McDonald & Bychkowski Ltd (CMB Insurance Brokers) v Lougheed, 2015 ABQB 792

Court of Queen ’ s Bench of Alberta Citation: McDonald & Bychkowski Ltd (CMB Insurance Brokers) v Lougheed, 2015 ABQB 792 Date: 20151214 Docket: 1203 00841 Registry: Edmonton Between: McDonald & Bychkowski Ltd. Operating As CMB Insurance Brokers Plaintiff - and - Kevin Lougheed, Cheryl Talbott, Patricia Semeniuk, Gail Tory and McLean & Shaw Insurance Inc. Defendants _______________________________________________________ Reasons for Judgment of W. S.

Schlosser , Master in Chambers _______________________________________________________ [ 1 ] This is a Rule 3.68 application to strike the claim against the individual defendant, Gail Tory. There is a preliminary issue about the materials that can be relied upon in support of the application and an ancillary application for the penalty for late filing of the plaintiff’s Affidavit of Records [ 2 ] Three of the plaintiff’s employees went to work for McLean & Shaw Insurance Inc. Gail Tory is the owner of McLean & Shaw.

She says that all times she was working as a director or an officer of McLean & Shaw and that there is no basis for an action against her personally.

List of Authorities 1. R v Imperial Tobacco Canada Ltd, 2011 SCC 42 2. Hunt v Carey Canada Inc, (SCC), [1990] 2 SCR 959 3. Tanar Industries v American Home Assurance Co, 1998 ABCA 313 4. Hoopp Realty Inc v The Guarantee Company of North America , 2015 ABQB 270 5. Bhasin v Hrynew, 2011 ABQB 637 6. Bhasin v Hrynew, 2014 SCC 71 7. ADGA Systems International Ltd v Valcom Ltd, (ON CA), 1999 CarswellOnt 29 (CA) 8. Scotia McLeod v Peoples Jewellers, (ON CA), 1995 CarswellOnt 1203 (CA) 9. R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 10. Hovsepian v. Westfair Foods Ltd., 2001 ABQB 700 11. Operation Dismantle v.

The Queen, (SCC), [1985] 1 SCR 441 12. Tottrup v. Alberta (Minister of Environment), 2000 ABCA 121 13. Hogarth v. Rocky Mountain Slate Inc., 2013 ABCA 57 14. Kent v. Postmedia Network Inc., 2015 ABQB 461 15. Jim Pattison Developments Ltd. v. Fudex International Inc., 1996 Canlll 10533 (ABQB) 16. Marydel Homes (West) Inc. v. Cachet Estate Homes (Castlemore) Inc., 2015 ONSC 4333 17. Tran v. University of Western Ontario, 2015 ONCA 295 18. Sun Life Assurance Company of Canada v. Tom 2003-1 Limited Partnership #2, 2010 ABQB 815 Facts [3] The defendants; Lougheed, Talbott, and Semeniuk, all worked for CMB.

Lougheed and Semeniuk resigned. Talbott wasfired. All three went to work for McLean & Shaw. The plaintiff says that Lougheed and Semeniuk were induced to join McLean & Shawand that Lougheed, Semeniuk and Talbott then stole business from the plaintiff and used the plaintiff’s confidential information to theplaintiff’s detriment. [4] The Statement of Claim makes the following allegations against the applicant: 4. The Defendant Gail Tory (“Tory’) is a resident of the Hamlet of Sherwood Park, in the Province of Alberta and is the soleshareholder, director and the directing mind of M & S. 18.

Prior to terminating their employment with BMB, Lougheed and Semeniuk improperly entered into communications with theDefendants, Talbott, Tory and m & S regarding employment or the future Lougheed – MS Relationship and the Semeniuk – MSRelationship; and provided details of the Plaintiffs business and began making arrangements to compete with CMB. 20. The Defendants, some or all of them, have conspired to cause the Plaintiff harm by unfairly competing with the Plaintiff’sbusiness by:

a) Taking confidential information of the Plaintiff concerning the Plaintiff business, operations and affairs, including trade secrets,information related to clients, employees, customers, and others doing business with the Plaintiff;

b) Inducing or attempting to induce employees of the Plaintiff to joint them in their competing business;

c) Contacting customers of the Plaintiff to induce them to terminate their contractual relations with the Plaintiff and inducing orattempting to induce those customers to no longer use the services of the Plaintiff;

d) Using confidential information and client lists to price their services competitively. 21. In the alternative, the Defendants knew or ought to have known that their actions would cause loss and harm to the Plaintiff. 25. The Defendants, Tory and M & S, some or all of them, assisted encouraged or allowed the aforementioned breaches by Lougheedand Talbott of their employment contracts with the Plaintiff, duties owed to the Plaintiff and wrongful acts by Lougheed, Talbott andSemeniuk.

