Shipka v. Trevoy, 2012 ABQB 416

Court of Queen ’ s Bench of Alberta Citation: Shipka v. Trevoy, 2012 ABQB 416 Date: 20120626 Docket: 1203 08582 Registry: Edmonton Between: Edward L. Shipka and 1081903 Alberta Ltd. Applicants - and - Andrew J. Trevoy, Andrew J. Trevoy Professional Corporation, Trevoy LLP, Jeff Skripitsky, Jan Skripitsky, Treanna Equities Inc. and 858080 Alberta Ltd. Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.M.

Ross _______________________________________________________ Introduction [ 1 ] Until his recent dismissal, Edward Shipka was the President and CEO of Triple Random Inc. (“TRI”), a heavy haul trucking and pipeline subcontracting company located in Nisku, Alberta. He is also the largest shareholder and a director of TRI.

[ 2 ] The Defendants Andrew Trevoy and Jeff Skripitsky are the other two directors of TRI. [ 3 ] TRI was incorporated in March 2006, with Shipka, Trevoy and Skripitsky as the founding shareholders. On October 17, 2006 the three men entered into a Pooling Agreement in relation to TRI. Trevoy is a lawyer. The Pooling Agreement was prepared by another lawyer in his firm. [ 4 ] Shipka describes Trevoy as his personal lawyer for approximately 15 years.

Trevoy states that he had not personally provided legal services to Shipka since 1998, when he left the firm that is representing Shipka in the within action, and that the only work done for Shipka by another member of his current firm was the preparation of a will in 2002. [ 5 ] Shipka attests that the business of TRI was to be based upon his experience, connections and relationships in the transportation and pipeline subcontracting business. He had many years of experience in this industry; it was new to both Trevoy and Skripitsky.

Shipka deposed that the basis upon which he entered into the agreement was the promise by Trevoy and Skripitsky that so long as he was a shareholder he would run the business.

He was to receive annual remuneration of $175,000 for running TRI with additional distributions to be made from TRI on a pro-rata basis as profits allowed. [ 6 ] Trevoy deposes that, while it was contemplated that Shipka would act as President and CEO of TRI, there was no discussion or agreement that Shipka would remain in this position while he owned shares in TRI, or that he could not be terminated from this position. [ 7 ] The Pooling Agreement grants the directors of TRI the power to manage the company, and provides that the three founding shareholders will votes their shares so that they or their nominees are directors of TRI.

It also allows a shareholder to compel TRI or other shareholders to buy out their shares, but does not permit one shareholder to compel another to sell their shares to him. Should a shareholder exercise the option to sell his shares, the price is based on either an agreed fair market value, or fair market value as a determined by a Chartered Business Valuator agreed upon by the parties or appointed by the Court. [ 8 ] The Pooling Agreement appears to contemplates Shipka in a management role, as it deals with insurance on his life and the purchase of shares from his estate.

However, it does not provide that his employment with TRI is to continue while he is a shareholder, or that he cannot be terminated from his position. [ 9 ] Shipka alleges that he relied upon Trevoy as his solicitor to ensure that the Pooling Agreement reflected their agreement. He states that Trevoy did not disclose the conflict of interest created when he as a lawyer went into business with a client, and that Trevoy did not recommend that Shipka obtain independent legal advice or explain to him the benefits of independent legal advice.

Trevoy states that the lawyer in his firm who prepared the agreement believes she advised Shipka to obtain independent legal advice. [ 10 ] Since its inception, other shareholders have purchased interests in TRI. The current shareholding of the 1,000,000 issued shares is: a. Ted Shipka 381,564 shares b. Trevoy 173,141 shares c. Jan Skripitsky 173,140 shares d. D & T. Williamson 30,000 shares e. Chris Grey 13,333 shares f. James Grey 36,667 shares g. 858080 63,345 shares h. Treanna 63,345 shares

i. 1081903 40,010 shares j. R. & P. Eykelbosh 25,455 shares [11] The most recent share purchase occurred on January 1, 2012, when D. and T. Williamson purchased 30,000 shares, or 3% ofTRI, for $300,000. Shipka, Trevoy and Skripitsky agreed that this was a fair value for this interest in TRI, with no discount beingattributed to the minority interest. [12] On or about May 18, 2012 Trevoy and Skripitsky jointly presented a proposal to purchase Shipka’s shares. Shipka felt thatthe terms were unfair and unreasonable. He made a counter-proposal which was not accepted. No agreement was reached.

