1059028 Alberta Ltd. v. Command Energy Services Ltd., 2016 ABQB 234

Court of Queen ’ s Bench of Alberta Citation: 1059028 Alberta Ltd v Capio Oilfield Services Ltd, 2016 ABQB 234 Date: 20160425 Docket: 1303 05774 Registry: Edmonton Between: 1059028 Alberta Ltd. and Command Energy Services Ltd.

Plaintiffs - and - Capio Oilfield Services Ltd., Rock Weld Oilfield Services Ltd., Complete Tubular Products Ltd., and Russell Messer and Russell Messer operating as KDM Oilfield Services Defendants Corrected judgment: A corrigendum was issued on April 26, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of S. L. Schulz , Master in Chambers _______________________________________________________ [ 1 ] This is an application by the Defendants for

summary dismissal of all or a portion of an action based on the alleged unenforceability of the restrictive covenant contained in a share purchase agreement. There was a cross application by the Plaintiffs for

summary judgment, but pursuant to an order of Master Schlosser, that application has been restricted to a cross application for a

declaration that the restrictive covenant is valid and enforceable. The issue of whether there has been a breach of the restrictive covenant is not before the Court on this application. [ 2 ] For the reasons that follow, I declare that the restrictive covenant is enforceable and the

summary dismissal application is dismissed.

Background Facts [ 3 ] On January 31, 2009, Capio Oilfield Services Ltd (“Capio”) and Russell Messer (“Messer”) in his capacity as the principle shareholder of Capio, entered into a share purchase agreement (“Agreement”) whereby all of the shares owned by Capio in Command Energy Services Ltd (“Command Energy”) were sold to 1059028 Alberta Ltd. [ 4 ] The supporting affidavits establish that at all material times, Command Energy was engaged in the oilfield tubular supply business in Alberta, Texas, and Saudi Arabia and the business address for Command Energy at the time the Agreement was executed was in Nisku, Alberta. [ 5 ] The Agreement was drafted by one lawyer acting for all of the parties to the Agreement and contains a non-competition and non-solicitation clause at paragraph 5.01 (the “restrictive covenant”).

The restrictive covenant purports to restrict, by geography, time and subject matter, the activities of Messer, Capio, and any of their affiliates. The Agreement also contains an “entire agreement clause” at paragraph 6.08. [ 6 ] Rock Weld Oilfield Services, Rock Weld Oilfield Services Ltd and Complete Tubular Products Ltd. are alleged to be affiliates of Messer, Capio and 1059028 Alberta Ltd. The Rock Weld entities are not involved in this application. [ 7 ] The Defendants bring an application for

summary dismissal based on the alleged unenforceability of the restrictive covenant. The Plaintiffs bring a cross application for a declaration that the restrictive covenant is enforceable. The Relevant Contractual Clauses 1.01

Definitions : For the purposes of this Agreement or any certificate, opinion or other document, agreement, undertaking or assurances delivered in accordance with or in furtherance of the purposes and intent of this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following expressions shall have the following meanings respectively: ... (b) “Business” – the oilfield tubular supply business presently carried on by the Corporation in and around the Town of Nisku, Alberta, Houston, Texas and Saudi Arabia and __________; ... 1.02 Derivatives: All derivatives of any kind of the

definitions set forth in

Section 1.01 hereof shall have the meanings appropriate to the derivation of such definition. ... 5.01 Restrictive Covenant: The Vendor [Capio] and Russell Messer covenant, acknowledge and agree to and with the Purchaser [105] that: (

a) from and including the Closing Date for a period of five (5) years , the Vendor [Capio] and Russell Messer will not: (

i) either directly or indirectly as principal, agent, owner, partner, employee, consultant, shareholder, director or officer, as the case may be, or otherwise howsoever own, operate, be engaged in or connected with the operation of or have any financial interest in any operation whether a proprietorship, partnership, joint venture, private company or other entity whatsoever, or otherwise carry on, engage in or be connected or involved in any manner whatsoever in the operation of the same Business as the Corporation anywhere where the Corporation [Command Energy] now operates ; (ii) directly or indirectly on their own behalf or on behalf of anyone else: (

