Micro-Watt Control Devices Ltd. v Krohne Inc., 2012 ABQB 503

Court of Queen ’ s Bench of Alberta Citation: Micro-Watt Control Devices Ltd. v Krohne Inc., 2012 ABQB 503 Date: 20120801 Docket: 1101 07496 Registry: Calgary Between: Micro-Watt Control Devices Ltd. Plaintiff - and - Krohne Inc., Brian J. Elliott and Angelo Del Buono Defendants _______________________________________________________ Memorandum of Judgment of the Honourable Mr. Justice C.S.

Brooker _______________________________________________________ Introduction [ 1 ] This is an application pursuant to Rule 3.68 of the Alberta Rules of Court , Alta Reg 124/2010 ( the “Rules”) for an order striking out various parts of the plaintiff’s Statement of Claim for lack of any reasonable cause of action. Specifically, the Applicants request this Court to strike the Claim in its entirely as against the individual defendants, as well as all allegations relating to the torts of inducing breach of contract, conspiracy, and breach of fiduciary duty.

They also seek to have all allegations related to a third-party struck from the Statement of Claim.

[ 2 ] The Applicants in this matter are Krohne Incorporated (“Krohne”), a corporation registered in the State of Delaware, Brian J. Elliott (“Elliott”), President and Chief Executive Officer of Krohne, and Angelo Del Buono (“Del Buono”), Director of Sales for Canada.

Both Elliott and Del Buono were officers of Krohne at all material times. [ 3 ] The Respondent, Micro-Watt Control Devices Limited (“Micro-Watt”), is an Alberta corporation in the business of supplying and distributing process measurement instrumentation used in the oil and gas, petrochemical, construction and manufacturing industries, amongst other things. [ 4 ] In early 2009, Micro-Watt and Krohne entered into two business agreements.

Micro-Watt alleges in its Statement of Claim that the Applicants engaged in activities that were contrary to the terms of these agreements and knowingly attempted to undermine their objectives, resulting in damage to its economic interests.

Facts [ 5 ] On January 1, 2009, Micro-Watt and Krohne entered into a joint venture agreement (“Joint Venture Agreement”), pursuant to which a Canadian corporation known as Krohne Micro-Watt Limited (“KMWL”) was established (defined as the “Joint Venture” in the Claim). [ 6 ] Elliott was appointed as a Co-Chief Executive Officer for KMWL, along with Marlene Coffey on behalf of Micro-Watt. Del Buono was never an officer or director of KMWL. [ 7 ] The primary purpose of the Joint Venture between the parties, as outlined in

Article 4.4 of the Joint Venture Agreement, was to re-sell Krohne products in Canada. [ 8 ] The initial term of the project was to be for ten years (Article 2.2). No salary or fees were to be paid by the Joint Venture to anyone employed by Krohne or Micro-Watt, unless that person was engaged in full-time work at the Joint Venture (Article 6.3). [ 9 ] Initially the Joint Venture would rely on Micro-Watt to provide sales, service and administrative support (Article 6.5).

Inventory purchases by the Joint Venture would be made from various Krohne manufacturing facilities, to be shipped in a timely manner (Article 6.3). [ 10 ] Micro-Watt and Krohne also agreed not to disclose directly or indirectly any confidential information, unless in connection with the business of the Joint Venture (Article 8.1). [ 11 ] The Joint Venture Agreement indicated that it was to be interpreted in accordance with the laws of the Province of Alberta. [ 12 ] On March 9, 2009, Micro-Watt, Krohne and KMWL entered into a distributorship agreement under which KMWL agreed to sell Krohne products to Micro-Watt for re-sale to customers in Alberta and Saskatchewan (“Distributorship Agreement”).

The Distributorship Agreement was to be in effect until September 1, 2018. [ 13 ] Under the terms of the Distributorship Agreement, KMWL agreed to sell products purchased from Krohne to Micro-Watt at a set transfer price, which would then be re-sold to customers in Alberta and Saskatchewan (Article 1). [ 14 ] The Distributorship Agreement also provided that after the re-sale, Micro-Watt was to remit payment to KMWL.

[ 14 ] The Distributorship Agreement also provided that after the re-sale, Micro-Watt was to remit payment to KMWL. [ 15 ] Krohne agreed to provide the necessary training to Micro-Watt to allow it top properly service and sell the products (Article 5). [ 16 ] The parties agreed that the Distributorship Agreement was to be construed in accordance with the laws of Canada. [ 17 ] The Applicants have not yet filed a Statement of Defence to the claim.