None of theparties have exercised the option in the Pooling Agreement. [13] When they presented their proposal to Shipka, Trevoy and Skripitsky told Shipka that if the proposal was not accepted theywould exercise their votes as directors to terminate his position as President and CEO. Trevoy attests that they did this because ofconcerns that have arisen regarding Shipka’s management performance, which had previously been discussed with Shipka and notresolved.

Shipka was terminated as President and Skripitsky was appointed in his stead by director’s resolution on June 11, 2012. [14] Shipka commenced action against Trevoy and Skripitsky and related parties and corporations holding shares in TRI, allegingthat Trevoy breached fiduciary duties which he owed to Shipka, as well as the oral agreement between them. It is further alleged thatSkripitsky was aware of and participated in those breaches.

It is also alleged that Trevoy and Skripitsky’s threat to terminate Shipkaconstituted the tort of extortion, and that their actions are oppressive or unfairly prejudicial to Shipka’s interests. [15] In this application Shipka seeks an injunction setting aside the director’s resolution terminating his employment, andenjoining the defendants from dealing with or voting their shares in TRI or as directors of TRI or from enforcing the Pooling Agreement. The Test for an Interlocutory Injunction [16] The test for the issuance of an interlocutory injunction was affirmed in R.J.R. MacDonald Inc. v.

Canada, (SCC), [1994] 1 S.C.R. 311(“RJR”). There are three parts to the test. First, there must be a preliminary assessment of the merits of thecase. Secondly, it must be determined whether the applicant would suffer irreparable harm if the injunction were not granted. Thirdly,the balance of convenience or inconvenience must be considered. The nature and application of the sub-parts of the tripartite test are setout below. 1.

Strength of the Plaintiff’s Case [17] RJR determined that, in most cases, the appropriate test is whether the plaintiff has presented a “serious question to be tried,”adopting the test from the House of Lords decision in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396. The threshold is low,requiring only that the claim not be one which would be liable to being struck out as frivolous or vexatious.

However, RJR alsorecognized that there are exceptions, when a more stringent examination of the merits is called for. [18] The Defendants argue that this is such a case, because what the Plaintiff seeks is a mandatory injunction requiring thecontinued employment by TRI of the Plaintiff. The Defendants argue that this amounts to specific performance of a contract ofemployment, and observe that this remedy is available only in rare and unusual circumstances even following trial.

On an interlocutorybasis, the Defendants argue, such a mandatory injunction should be granted only if the Plaintiff establishes a strong prima facie case forentitlement. [19] R. J. Sharpe, Injunctions and Specific Performance (Looseleaf Edition) reviews a number of circumstances in which courtshave demanded more rigorous proof of the strength of the Plaintiff’s case, including applications for interlocutory mandatory injunctions(at p 2-26). [20] The distinction between prohibitory and mandatory injunctions is not necessarily clear. R. J. Sharpe at p 1-1 defines a

mandatory injunction as one which requires the Defendant to act positively, including by undoing a wrong and taking the steps necessaryto repair the situation in a manner consistent with the Plaintiff’s rights. A prohibitive injunction restrains the defendant from committinga specified act. The significance of the distinction is discussed as follows at p 1-2: The courts have favoured prohibitive relief over mandatory relief.

Prohibitive injunctions have always been seen to be more readilygranted than mandatory injunctions, and an injunction restraining breach of a negative covenant is granted in circumstances in which thecourts would hesitate to award specific performance. A negative obligation is readily defined and readily enforceable. Ordinarily, it willbe less intrusive to restrain the defendant from continuing a certain act, than to require the performance of some positive act.

However, itshould not be overlooked that the burden imposed by a prohibitive order is often substantial and a negative order often may amount inpractical terms to an order requiring a certain course of action. [21] The Defendants refer to the distinction as described in Burnside Industrial Packaging Limited v Canada Post Corporation, (NS SC) at p 2, citing Gulf Canada Limited v Martin and Irving Oil Ltd., (1985), (NS SC), 70NSR (2d) 322, at p 327: “[a prohibitory injunction] is generally to preserve the status quo whereas a mandatory injunction seeks to undosome act and retain the status quo as it was before that act was done.” In Burnside the Court confirmed that an injunction which wouldundo a notice of termination and restore the status quo as it was before the notice was a mandatory injunction. [22] I accept the Defendant’s characterization that the injunction sought here is a mandatory injunction because it would requirethat the Plaintiff’s termination be set aside and the Plaintiff be restored to his position as President of TRI.