A) solicit business from any person which is a present customer of the Corporation or any of its affiliates (as defined in the Alberta Business Corporations Act ) including without limitation the Corporation and the Purchasers, or (

B) induce or attempt to persuade any person now or hereafter employed by the Corporation or the Purchasers or any of its affiliates to terminate his employment relationship; or (

C) advise any person not to do business with the Corporation or the Purchasers of any of its affiliates including without limitation; (iii) disclose or use without the Corporation’s or the Purchaser’s [105’s] prior written consent any secret or confidential information or knowledge relating to the Corporation or Purchasers or any of its affiliates or the business heretofore carried on by them or any affiliates;

(

b) The restrictive covenants contained in (

a) above are reasonable, that valuable consideration has been received therefor, and the Vendor [Capio] and Russell agree and undertake not to contest any action taken by the Purchasers [105] to enforce the same and agree that this Agreement and the restrictive covenants herein may be pleaded in complete Estoppel of any such contest, provided always that: (

i) if the geographic area encompassed by any one or more of the covenants contained in (

a) above is at any time determined unreasonable by a Court of competent jurisdiction adjudicating upon the validity of the covenants or any of them, then the geographic area shall be reduced to such an area as is considered reasonable by such Court; and (ii) if the limitation contained in (

a) above is at any time determined to be unreasonable by a Court of competent jurisdiction adjudicating upon the validity of the covenants or any one or more of them contained in (

a) above, then such time limitation shall be reduced to such period as is considered reasonable by such Court Emphasis added Issues 1. Must the affidavit in support of a

summary dismissal or

summary judgment application contain specific words or clauses? 2. Is this restrictive covenant ambiguous, vague, unascertainable or overly broad such that it should be read down or found to be unenforceable? 3. Should

Summary dismissal be granted or should the restrictive covenant be declared to be enforceable? The Affidavit in Support of a

Summary Dismissal or

Summary Judgment Application [ 8 ]

Summary Judgment and

Summary Dismissal applications are governed by Rule 7.3 of the Alberta Rules of Court , Alta Reg 124/2010 as amended from time to time, and being an application that may dispose of all or part of a claim, Rule 13.18(3) also applies: Application and decision 7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded.

(2) The application must be supported by an affidavit swearing positively that one or more of the grounds described in subrule (1) have been met or by other evidence to the effect that the grounds have been met . ... 13.18(3) If an affidavit is used in support of an application that may dispose of all or part of a claim , the affidavit must be sworn on the basis of personal knowledge of the person swearing the affidavit. [ Emphasis Added ] [ 9 ] Given the wording of Rules 7.3 and 13.18(3), must the supporting affidavit contain the magic words, swears positively , or is this another way of stating that the evidence must be based on personal knowledge?

In my opinion, it is sufficient if the evidence tendered by the Applicant is based on personal knowledge. The magic words are not necessary, but evidence on personal knowledge is necessary, particularly in light of Rule 13.18(3). [ 10 ] Must the supporting affidavit swear specifically that one or more of the three grounds listed in Rule 7.3(1) has been met? The words in Rule 7.3 are not intended to be a trap for the unwary litigant, but instead are meant to set out the substance of what must be proved to be successful in a Rule 7.3 application.

Swearing (positively or otherwise) that there is no defence or merit to the claim is giving an opinion on the ultimate issue. It is the job of the Court to give an opinion on the ultimate issue, not that of the affiant.