The pleadings have not yet closed: Rule 3.67(2). [ 18 ] The plaintiff may amend its pleadings any number of times, without the court’s permission, before the pleadings close: Rule 3.62(1)(a). [ 19 ] In the course of oral argument, the respondent indicated it would amend its Statement of Claim and in fact did so on November 17, 2011. The applicants did not object to this and was content to proceed with its argument on the basis of the then contemplated amendments.

Therefore these Reasons are predicated on the wording of the Amended Statement of Claim. [ 20 ] On May 30, 2011, Micro-Watt filed a Statement of Claim against Krohne, Elliott and Del Buono, alleging a list of impugned activities, including making false and misleading representations about delivery dates of product, secret negotiations, offering a salary supplement without authority, secretly entering into agreements with other companies to be value-added resellers of Krohne products, secretly accepting orders from customers within the territory of the Joint Venture, taking steps to deliberately sabotage the ongoing business affairs of the Joint Venture and disclosing confidential information. [ 21 ] The Applicants argue that Micro-Watt has not adequately disclosed a reasonable cause of action to support several of its allegations, and for that reason they now ask this Court to strike significant portions of the Statement of Claim. [ 22 ] Rule 3.68 provides in part: 3.68(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order one or more of the following: (

a) that all or any part of a claim or defence be struck out; (

b) that a commencement document or pleading be amended or set aside; (

c) that judgment or an order be entered; (

d) that an action, an application or a proceeding be stayed.

(2) The conditions for the order are one or more of the following: ... (

b) a commencement document or pleading discloses no reasonable claim or defence to a claim; ...

(3) No evidence may be submitted on an application made on the basis of the condition set out in subrule (2)(b). ...

Issues [ 23 ] The issue before this Court is whether the Statement of Claim discloses a reasonable cause of action for the following:

i) all allegations against the Individual Defendants, Elliott and Del Buono; ii) all allegations of or relating to inducing breach of contract; iii) all allegations of or relating to the tort of conspiracy; iv) all allegations of or relating to breach of fiduciary duty;

v) all allegations of duties owed to or wrongs against KMWL; and, vi) the remedy of account of profits sought for alleged breaches of contract. Legal Principles Governing Applications to Strike Pleadings [ 24 ] The Applicants state that the correct test for striking out pleadings is whether it is plain and obvious that a claim does not disclose a reasonable cause of action. [ 25 ] A claim discloses no cause of action where: (

i) its allegations do not give rise to a cause of action recognized in law, or (ii) it fails to plead the necessary material facts to establish the legal elements of an otherwise recognized cause of action: Tottrup v Alberta (Minister of Environmental Protection) , 2000 ABCA 121 at para 8 ; Bank of Montreal v Jarjoura , 2010 ABQB 103 at paras 60-61 , Hovsepian v Westfair Foods Limited , 2001 ABQB 700 at para 26 ; Aristocrat Restaurants Limited , [2003] OJ No 5331 ; Martin v General Teamsters, Local Union No 362 , 2011 ABQB 412 at para 6 . [ 26 ] The Applicants maintain that the Court must assume that all of allegations of fact made in the pleadings are true and then examine those allegations to determine if a reasonable claim exists.

Correspondingly, where wrongful conduct or breaches are not backed up by allegations of fact, they are not presumed to be true and are insufficient to disclose a cause of action: Tottrup at paras 8 and 11 ; Bank of Montreal at para 67 ; Hovsepian at para 29 . [ 27 ] The Applicants also argue that while a plaintiff is entitled to a broad reading of its pleadings by the Court, pleadings should not be interpreted so liberally as to render meaningless the Rules of Court governing the application to strike pleadings.

Similarly, the Court should not refuse an application to strike because the facts may, at some later stage, turn out to be different than those alleged: Tottrup at para 13 . [ 28 ] Applying these principles, the Applicants claim that it is plain and obvious that several claims made by the Respondent fail to disclose any reasonable cause of action and should therefore be struck. [ 29 ] The Respondent appears to agree that the correct test for striking pleadings is whether it is plain and obvious that a claim cannot succeed: Donaldson v Farrell , 2011 ABQB 11 at para 30 .