Even the aspect of theinjunction that is described in negative terms, seeking to enjoin the Defendants from voting as shareholders or directors of TRI, is highlyintrusive, in that it seeks not only to prevent the Defendants from voting in a manner alleged to be contrary to the Plaintiff’s rights (i.e., toterminate his employment), but to prevent them from voting at all, to protect their own interests as shareholders of TRI and to exercisetheir rights as directors to manage TRI.

One might try to fashion a more restrictive form of injunction that would allow the Defendants tocontinue to exercise their voting rights in some way, but it is clear that difficulties would be bound to arise where the chief executiveofficer of the company has lost the confidence of a majority of the board of directors and possibly also of a majority of shareholders.Whether described in positive or negative terms, the effect of the injunction would be the same as an award of specific performance. [23] The first part of the tripartite test in relation to an interlocutory mandatory injunction requires that the Plaintiff show a strongprima facie case or a “high degree of assurance that at trial it will appear that the injunction was rightly granted”: Axio Supernet Ltd vBell West Inc, 2003 ABQB 195 at para 26; Gallant v Casino Taxi, (NS SC) at p 3; Burnside at p 4. [24] While the Plaintiff does, in my view, present a serious question to be tried, I cannot conclude that any of his claims rise to thelevel of a strong prima facie case. [25] As to the breach of contract claim, there is no written agreement incorporating the guarantee of employment that he relies on,and any verbal agreement to this effect is denied.

There is a question to be tried, but it is impossible at this time to predict the likely resultof the trial. [26] As to the oppression claim, the Plaintiff’s claim is in essence about his rights as an employee, not as a shareholder or director,and these claims must be distinguished: Clitheroe v Hydro One Inc, 2002 CarswellOnt 3919 at para 25, citing Mohan v PhilmarLumber (Markham) Ltd (1991) 50 CPC (2d) 164 (Ont Gen Div, where Farley J. held at para 2: The oppressions remedy is designed to protect interests qua security holder, creditor, director or officer - it is not designed to provide amechanism where employees who have been terminated may bring an application for wrongful dismissal.

That is properly the subject ofan action. It seems to me that it is proper to keep that distinction. [27] The Plaintiff also complains about the terms of the Defendants’ offer to buy him out, but these unsuccessful contractnegotiations did not negatively affect his rights as a shareholder. Those rights are unaffected, including the right to sell his sharespursuant to the terms of the Pooling Agreement. [28] The Plaintiff’s claim of extortion depends entirely on whether his “threatened” termination was a breach of contract, asopposed to an exercise of the Defendants’ rights as directors of TRI.

[ 29 ] The Plaintiff relies most heavily on his claim of a breach of fiduciary duty. This claim is responded to in several ways. Trevoy denies an ongoing lawyer/client relationship and also denies that there was any verbal agreement that should have been reflected in the Pooling Agreement. Trevoy also asserts that the agreement that was entered into was in all respects fair and reasonable. Shipka received 20% more shares in relation to his financial investment in TRI in recognition of his management role. He was also paid a competitive management remuneration.

He and the Defendants had the same rights under the Pooling Agreement as shareholders and directors.

No party is favoured over the others. [ 30 ] The Plaintiff points to the Code of Conduct of the Law Society of Alberta , which defines a “client” as “a client of a lawyer’s firm, whether or not the lawyer handles the client’s work, and may include a person who reasonably believes that a lawyer-client relation exists, whether or not that is the case at law.” The Code provides as follows in s. 2.04(11): A lawyer must not engage in a business transaction with a client of the lawyer who does not have independent legal representation unless the client consents and the transaction is fair and reasonable to the client in all respects. [ 31 ] The commentary to the Code elaborates that a lawyer who has entered into business with a client “will have the onus of proving that the transaction was fair and reasonable from the client’s perspective” and observes that “discrepancies between the client’s version of events and the lawyer’s may be resolved in favour of the client.” [ 32 ] While these provisions relate to the lawyer’s professional obligations rather than a civil cause of action by the client against the lawyer, they are closely related to the lawyer’s fiduciary duty of loyalty and good faith and duty not to act in a manner adverse to the interests of the client, which are the basis for such a claim.