26. The Defendants, all or some of them, have acted unlawfully and in a manner designed deliberately to interfere with the economic interest of the Plaintiff, the particulars of which include, but are not limited to:

a) Inducing Lougheed to breach his employment contract with the Plaintiff and to commence the Lougheed-MS Relationship with Tory and M & S;

b) Inducing Lougheed to breach his confidentiality obligations with the Plaintiff by using confidential information, proprietary information, and trade secrets for a purpose other than to further the interests of the Plaintiff;

c) Inducing Lougheed to breach his fiduciary obligations to the Plaintiff;

d) Inducing Talbott to breach her employment contract with the Plaintiff;

e) Inducing Talbott to breach her confidentiality obligations with the Plaintiff by using confidential information, proprietary information, and trade secrets for a purpose other than to further the interests of the Plaintiff;

f) Inducing Talbott to breach her fiduciary obligations to the Plaintiff;

g) Inducing Semeniuk to breach terminate her employment with the Plaintiff and to commence the Semeniuk – MS Relationship with Tory and M & S;

h) Inducing Semeniuk to breach her confidentiality obligations with the Plaintiff by using confidential information, proprietary information, and trade secrets for a purpose other than to further the interests of the Plaintiff. And as a result the Plaintiff has suffered economic loss and damage to its goodwill. (emphasis added) [ 5 ] Damages are specified in paras 28 and 30 of the Statement of Claim. [ 6 ] Particulars were demanded and given. The relevant particulars, which form part of the pleadings (Rules -

Definitions ‘Pleading’ (j)) are as follows: [ 7 ] Paragraphs 4,6, 7 and 8 of the Reply to the Demand for Particulars say: 4. In respect to paragraph 1(c)(ii) of the Demand for Particulars: The Defendant, Tory, induced the CMB employees, Lougheed and Semeniuk to join the firm of McLean & Shaw. 6. In respect to paragraph 1(

d) of the Demand for Particulars: The Defendants, Tory and McLean & Shaw, encouraged, permitted or otherwise turned a blind eye while the Defendants Lougheed and/or Semeniuk and/or Talbott utilized the confidential information, proprietary information and trade secrets of the Plaintiff for their own benefit and the benefit of Tory and McLean & Shaw, to the detriment of the interests of the Plaintiff, and by causing or inducing customers of the Plaintiff to issue broker letters transferring their insurance business to McLean & Shaw Insurance Inc. 7. In respect to paragraph 1(

e) of the Demand for Particulars: The Defendants, Tory and McLean & Shaw, encouraged, permitted or otherwise turned a blind eye while the Defendants Lougheed and/or Semeniuk and/or Talbott utilized the confidential information, proprietary information and trade secrets of the Plaintiff for their own benefit and the benefit of Tory and McLean & Shaw, to the detriment of the interests of the Plaintiff, and by causing or inducing customers of the Plaintiff to issue broker letters transferring their insurance business to McLean & Shaw Insurance Inc. 8. In respect to paragraph 2(

a) through 2(

e) of the Demand for Particulars: Tory is the sole director and owns 100% of the voting shares of McLean & Shaw. Tory is the controlling mind of McLean & Shaw. The particulars as set out in paragraphs 1 through 7 herein apply equally to the Defendants, Tory and McLean & Shaw. Law [ 8 ] The test for a 3.68 application in this post- Hryniak culture, was established by the pre- Hryniak case of: R v Imperial Tobacco Canada Ltd , 2011 SCC 42 at paras. 19-21 , [2011] 3 SCR 45. Then, as now, the claim must have ‘no reasonable prospect of success’.

Some latitude is given for novel claims: Canada National Resources Ltd v Arcelormittal Tubular Products Roman SA , 2013 ABCA 279 . [ 9 ] In O’Connor Associate Environmental Inc v MEC OP LLC , 2014 ABCA 140 , our Court of Appeal said (at para 16): 16 The test for striking pleadings is to be found in Imperial Tobacco , which is binding authority in this province. In determining whether a novel claim has a "reasonable prospect" of success, many factors must be examined. The clarity of the factual pleadings is important. The existence of case law discussing the same or similar causes of action is relevant.