The Respondent submits, however, that the test is onerous and a plaintiff is not always required to plead specific words so long as the essence of the action is outlined in the pleadings: Peterson v Highwood Distillers Limited , 1998 ABCA 105 at para 20 . The Respondent instead maintains that pleadings are properly viewed as a

whole, to provide context for the specific allegations being made: Peterson at paras 20-21. [30] The Respondent also argues that any deficiencies in a pleading will not be struck if the flaws are capable of amendment:Chevalier v Sunshine Village Corporation, 2011 ABQB 544 at para 18. A plaintiff may amend its pleadings any number of timeswithout the Court’s permission before pleadings close: see Rule 3.62.(1)(a), Alberta Rules of Court, Alta Reg 124/2010.

The Respondentstates that since a statement of defence has yet to be filed in this case, the pleadings are therefore still open and may be amended tocorrect any deficiencies. [31] The Respondent is correct in stating that pleadings remain open Accordingly, I acknowledge the applicability of Rule 3.62(1)(a), which allows the Respondent to amend its pleadings without the leave of this Court, should any deficiencies be found. [32] The Respondent appended a Draft Amended Statement of Claim to its Brief in this Application. As previously noted, it filedthe Amended Statement of Claim.

Since the Applicant does not require permission to amend its pleadings, this Application will beevaluated based on the Amended Statement of Claim. Analysis [33] The Applicants have raised several issues, which are addressed as follows:

i) There is no reasonable cause of action against the Individual Defendants [34] The Applicants claim there is no legal basis for Micro-Watt to sue the Individual Defendants personally since they: (

i) wereofficers of Krohne, (ii) were involved in the affairs of KMWL on behalf of Krohne, (iii) interacted with representatives of Micro-Watt onbehalf of Krohne, and (iv) directed the activities of Krohne during the relevant period.

In short, they acted throughout solely as officersand directors of Krone and never personally. [35] The Applicants state that based on the principle of limited liability and separate legal personality attributed to companies,directors and officers of a corporation may only be held personally liable for the actions of the corporation if there is conduct on theirpart that is tortious in itself or exhibits a separate identity or interest from the corporation: Montreal Trust Company of Canada vScotiaMcLeod Incorporated (1995), (ON CA), 26 OR (3d) 481 (CA); Blacklaws v Morrow, 2000 ABCA 175 at para41; Stewart v Enterprise Universal Incorporated, 2010 ABQB 259 at paras 56-63 and 81; Criak v Aetna Life Insurance Company ofCanada, [1995] OJ No 3286 (Gen Div), aff’d [1996] OJ No 2377 (CA).

A separate identity or interest arises where a director or officerexhibits divergent interests in their conduct from that of the company: Brae Centre Limited v 1044807 Alberta Limited, 2008 ABCA 397at paras 21-26; Craik v Aetna Life Insurance Co of Canada, [1995] OJ No 3286 (Gen Div) at para 11, affirmed [1996] OJ No 2377(CA). [36] The Applicants maintain that the Statement of Claim does not plead allegations of fact that support a conclusion that theIndividual Defendants acted outside the scope of their duties as officers of Krohne or contrary to the company’s interests.

Lacking suchallegations, the Applicants argue there is no legally recognized basis for Micro-Watt to sue either Elliott or Del Buono personally, andthe claims against them should therefore be struck in their entirety: see Hovsepian at paras 78-79; Bernard v Godfrey, 2010 ONSC 10 atparas 23-25.. [37] The Respondent claims that the Elliott and Del Buono are proper parties to the Action and note that establishing personalliability of a director or officer can be pled in a number of ways. [38] The Respondent submits that a director or officer can be subject to personal liability where they act outside the scope of theirauthority to advance a personal interest over the interests of the corporation, or where they engage in fraud or act with malice.

A directoror officer may also be personally liable where they have committed a deliberate act constituting an intentional tort, or in otherexceptional circumstances where the impugned act was distinct and personal rather than

an act of the company: Craik at para 19.

[ 39 ] Similarly, the Respondent states that directors and officers also owe a general duty under common law and statute to act honestly and in good faith with a view to protecting the best interests of the corporation: 369413 Alberta Limited v Pocklington , 2000 ABCA 307 at para 58 .

Where a director has acted in the interests of the corporation as well as some less worthy purpose at the same time, a court may consider whether the director’s acts were aimed at depriving the aggrieved party of the benefit of a contract: Pocklington at para 66 . [ 40 ] In the present matter, the Respondent maintains that the pleadings adequately raise the issue of divergent interests as between the Individual Defendants and Krohne, and as such the Claim properly alleges that each of the Defendants engaged in activities which were knowingly intended to undermine the objectives of the Joint Venture Agreement. [ 41 ] Finally, the Respondent argues that if Elliott and Del Buono were motivated by self-interest, as alleged in the pleadings, the necessary separation of interests is therefore established.