It is the job of the affiant to provide the Court with the evidence to form an opinion on the ultimate issue, based on the merits as shown in the supporting evidence and any defences raised. [ 11 ] Accordingly, I decline the invitation to dismiss this application on the basis of the insufficiency of the supporting affidavit, and instead look to the substance of the evidence before me to determine if it meets the

Summary Dismissal Test. The Law on Restrictive Covenants in a Commercial Setting [ 12 ] There are a number of cases which set out the basic principles to be followed when reviewing the enforceability of a restrictive covenant. These principles are neatly summarized by Mr. Justice Graesser in Senos v Pacesetter Performance Drilling Ltd , 2010 ABQB 533 (“ Senos ”) and form the foundation for the approach employed here:

[34]...Cases interpreting and enforcing (or refusing to enforce) restrictive covenants and non-competition agreements are legion, and thereferences below are to the cases cited by counsel, and are not intended to be comprehensive or necessarily reflect the leading cases onthe subject. These principles are: 1. Restrictive covenants and non-competition agreements are prima facie unenforceable as being in restraint of trade and are thuscontrary to public policy: Doerner v. Bliss & Laughlin Industries Inc., (SCC), [1980] 2 S.C.R. 865 (S.C.C.); 2.

The onus is on the party seeking to enforce such agreements to prove, on a balance of probabilities, that the agreement isreasonable between the parties and not contrary to the public interest: Ensign Drilling Inc. v. Lundle, 2007 ABQB 357 (Alta. Q.B.), atpara.65; 3. Restrictive covenants and non-competition agreements in contracts of employment are less likely to be found reasonable than aresimilar provisions in commercial arrangements such as shareholders’ agreements or business or share purchase and sale agreements: Dale& Co. v. Land (1987), 1987 ABCA 197 , 56 Alta. L.R. (2d) 107 (Alta.

C.A.), Ensign, supra, and KRG Insurance Brokers(Western) Inc. v. Shafron, 2009 SCC 6 (S.C.C.); 4. Reasonableness is generally determined by looking at a combination of: (

a) the scope of the activities being restricted or prohibited; (

b) the duration of the restrictions or prohibitions; and (

c) the geographic scope of the restrictions or prohibitions: J.G. Collins Insurance Agencies v. Eisley, (SCC), [1978] 2 S.C.R. 916 (S.C.C.) and Globex Foreign Exchange Corp. v.Keicher, 2005 ABCA 419 (Alta. C.A.); 5. Freedom of contract and equality of bargaining power are also important considerations. Relative bargaining power is aconsideration as to whether contra proferentum might apply to

interpretation disputes: Esso Petroleum Co. v. Harper's Garage(Stourport) Ltd. (1967), (1968] A.C. 269 (U.K. H.L.), Eli Lilly & Co. v. Novopharm Ltd., (SCC), 1998 CarswellNat1061 (S.C.C.), J. G. Collins, supra, and Globex, supra; 6.

Interpretation of such contractual provisions follows normal principles of

interpretation: Venture Capital USA Inc. v. YorktonSecurities Inc. (2005), (ON CA), 75 O.R. (3d) 325 (Ont. C.A.). That case accepted the issue as stated by Geoff R.Hall in Canadian Contractual

Interpretation Law, 3rd Ed., Markham, Ontario: LexisNexis Canada Inc. 2007 at p. 276, as being: a matter of discerning the parties' objectively manifested intentions at the time of contracting by reference to the words they have usedand the context in which they have used them; 7. Ambiguities may be resolved by looking at prior drafts and negotiations showing pertinent circumstances "other than the parties'subjective intentions[sic]: Indian Molybdenum Ltd. v. R., (1951] (SCC), 3 D.L.R. 497 (S.C.C.) and Gainers Inc. v.Pocklington Holdings Inc., 2000 ABCA 151 (Alta. C.A.); and 8.

The enforceability of such clauses rests on the wording contained in such clauses. The courts will not “read down” such clauses, oressentially redraft the clauses for the parties, unless the power to do so is contained in the underlying contract between the parties:Shafron, supra. Any “blue-pencilling” must therefore be done in accordance with the contract.