As noted in Imperial Tobacco , the courts must be careful not to inhibit the development of the common law by applying too strict a test to novel claims. However, the courts must resist the temptation to send every case to trial, even if some legal analysis is needed to determine if a claim has any

reasonable prospect of success: Kripps v. Touche Ross & Co. (1992), (BC CA), 94 DLR (4th) 284 at p. 309, 69 BCLR(2d) 62 (CA). [10] The test is straightforward. The claim must have no reasonable prospect of success, with some latitude given to novel claims. Preliminary Issue [11] In the course of the application, the respondent played what was intended to be a trump card; the pleadings in Bhasin vHrynew. That case started as 2011 ABQB 637 (per Moen,

J) and ended up in the Supreme Court of Canada, (2014 SCC 71). That case iswell known for revealing the duty of honest performance and good faith in the performance of a contract. The case is reviewed withclarity and insight by Olugbenga Shoyele in Bhasin v Hrynew – An Innovative Expansion of the Common Law Doctrine of Good FaithLawNow, September 2015. [12] Rule 3.68(3) provides that no evidence may be submitted for a Rule 3.68(2)(

b) application. [13] The pleadings in Bhasin are neither law nor evidence. The issue is whether they can be considered in response to theapplication. [14] In HOOP Realty Inc v Guarantee Co. of North America, 2015 ABCA 336, the majority said : 19 We conclude that the Rule 3.68(3) bar on considering evidence did not preclude the chambers judge from considering factors otherthan evidence, even when outside the contents of the Amended Statement of Claim.

This Court concluded in O'Connor, supra at para 16that many factors, short of evidence, must be examined in determining whether a novel claim has a "reasonable prospect of success". Weinterpret this to include consideration of the underlying litigation context of a claim, even one which does not give rise to a novel causeof action. (emphasis added) [15] As I see it, HOOP Realty confirms that there is no simple bright line for the material that can be used in support of a Rule3.68(2)(

b) application. Materials are to be considered on a case-by-case basis. In my view, the Bhasin pleadings fall into the acceptablecategory of materials permitted by HOOP Realty. Bhasin v Hrynew [16] Bhasin was a retail dealer of educational savings plans marketed by the Canadian American Finance Corp (Canada) Ltd(‘CanAm’). Bhasin wouldn’t let Hrynew, a competitor, audit his confidential business records even though Hrynew was cloaked withauthority to do so by CanAm.

Bhasin suspected ulterior motives (Hrynew’s ‘Agency’ wanted a merger) and, when his contract was notrenewed, he suffered a loss and sued. [17] The Supreme Court of Canada found CanAm liable for breach of an implied term of good faith in the performance of acontract. [18] Although the individual, Larry Hrynew, was found liable at trial, the Court of Appeal dismissed the claim against him.

Thisdetermination was upheld by the Supreme Court of Canada. [19] The important part for our purposes, is that one of the ulterior motives alleged by Bhasin, was that CanAm and Hrynew weretrying to force a merger between Bhasin (operating as a firm) and the corporate vehicle operated by Hrynew. The tort of conspiracy wasalleged. The lawsuit itself was not just about contracts. [20] The sufficiency of the pleadings was one of the first issues raised at trial. Moen, J concluded that the facts pleaded could giverise to the tort of intentionally inducing breach of contract as well as the tort of conspiracy.

However, Hrynew’s company was notidentified and it was not named as a party. It is unknown whether Hrynew’s Agency was a separate legal entity. [21] The trial judge found the pleadings included enough material facts to disclose a cause of action against Hrynew. The SupremeCourt of Canada would not interfere with the finding that the respondents, Hrynew and CanAm, were not prejudiced by any defects in thepleadings.

They found that the pleadings were sufficient to put issues of improper purpose and dishonesty into issue. [22] The respondents’ argument here is that if the pleadings were good enough for the Supreme Court of Canada, these pleadingsought to be good enough too. [23] The difficulty with this argument, is that the issue in the case at bar, is not the issue that was squarely before the SupremeCourt of Canada. Hrynew and his agency weren’t both parties. And we do not know the nature of Hrynew’s agency.