If the Individual Defendants were motivated partly by self-interest and partly by corporate interest on the other hand, the onus is on the Defendants to show that some legitimate interest of the corporation could have been served by the impugned conduct: see Pocklington at paras 64-66 . [ 42 ] For these reasons the Respondent maintains that the pleadings properly discloses a reasonable cause of action against the Individual Defendants. [ 43 ] At paragraph 27 of the Amended Statement of Claim, the Respondent alleges: [T]he Defendants, and each of them, have engaged in activities that are contrary to the terms of the Joint Venture Agreement and the Distributorship Agreement, and which activities were knowingly intended to undermine the objectives of the Joint Venture Agreement. (Emphasis added) [ 44 ] The words “contrary to the terms of the [Agreements]” indicate a claim based on breach of contract.

The challenge with this cause of action, however, is that the Individual Defendants were not parties to either of the Agreements between Krohne and Micro-Watt, and therefore something additional must be brought forward to implicate them. [ 45 ] As noted by the Applicants, generally the directors and officers of a corporation are not personally liable for the acts of that corporation unless it can be established that the conduct in question was tortious in itself or exhibited a separate interest from that of the corporation: see Blacklaws v Morrow (ABCA) at para 41. [ 46 ] Paragraph 29 of the Amended Statement of Claim alleges that the Defendants wrongfully engaged in a variety of activities, including, amongst other things, making false and misleading representations with respect to delivery dates for the shipment of Krohne products, engaging in secret negotiations with an employee of the Joint Venture for the sole purpose of inducing that individual to leave the Joint Venture and become employed by the Defendants in another capacity, and disclosing and utilizing confidential information contrary to the interest of the Joint Venture. [ 47 ] The difficulty with the alleged facts in paragraph 29 is that the Respondent appears to claim that all of the Defendants were involved in the wrongful activities, which makes it challenging to determine how Elliott and Del Buono could be acting in their own self-interest while engaging in the same activities as the corporation itself. [ 48 ] At present, it is unclear whether the impugned activities were engaged in by the Defendants individually or as a group, and as a result it is challenging to find the factual allegations to support a cause of action against the Individual Defendants personally based on breach of any contract.

Nevertheless, I am satisfied upon a broad and liberal reading of paragraphs 28 and 29 of the Amended Statement of Claim, that there are sufficient allegations of fact to support a cause of action against the personal defendants for inducing breach of contract and conspiracy. I will discuss these in more detail in the following paragraphs. [ 49 ] Since the pleadings have yet to close, the Respondent is still entitled to amend its Statement of Claim to clarify its position in

relation to breach of contract and the facts necessary to ground the cause of action against Elliott and Del Buono personally. ii) Micro-watt does not plead a reasonable claim for inducing breach of contact [ 50 ] In their Brief the Applicants argue that the Respondent fails to allege any material facts to establish that either Elliott or Del Buono induced a breach of the Joint Venture Agreement and/or the Distributorship Agreement, and as such the allegation should be struck. [ 51 ] In support of their position, the Applicants note that an officer or director of a company who is acting bona fide within the scope of their authority and in the best interests of the company cannot be held personally liable in tort for inducing breach of contract by a company – something more must be proven: Brae at paras 18-26. [ 52 ] Micro-Watt responds by noting that the Claim alleges that the Individual Defendants acted in their self-interest and serious breaches of obligations were undertaken to undermine the Joint Venture Agreement.

They maintain that the necessary facts have been pled and the issue is properly raised. [ 53 ] In paragraph 28 of the Amended Statement of Claim, the Respondent states: [T]he Defendants, and each of them, have acted in their own self interest(

s) and conspired with one another and intentionally engaged in activities with the intention of inducing a breach of the Joint Venture Agreement and thereby harming the Plaintiff. (Emphasis added) [ 54 ] It is well established law that knowingly inducing another party to breach a contractual obligation with a third-party constitutes a legally recognized cause of action in tort: Quinn v Leathem [1901] AC 495 (Eng HL) , app’d in Pocklington at para 39 .