Senos at para 34 [13] Since the Senos decision, the Supreme Court of Canada has clarified principles 1 and 3 as they apply to commercial contracts.It held that a restrictive covenant in a commercial context is presumed to be lawful unless it can be established on a balance ofprobabilities that its scope is unreasonable (Payette v Guay Inc, 2013 SCC 45 at para 58). Application of the Law to the

Interpretation of this RestrictiveCovenant 1. Scope of the activities (subject matter) restricted or prohibited [14] The Agreement defines “Business” as “...the oilfield tubular supply business presently carried on by the Corporation[Command Energy]” in certain specified locations. [15] Paragraph 5.01(a)(

i) of the restrictive covenant prohibits Messer, Capio and their affiliates from both direct and indirectcompetition with the Business (with an upper case “B”). It goes on in paragraph 5.01(a)(ii)(

A) and (

C) to prohibit direct or indirect

solicitation of business (with a lower case “b”) from present customers of Command Energy or to advise anyone not to do business (with a lower case “b”) with Command Energy. [ 16 ] Counsel for the Defendants takes the position that using the word business (with a lower case “b”) must mean something different than the defined term since the defined term uses an upper case “B”. Counsel relies on the general principle of

interpretation that different words have different meanings. He goes further to suggest that the undefined word business (with a lower case “b”) means something different and is overly broad, vague and ambiguous since it could mean any type of remunerated activity, not just the oilfield tubular supply Business as defined in paragraph 1.01(

b) of the Agreement. [ 17 ] It is clear, from a contextual reading of the Agreement, that the term “business” is related to and given meaning by the term “Business”. It is contained in a subclause of the main clause using the defined term. I consider it to fall within the definition of Derivatives in

section 1.02 of the Agreement. The Agreement restricts only those remunerated activities that fall within the definition of Business. [ 18 ] Counsel for the Defendants further argues that ambiguity is created by the reference to “any person now or hereafter employed by [Command Energy]” and “anywhere the [Command Energy] now operates”.

He argues that these clauses are vague and unascertainable, especially without a list of those names and locations attached to the agreement as an appendix or otherwise. [ 19 ] Difficulty in ascertainment should not be confused with an inability to ascertain those persons and places referenced. The particulars of the Business were known to the parties and if necessary, could easily be ascertained by examining the records of Command Energy. [ 20 ] Given that the parties participated equally and fully in the negotiation of the agreement and were represented by counsel throughout, and that the

interpretation of reasonableness in a commercial context is more generous than in employment contracts ( Romantic Planet Vacations Inc v Hartman , 2015 ABQB 743 at para 67 ), I find the scope of the activities (subject matter) to be reasonable in scope, unambiguous and ascertainable. 2. Duration of the restrictions or prohibitions [ 21 ] The restrictive covenant specifies a time period of 5 years. There is no evidence before the Court to show that this time period is ambiguous, vague, unascertainable or overly broad. Similarly, there is no evidence to show that this period is excessively long.

I therefore find it to be reasonable. 3. Geographic scope of the restrictions or prohibitions [ 22 ] The restrictive covenant geographically restricts Messer and Capio (and their affiliates) “...in the operation of the same Business as [Command Energy] anywhere [Command Energy] now operates.”

Section 1.01 of the Agreement defines “Business” as including the oilfield tubular supply business presently carried on by Command Energy “in and around the Town of Nisku, Alberta, Houston, Texas and Saudi Arabia and_________”. [ 23 ] The drafting of this clause raises a number of concerns. [ 24 ] Firstly, the list of geographical places is separated by commas. A plain reading of a clause with this punctuation would mean that each location is considered separately. However, does it make sense to include Nisku separately if you are also listing Alberta which would encompass Nisku?

Similarly, does it make sense to list Houston if you are also listing Texas? Did the parties intend this to be just Nisku which is located in Alberta (i.e. Nisku, Alberta), or did the parties intend this restriction to refer to Nisku as well as all of Alberta? Were the parties intending the restriction to refer to Alberta, but in case that was found to be overly broad, were the parties specifying Nisku in particular so that the Court could use paragraph 5.01(

b) to read it down to just Nisku? Clearly there is some confusion created by virtue of the punctuation used in this clause. [ 25 ] Counsel also argues that confusion is created by the phrase “in and around”. Does this phrase apply to all of the listed geographical places? What does “in and around” mean? How far does it extend? For example, if it applies to “in and around Saudi Arabia”, does this mean all of Egypt or just along the border? [ 26 ] What does the blank mean?