While the circumstances referred to by Shipka and the principles in the Code of Conduct may tend to support his claim, they are not in my view sufficient to give him a strong prima facie case. This is because there is nothing about the agreement as described by the Defendants that appears to be unfair or unreasonable from Shipka’s perspective.

To the contrary, the agreement as described by Shipka, that he could not be terminated in his management role so long as he remained a shareholder and director of TRI, despite being a minority shareholder and one of three directors, would be unfair and unreasonable to the other shareholders and directors.

It would mean that even if Shipka defaulted in his management obligations, as Trevoy alleges has occurred, those with a majority interest in the company would be unable to take appropriate steps to protect their position. [ 33 ] I conclude that the first part of the tripartite test as applicable to mandatory injunctions has not been met: Shipka has not made out a strong prima facie test. However, in the event that I may have misstated this part of the test, and that Shipka should be required to show only a serious question to be tried, I will continue with the remaining parts of the tripartite test. 2.

Irreparable Harm to the Plaintiff [ 34 ] I n the second part of the RJR test, it must be shown that the applicant would suffer irreparable harm if the injunction were not granted. [ 35 ] Shipka’s termination will result in lost wages. Any claim in this respect is, of course, compensable in damages. [ 36 ] Shipka believes that his reputation will be irreparably damaged by his termination. There is no evidence to support this. Changing management in a business context is not an unusual situation.

Any damage to Shipka’s reputation would arise not from the change itself but from what might be published about the underlying circumstances. There is no evidence of harmful publication. [ 37 ] Shipka further asserts that the value of his shares in TRI will be reduced and the reputation and business prospects of TRI will by irreparably harmed if Skripitsky is allowed to continue to run the operations of TRI. Loss of goodwill in a business, which is difficult to quantify, may be characterized as irreparable harm. But there is no evidence that Shipka’s replacement by Skripitsky will damage the business.

Certainly the other directors and shareholders of TRI do not anticipate this. Shipka has not pointed to any inappropriate actions on Skripitsky’s part. While Shipka was originally selected by the founding shareholders to manage TRI, the company has now been in business for approximately six years, and Skripitsky has been in employed as vice president for over a year, being “groomed toward overall business leadership”.

Especially when considered in the light of the fact that concerns had arisen regarding Shipka’s performance, there is no reason to conclude that Skripitsky’s management will cause the company’s fortunes to

decline. [ 38 ] Shipka relies to the following passage in Drabinsky v KPMG , 1998 CarswellOnt 5085 at para 7 : [I]f the court concludes that a fiduciary duty of loyalty and good faith and a duty not to act in a manner adverse to the interest of the beneficiary of that duty are implied covenants in a contract or retainer between a lawyer and the client, and if a breach of those implied covenants is established, the court need not find irreparable harm or balance of convenience in favour of the client to issue an injunction. [ 39 ] The problem with this submission is that not only has no breach of those implied covenants been established, Shipka has failed to make out a strong prima facie case for a breach. 3.

Balance of Convenience [ 40 ] The third part of the test requires “a determination of which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction, pending a decision on the merits” ( RJR , at para 62 ). [ 41 ] The evidence does not establish that Shipka’s management would better protect the interests of TRI than would Skripitsky’s.

In addition, there would be clear difficulties in running a company where the chief executive officer has lost the confidence of the majority of the board of directors, and where the board is restricted in its ability to hold the officer to account. This situation, more than anything else, would be likely to negatively affect TRI. [ 42 ] I conclude that the balance of convenience favours the Defendants. Conclusion [ 43 ] The application for an interlocutory injunction is dismissed. The parties may speak to me regarding costs if they are unable to agree. Heard on the 14 th day of June, 2012.

Dated at the City of Edmonton, Alberta this 26th day of June, 2012. J.M. Ross J.C.Q.B.A. Appearances:

J. Cameron Prowse, Q.C. Prowse Chowne LLP for the Applicants Ellery C. Lew Witten LLP for the Respondents