Knowingly inducing a breach, which is a separate cause of action from breaching the contract itself, may therefore ground a claim that a director or officer of a corporation is personally liable for the actions of the corporation: Craik at para 19. [ 55 ] Based on the language of paragraph 28, the Respondent has clearly made a claim based on a legally recognized cause of action.

As noted by the Court in Tottrup , in terms of factual allegations the Respondent must allege the facts necessary to support the cause of action. [ 56 ] To sustain a claim based on inducing breach for contract, generally a plaintiff must establish: (1) an enforceable contract; (2) knowledge of the plaintiff’s contract; (3) an intentional act on the part of the defendant to cause a breach of contract; (4) wrongful interference on the part of the defendant; (5) resulting damage, and (6) lack of justification for the defendant’s conduct: Brae at para 19. [ 57 ] In reviewing the Amended Statement of Claim, I note the following: Paragraph 5 states that Krohne and Micro-Watt entered into the Joint Venture Agreement, followed by the Distributorship Agreement, which is discussed at paragraph 15; Paragraph 3 notes that Elliott and Del Buono were officers of Krohne at all material times; Paragraph 29 alleges a variety of facts related to the Individual Defendants, including that they failed to support or promote the business objectives of the Joint Venture, that they engaged in conduct with the intention of forcing Micro-Watt to abandon the Joint Venture, and that they took steps to deliberately sabotage the ongoing business affairs of the Joint Venture;

Paragraph 29 alleges that the Individual Defendants wrongfully engaged in these activities; and, Paragraph 33 alleges that Micro-Watt suffered damages as a result of the Defendants’ actions, including losses in time and financialresources invested into the Joint Venture. [58] The Respondent is not required to plead specific words, so long as the essence of the action is set out in the pleadings:Peterson at para 20.

I find the Respondent has made the allegations necessary to give rise to a cause of action based on the intentionaltort of inducing breach of contract, which is supported with sufficient allegations of fact. [59] I also acknowledge the Applicants’ position that the director of a company acting bona fide within their scope of the authorityand in the best interests of a company generally will not be held personally liable in tort for inducing breach unless something more isproven.

However, this is a question to be decided at trial. [60] Without commenting on the strength the claim being put forward, I find that the Amended Statement of Claim does set out areasonable cause of action against Elliott and Del Buono based on inducing breach of contract. iii) Micro-Watt does not plead a reasonable claim in conspiracy [61] The Applicants argue that the pleadings fail to disclose the material facts necessary to make out a reasonable cause of action inconspiracy against any of the Defendants.

They maintain that directors and officer of a company cannot be included in an allegedconspiracy with their company unless it is pled that they acted outside of their role as officers and directors: Hovsepian at paras 106-108. [62] The Applicants state in their Brief that Micro-Watt does not plead that the Individual Defendants acted outside their role asemployees of Krohne or contrary to Krohne’s best interests, which should therefore result in the claim against Elliott and Del Buonobeing stuck, as well as the corollary claim against Krohne since there must be multiple parties for there to be an actionable conspiracy:Caanda Cement LaFarge Limited v British Columbia Lightweight Aggregate Limtied, (SCC), [1983] 1 SCR 452 at pp10-14; Craik at para 23.. [63] Micro-Watt responds by stating that the Applicants’ argument assumes that the acts of Elliott and Del Buono were alleged tobe acts of the “mind and will” of the corporation.

If it can be established that the Individual Defendants acted in their own self-interest asalleged, or that those acts were so egregious that the Individual Defendants stepped out from under the protective umbrella of corporateduties, then the Defendants may then be found liable in conspiracy. [64] The Respondent states at paragraph 30 of the Amended Statement of Claim: [T]he Defendants, and each of them, conspired among themselves with the ulterior motive of undermining the Joint Venture, withthe intention of increasing sale of Krohne products through a different business model that would enhance and maximize sale byKrohne’s North American Operations, the particulars of which are solely within the knowledge of Krohne. (Emphasis added) [65] As discussed in Tottrup, the Respondent has clearly made a claim based on a legally recognized cause of action in tort. [66] In terms of the facts required support a claim of conspiracy, the Supreme Court in LaFarge set out the following necessaryelements : 1.

An agreement between two or more persons;

2. Actual or constructive intent to injure the plaintiff; 3. Committing unlawful acts, or using unlawful means, where th intent is constructive; and, 4.