The Supreme Courtof Canada was not faced with the issue of deciding whether an action could be advanced against one or the other, or both. Accordingly, itis my view that Bhasin is distinguishable and does not determine the sufficiency of the pleadings in this case. The issue for thisapplication is not whether the facts pleaded disclose a cause of action, but rather whether they disclose a cause of action that can bemaintained against both the individual and her company. Analysis [24] The facts alleged in the Statement of Claim give rise to a number of causes of action: inducing breach of contract (for

involving Lougheed and Talbott), inducing breach of duties of confidentiality, inducing breach of fiduciary duties (of Talbott, Lougheedand Semeniuk), and conspiracy to harm the plaintiff. Inducing Breach of Contract, Confidentiality and Fiduciary Duty [25] The starting point is the rule in Said v Butt, [1920] All ER 232. [26] The rule has to do with individuals dealing with a company accepting the limitation in liability brought about by separatecorporate personality: Solomon v A. Solomon & Company, (1897), [1895-99] All ER 33.

The rule in Said v Butt does not prevent thisaction, or cover this fact situation. [27] The breaches said to be induced here are breaches of duties owed by the three individual defendants, Talbott, Lougheed, andSemeniuk to the plaintiff and not breaches of contract or other duties between them and McLean & Shaw. [28] The law from Said v Butt forward is reviewed by the Ontario Court of Appeal in Adga Systems International Ltd. v ValcomLtd. (1999) (ON CA), 43 OR (3d) 101. As I read that case, any bar to a claim would be a pleadings issue, not a policyissue.

There is no legal bar to liability of both a corporation and its owner, even if the owner acts within the course and scope of heremployment. [29] What must be alleged, is an overt act; something that takes the owner or employee outside identification with the company.Circumstances that might permit lifting the corporate veil or imposing joint liability might also suffice. The Officer or Director has toexhibit a separate character or identity: Hogarth v Rocky Mountain Slate Inc, 2013 ABCA 57, and the cases cited there. [30] Otherwise it is not a case of doubling up, or ‘tripling up’, as in Said v Butt.

It is a case of either/or. ii. Conspiracy [31] The elements of the tort of conspiracy are (as quoted in Hovsepain (below)): The parties agree that the elements of conspiracy are set out in Canada Cement LaFarge Ltd. v.

British Columbia LightweightAggregate Ltd., (SCC), [1983] 1 S.C.R. 452 at 471-72: (1) whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants’ conduct is to causeinjury to the plaintiff; or, (2) where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and thedefendants should know in the circumstances that injury to the plaintiff is likely to and does result.

In situation (2) it is not necessary that the predominant purpose of the defendants’ conduct be to cause injury to the plaintiff but, in theprevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to theplaintiff would ensue. In both situations, however, there must be actual damage suffered by the plaintiff. Canada Cement LaFarge Ltd v British Columbia Lightweight Aggregates Ltd (SCC), [1983] 1 SCR 452 at 471-2. [32] There is no doubt that a company and its officer or director can be liable in conspiracy.

In fact, the two can conspire to createthe tort: (e.g. Klar, Remedies in Tort, Looseleaf 3-34.1 para 36 and the cases cited there).

I am cognisant of the strength of the corporateentity doctrine but there is a certain absurdity in permitting a cause of action in conspiracy if the co-conspirators are only a so called ‘oneman company’, and its guiding mind or alter ego. [33] A proper pleading of conspiracy requires setting out the parties to the conspiracy, the purpose of the conspiracy, the act onwhich the conspiracy is based and the damages flowing from it: Hovsepian v Westfair Foods Ltd, 2001 ABQB 700 per Hart, J.

Disposition [34] Without alleging anything more than an identity of interest and acts, the action against Gail Tory for inducing breach ofcontract, fiduciary duty or confidentially have no reasonable prospect of success. It is one or the other: her or McLean & Shaw, on thefacts as pleaded. These allegations against the applicant are struck. [35] Ms. Tory is, however, alleged to have been a co-conspirator with Lougheed, Talbott, Semeniuk, and McLean & Shaw. Thereis no legal bar to these allegations on this type of liability. This portion of the application is dismissed.

Late Affidavit of Records [36] Rule 5.12 provides for a costs penalty if there is no Affidavit of Records within the time specified by Rule 5.5. [37] The plaintiff’s Affidavit of Records was very late and no reasonable excuse is offered. The costs penalty is ordered payable inany event of the cause but at the end of the day. [38] Given the mixed success overall, each side will bear its own costs of the Rules 3.68 and Rule 5.12 applications.

Heard on the 15 th day of September, 2015. Dated at the City of Edmonton, Alberta this 14 th day of December, 2015. W. S. Schlosser M.C.C.Q.B.A. Appearances: R. James Parlee McLaws for the Plaintiff Cristina Wendel Dentons for the Defendants