cannot interfere with itself; and (

b) The act of interference must be against a third party having economic relations with the Plaintiff, and thus neither New Manson or Knauf can rely on interfering acts alleged to have been committed against itself. [ 29 ] It can be seen that the first argument was addressed in the context of proposed amendments involving inducement to breach the Distribution Agreement.

For the same reasons, I find that at the pleading stage it is permissible to allege that Yellow Cross unlawfully interfered with economic relations between New Crossroads and New Manson. [ 30 ] The second argument is similar to the merger argument addressed in connection with the conspiracy allegations. It has now been well established that the unlawful act relied upon for unlawful interference cannot be actionable directly by the Plaintiff and must be directed at a third party (substantially the same issue addressed by the doctrine of merger in conspiracy claims).

Again, the courts have held that intentional torts should not be used where existing causes of action provide redress. In Correia v.

Canac Kitchens , the Ontario Court of Appeal found no need to use the tort of intentional interference, holding that “the intentional torts exist to fill a gap where no action could otherwise be brought for intentional conduct that caused harm through the instrumentality of a third party.” [25] [ 31 ] Further, both the Ontario Court of Appeal and this Court have held that to qualify as “unlawful means” for purposes of founding an action for intentional interference with economic interests, the defendant’s actions cannot be actionable directly by the plaintiff and must be directed at a third party, which then becomes the vehicle through which harm is caused to the plaintiff. [26] [ 32 ] Thus, as with the conspiracy allegations, New Manson cannot rely upon torts allegedly committed against New Manson to found a claim in unlawful interference with economic relations, and Knauf cannot rely upon torts allegedly committed against Knauf to found a claim in unlawful interference with economic relations.

VII.

Summary and Directions

[ 33 ] In

summary, I direct as follows: (

a) Leave is granted to make the amendments proposed in paragraphs 68 and 69 of the draft Amended Amended Statement of Claim, alleging inducement of breach of contract; (

b) Leave is denied to make the amendments in paragraphs 74 and 75 of the draft pleading, alleging conspiracy, but they may be redrawn such that: (

i) The unlawful acts relied upon by New Manson are limited to those torts or breaches allegedly committed against Knauf; and (ii) The unlawful acts relied upon by Knauf are limited to those torts or breaches allegedly committed against New Manson; and (

c) Leave is granted to make the amendments in paragraphs 71 and 73 of the draft pleading; and (

d) Leave is not granted to make the amendments in paragraphs 70 and 72 of the draft pleading alleging interference with economic interests, but they may be redrawn such that: (

i) The words “and Knauf” are struck from paragraph 72(d)(iii); and (ii) Paragraph 70(d)(

v) makes it clear that it is the conspiracy alleged against New Manson that is being relied upon by Knauf to found the unlawful act requirement. [ 34 ] The parties are given leave to seek further directions, if necessary, as to the form of pleadings that are allowed, and to speak to costs if they are disputed. Heard on the 26 th day of October, 2011. Dated at the City of Calgary, Alberta this 6 th day of January, 2012. G.H. Poelman J.C.Q.B.A.

Appearances: Donald Chernichen, Q.C. Louise Novinger Grant Burnet Duckworth for the Plaintiff Manson Insulation Products Ltd. Hein Poulus, Q.C. Stikeman, Elliott for the Defendants Crossroads C&I Distributors, Yellow Cross Operating GP Inc. carrying on business under the firm name and style ofCrossroads C&I Distributors Darren Reed Jensen Shawa Solomon Duguid Hawkes LLP for the Defendants Johns Manville Canada Inc., Johns Mannville and Johns Manville Corp. [1] Manson Insulation Products Ltd. v. Crossroads C & I Distributors, 2011 ABQB 51 at paras. 42 - 52. [2] Dow Chemical Canada Inc. v.

Nova Chemicals Corporation, 2010 ABQB 524, 495 A.R. 338 at paras. 20 - 21; and Balm v.3512061 Canada Ltd., 2003 ABCA 98, 327 A.R. 149. [3] (1988), (AB KB), 89 A.R. 81 (Q.B.). [4] 2008 ABCA 393, 446 A.R. 62. [5] Marigold at paras. 173-174 and Devon, paras. 7 - 9. [6] Partnership Act, R.S.A. 2000, c. P-3, s. 56. [7] [1920] 3 K.B 497. [8] General Electric Capital Canada Inc. v. Deloitte & Touche LLP (2002), 29 B.L.R. (3d) 2008 (S.C.J.); leave to appeal denied,[2003] O.J. No. 370 (Div.

Ct.). [9] Klar, Tort law, 3rd. ed. (Toronto: Thomson Carswell 2008) at 683-84. [10] McFadden v. 481782 Ontario Ltd. (1984), (ON SC), 47 O.R.(2d) 134 (H.C.J.) at para. 40; and Imperial OilLtd. v. C & G Holdings Ltd. (1989), (NL CA), 78 Nfld. & P.E.I.R. 1 at para. 21 (Nfld.C.A.). [11] General Electric Capital Canada Inc., supra note 8 at 35. [12] (SCC), [1983] 1 S.C.R. 452. [13] Ward v. Lewis, [1955] 1 W.L.R. 9 at 11 (Eng C.A.). [14] (SCC), [1990] 2 S.C.R. 959.

[15] Ibid. at 986. [16] Ibid. at para. 4. [17] Hovsepian v. Westfair Foods Ltd., 2001 ABQB 700, 95 Alta. L.R. (3d) 331 at paras. 118 - 19; Normart Management Limited v.West Hill Redevelopment Company Limited (1998), (ON CA), 37 O.R. (3d) 97 (C.A.), p. 9; Elliott v. CanadianBroadcasting Corp. (1993), (ON SC), 16 O.R. (3d) 677 at para. 52 (Ont. C.J.). [18] Hunt v. Carey Canada Inc., supra note 14 at paras. 3 and 4. [19] Hovsepian v.

Westfair Foods Ltd., supra note 17 at para. 115. [20] Ibid. at para 121. [21] 2010 BCCA 139, 3 B.C.L.R. (5th) 39. [22] 1999 ABQB 804, 253 A.R. 153. [23] Ibid. at para 3a. [24] Hunt Oil Co. of Canada, Inc. v. Galleon Energy Inc., 2010 ABQB 212, 489 A.R. 326 at para. 43 and cases there cited. [25] 2008 ONCA 506, 91 O.R. (3d) 353 at paragraphs 102 - 108. [26] Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557, at para.60; Indutech Canada Ltd. v. Gibbs Pipe Distributors Ltd., 2011ABQB 38, at para. 464; and OBG Ltd. v. Allan, [2008] 1 A.C. 1 (H.L.).