Damage to the plaintiff or the threat of damage that requires an injunction because an award of damages would not adequately compensate the plaintiff. [ 67 ] Once again, paragraph 30 of the Amended Statement of Claim references the Joint Venture Agreement between the corporate parties and alleges that each of the Defendants intended to undermine the Agreement with the goal of increasing the sales of Krohne products. [ 68 ] According to the Respondent, the breaches alleged in the Statement of Claim comprise the unlawful acts or objectives engaged in by the Defendants as part of the conspiracy, including the breach of an obligation of confidence and the breach of fiduciary duty. [ 69 ] Finally, paragraph 33 sets out the damages said to have been suffered by Micro-Watt. [ 70 ] Taken together, the essence of a claim based on conspiracy appears to be properly made.

I note, however, that the Applicants are correct in arguing that a director or officer of a company cannot be included in an alleged conspiracy with their company unless it is pled that they acted outside of their role as officers and directors: Hovsepian at paras 106-108 . [ 71 ] On this point, I note that paragraph 28 of the Amended Statement of Claim reads in part: ...Micro-Watt pleads that the conduct of the individual Defendants, in acting in their self-interest and/or in participating in any such activities...was so egregious and unjustified that it was contrary to the best interests of Krone or the Joint Venture and/or outside whatever authority they may have had to act for Krone or the Joint Venture. [emphasis added] [ 72 ] Again, taking a broad and liberal view of the pleadings as a whole, I am satisfied that there is a sufficient factual foundation plead to pursue an action for conspiracy against the Individual Defendants. iv) Micro-Watt does not plead a reasonable claim for breach of fiduciary duty [ 73 ] The Applicants allege that Micro-Watt has not pled any facts to support the existence of a fiduciary obligation owed to Micro- Watt by the Individual Defendants. [ 74 ] The Applicants state in their Brief that there is no legally recognized basis for finding a fiduciary relationship between Micro- Watt and the Individual Defendants by virtue of their positions as officers of Krohne.

While there may be a fiduciary relationship between senior management and the company they serve, this relationship and the obligations of loyalty and good faith that flow from it do not extend to other parties: BCE Incorporated v 1976 Debentureholders , 2008 SCC 69 at paras 37 and 66 .

As such, they claim that the Individual Defendants only owe a duty to Krohne, not to Micro-Watt. [ 75 ] The Applicants also argue that in a commercial environment courts should be hesitant about grafting fiduciary duties onto contractual obligations, which are the very consideration for the parties’ bargain: Ironside v Smith , 1998 ABCA 366 at para 79 . In terms of the Individual Defendants’ relationship with the KMWL, the Applicants argue that the involvement of Elliott and Del Buono in the Joint Venture in no way establishes a fiduciary obligation between the Individual Defendants and Micro-Watt.

KMWL and Micro-Watt

are separate entities and the management does not owe fiduciary obligations to a third-party claiming an interest in those commercialentities. [76] The second argument made by the Applicants is that is not clear if the Statement of Claim asserts a breach of fiduciary dutybetween Krohne and Micro-Watt. [77] The Applicants state that the Claim pleads that Krohne and Micro-Watt were commercial actors operating at arm’s lengthfrom each other, and it was within this context they entered into the Joint Venture Agreement.

They note that courts will rarely impose afiduciary duty in the contract of arm’s length commercial agreements: Roorda v MacIntyre, 2009 ABQB 124 at para 63. They also statethat the venture relationship is not presumptively fiduciary: Roorda at para 69. [78] Finally, the Applicants maintain that the Claim does not plead that Micro-Watt was in any way exceptionally vulnerable to theconduct of Krohne, nor does it plead there was a mutual understanding that Krohne had relinquished its own self-interest and agreed toact solely or predominantly on behalf of Micro-Watt.

As such, it is plain and obvious that Micro-Watt’s claim for breach of fiduciaryduty against Krohne discloses no reasonable cause of action and should be struck. [79] For its part, the Respondent argues that not every sentence in a pleading must disclose an independent cause of action andsome paragraphs can simply provide context: Guccione v Bell, 1999 ABQB 219 at paras 6-7, affirmed, 2001 ABCA 265; Peterson atparas 20-21. [80] The Respondent argues that the Claim does not plead that the Individual Defendants owed a fiduciary duty to the Plaintiff.The fiduciary obligations which the Individual Defendants owed to Krohne, and may have owed to the Joint Venture, provides part ofthe context of the conspiracy and inducing breach allegations and are relevant to showing that the Individual Defendants had adivergence of interests from Krohne in that they acted contrary to the fiduciary duties they owed to Krohne. [81] I accept the Respondent’s submission that the breach of fiduciary duty is not being made as an independent cause of action,but rather as context for other causes of action being brought forward.