Was it left in by mistake or is it intended to as a catchall to include any places not specifically listed previously, but where Command Energy operated at the time of contracting? [ 27 ] There is no doubt that this clause could have been drafted more clearly, but the intent of the parties can be ascertained from the Agreement. It is not necessary to admit parol evidence. [ 28 ] The principles of contract

interpretation provide that words should be given their ordinary meaning; nonsensical

interpretations should be avoided; and contracts should be interpreted such that they are given contractual efficacy.

Section 5.01(

b) provides the Court with the power to read down the geographical restriction if it thinks the restriction is overly broad. [ 29 ] Taking into account the context as well as the wording of the definition

section and the restrictive covenant, I find the objective intent of the parties was to include Alberta, Texas and Saudi Arabia in the geographical restriction. Further, I find that the phrase “in and around” modifies only the phrase that follows it, being Nisku. I find that “in and around Nisku” was included in the list in order to allow the Court to use

section 5.01 to read down to that smaller geographical area if the Court found the restriction to Alberta to be overly broad. Similarly, I find that Houston was included separately so that the Court could read down to that smaller geographical area if the Court found that including all of Texas in the restriction to be overly broad. [ 30 ] Given this

interpretation of the restrictive covenant, it is not necessary for me to address the mis-description of Nisku as a town rather than a hamlet. It is included within Alberta, regardless of its characterization.

[ 31 ] The blank in the clause is an indication that there might be additional locations caught by the restriction since the restriction applied to anywhere Command Energy was operating at the time of contracting. The parties had a mutual understanding of the Business and were represented by Counsel throughout the negotiation and drafting of the Agreement. I interpret the blank to encompass any Business locations where Command Energy operated at the time the Agreement was executed but not expressly included in the specified list.

These additional locations would be ascertainable by the parties. [ 32 ] In conclusion, I find that the restrictive covenant refers to Alberta (including Nisku), Texas (including Houston), Saudi Arabia, and any other place that Command Energy operated at the time of contracting. [ 33 ] Finally, a geographic restriction might be found to be unreasonable if the listed locations would completely prevent the Defendants from working in the only occupation for which they have training or expertise.

There is no evidence before the Court on this point and I therefore find it is neutral in this assessment. [ 34 ] In conclusion, I find that the geographical restrictions are ascertainable, reasonable and are not overly broad. Conclusion and Costs [ 35 ] I find the restrictive covenant to be enforceable. It is not ambiguous, vague, unascertainable or overly broad. The presumption of reasonableness and enforceability expressly created in paragraph 5.01(

b) of the Agreement stands. The Plaintiffs have passed the first hurdle on this claim but will still have to prove whether the restrictive covenant has been breached and any resulting damages. Those issues are not before the Court on this application. [ 36 ] The Defendants have not established that there is no merit to the claim against them.

In keeping with the principles enunciated by the Supreme Court of Canada in Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 SCR 87 and by our Court of Appeal in 776826 Alberta v Ostrowercha , 2015 ABCA 49 and the cases following those decisions, I dismiss their application. [ 37 ] The Plaintiffs are entitled to a declaration that the restrictive covenant is enforceable and are entitled to the taxable costs of this application. Heard on the 30 th day of March, 2016. Dated at the City of Edmonton, Alberta this 25 th day of April, 2016. S.L. Schulz M.C.C.Q.B.A.

Appearances: Michael Coombs Brownlee LLP for the Plaintiffs Ryan Henriques Prowse Chowne LLP for the Defendants

_______________________________________________________ Corrigendum of the Reasons for Judgment of S. L. Schulz, Master in Chambers _______________________________________________________ The Appearances were revised to reflect correct representation of counsel.