I also note, however, that the Respondent has added a new claimat paragraph 31 of the Amended Statement of Claim which states that the Defendants are liable for a breach of an obligation ofconfidence. On this point, the Respondent states that a third-party who receives information may also be bound by such confidence andliable for breaching it: Cadbury Schweppes Inc v FBI Foods Ltd, (SCC), [1999] 1 SCR 142, paras 19, 26, 48, 60, 91. [82] While the pleadings are still open to amendment at this time, it seems that it is not yet clear what issue are actually in disputeand this is a problem.

As noted in Rule 1.2(2), the purpose of the Rules of Court, and the court process more generally, is to identify thereal issues in dispute and facilitate the quickest means of resolving a claim. [83] In terms of pleadings, precision and clarity are essential for identifying disputed issues and allowing plaintiffs to make clearand concise claims that can be properly responded to by defendants . Pleadings must generally be succinct, and should not be used to takeanother party by surprise: see Rule 13.6(1)(3).

Accordingly, the causes of action and any of the related facts should clearly be set out inthe pleadings so that the parties are all aware of the matters in dispute. [84] In this case, the Amended Statement of Claim needs to be further amended to make it clear which claims are contextual andwhich are not. Claims which are intended to be independent causes of action need to be clearly set out and properly supported withallegations of fact.

v) Micro-Watt does not have standing to assert duties owed to or wrongs committed against KMWL [85] The Applicants argue that since Micro-Watt and KMWL are separate corporate entities and KMWL has not asserted anyallegations of wrongful conduct against the Defendants, Micro-Watt cannot plead that the Applicants owed duties to or committedwrongs against KMWL in the Statement of Claim. As a consequence, they argue that given that KMWL is not a party to this action, any

claims attributed to it are not relevant and should be struck pursuant to Rule 3.68(2)(c). [86] Alternatively, the Applicants note that even assuming that Micro-Watt is asserting the claims related to KMWL in theircapacity as a shareholder, individual shareholders have no cause of action for any wrongs done to the corporation: Bank of Montreal atparas 68-74, citing Foss v Harbottle (1843), 67 ER 189 (Eng VC); First Calgary at paras 15-16. [87] The Respondent argues that it is not attempting to assert a claim on behalf of KMWL or for KMWL’s losses; instead it allegesthat as a result of the wrongful acts, including breach of contract by Krohne and inducing breach of contract and conspiracy on the part ofElliott and Del Buono, the Respondent has suffered damage to their reputation and to their business operations. [88] The Respondent notes that loss of property through damaged business reputation is an allowable head of damage for breach ofcontract: Canlin Limited v Thiokol Fibred Canada Limited (1983), (ON CA), 40 OR (2d) 687 (CA) at para 37.Likewise, the torts of conspiracy and interference with economic relations can be assessed at large, and include the totality of the impacton a plaintiff and compensation for damage to reputation: 321665 Alberta Limited v Exxon Mobil Canada Limited et al, 2011 ABQB 292at paras 204-207, and 277-282.

As a result, they maintain that the claims for damage to Micro-Watt’s reputation and their economicinterests as a result of the torts and breaches of the Agreements are maintainable. [89] The

Canada Business Corporations Act, RSC 1985, c C-44, ss 239 and 241, and the Alberta Business Corporations Act, RSA2000, c B-9, ss 240 and 242, permit a complainant to bring a derivative action or request an oppression remedy in certain situations as abeneficial owner of a corporation.

That noted, the Respondent states in its Brief that it is not seeking to assert any claims on behalf ofKMWL or recover any of KMWL’s losses. [90] The Respondent does set out, however, a series of duties in paragraphs 20-26 that were allegedly owed by the Defendants.Included in these allegations are numerous references to duties owed to the Joint Venture, including a duty of loyalty and good faith (atpara 20), the obligation to avoid conflicts of interest (at para 21), fiduciary duties (at para 25), and a duty not to conspire (at para 26),amongst other things. [91] If the Respondent is not making any derivative claims as a beneficial owner of KMWL, the duties owed to the Joint Ventureare not particularly relevant to the alleged breaches of duties owed to Micro-Watt itself. [92] Consequently, if the Respondent is not seeking to recover for any of the alleged losses suffered by the Joint Venture, theStatement of Claim should be amended to clarify that the allegations of wrongful conduct, as it involves KMWL, are necessary as part ofthe facts supporting the claims of breach of contract, inducement of breach, conspiracy and breach of confidence in relation to Micro-Watt only. vi) The Claim does not plead the material facts necessary to establish an accounting remedy [93] The final issue raised by the Applicant is whether Micro-Watt has properly plead the facts necessary to engage the equitabledoctrine accounting of profits, which requires a defendant to give up a benefit it has wrongly acquired: Community Credit Union Limitedv Ast, 2007 ABQB 689 at para 8. [94] According to the Applicants, the normal remedy for breach of contract is expectation damages.

Equitable remedies for breachof contract are only available in exceptional circumstances and only where damages are inadequate and where the relationship betweenthe plaintiff and the defendant is akin to a fiduciary relationship: Community Credit at para 13. [95] The Applicants note that the Claim does not plead that the normal expectation damages for breach of contract is somehowinadequate in these circumstances. Without this, prayer for account of profits should be struck. [96] For its part, the Respondent argues that where a misuse of confidential information has taken place the Court may grant any

available remedy, such as accounting of profits or a constructive trust: Cadbury Schweppes at paras 26, 48, 60 and 91. The Respondentalso notes that the traditional remedy for misuse of confidential information is an accounting for profit or damages, in addition to aninjunction: LAC Minerals v International Corona Resources Ltd, (SCC), [1989] 2 SCR 574 at para 81. [97] While the appropriate remedy in the case of breach of contract is generally in damages, other causes of action may requiredifferent remedies.

For an action based on breach of confidence, courts do have jurisdiction to grant a remedy based on the facts of thecase rather than strict doctrinal consideration: Cadbury Schweppes; Trimay Wear Plate Ltd v Way, 2008 ABQB 707 at para 34.Accordingly, in certain circumstances a party may request an equitable remedy such as an accounting of profits as remedy for breach ofconfidence. [98] As such, I find that the Respondent may request an accounting of profits in this case. The Court will then evaluate theevidence at trial to determine whether such an equitable remedy is appropriate.

Summary [99] To summarize my findings: 1) the Respondent has not clearly set out which alleged activities engaged in by the individual defendants support a cause of actionagainst Elliott and Del Buono personally based on breach of contract; 2) the Respondent has made the allegations necessary to support a claim against the individual defendants based on the intentionaltort of inducing breach of contract, which is supported with sufficient allegations of fact; 3) the Respondent has made the allegations necessary to support a claim against the individual defendants based on the intentionaltort of conspiracy, which is supported with sufficient allegation of facts; 4) the Respondent must amend the Statement of Claim to make it clear which claims are independent causes of action and whichare simply contextual; 5) if the Respondent is not seeking to recover for the alleged losses suffered by the Joint Venture, the Statement of Claim should beamended to clarify that the allegations of wrongful conduct, as it involves KMWL, are part of the facts supporting the claims of breachof contract, inducement of breach, conspiracy and breach of confidence as they related to Micro-Watt only; 6) the Respondent is entitled to request the equitable remedy of accounting for profits.

Conclusion [100] This is an application to strike portions of the Respondent’s Statement of Claim and in particular to strike the claim as againstthe Individual Defendants. While, as I have found, some portions of the claim are deficient as lacking in factual particularity and thusrequire additional clarification or expansion of facts, the pleadings are sufficient to support at least a cause of action against theIndividual Defendants and thus they will remain as defendants in the action. The pleadings are not yet closed.

Under the Rules, theRespondent is entitled to further amend its Statement of Claim to provide the clarification and amplification which I have found isrequired. [101] For the Court to strike the deficient portions of the pleading and the Respondent to simply file an amended pleading correcting

the deficiencies is neither timely nor cost effective. At the same time, the Applicant is entitled to have some clarity as to the factual basis for the Respondent’s various causes of action. Therefore, in the circumstances of this case, I decline to strike those portions of the claim which I have found to be unclear or deficient and instead direct the Applicant to file an Amended Amended Statement of Claim which remedies the deficiencies and provides the necessary clarity as discussed earlier in these Reasons. Costs [ 102 ] If the parties can not agree, they may speak to costs.

Heard on the 10th day of November, 2011. Dated at the City of Calgary, Alberta this 1st day of August, 2012. C.S. Brooker J.C.Q.B.A. Appearances: James T. Eamon, Q.C. for the Plaintiff Andrew F. Sunter, Esq. for the Defendants