Vaillancourt v Carter, 2016 ABQB 492

Court of Queen ’ s Bench of Alberta Citation: Vaillancourt v Carter, 2016 ABQB 492 Date: 20160906 Docket: 0301 08965, 0501 06088 Registry: Calgary

Action no. 0301 08965 Between: Anne Marie Vaillancourt and Alpha Dog Enterprises Inc. Plaintiffs - and - Kenneth R. Carter, Encott Enterprises Corp., Smif Holdings Inc., and Ron W. St. Louis Defendants Action no. 0501 06088 And Between: Engine Block Holdings Inc. Plaintiff - and - Kenneth R. Carter Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice E.A. Hughes

_______________________________________________________ Introduction [ 1 ] Mr. Carter and Ms. Vaillancourt met in 1992 when Ms. Vaillancourt began working as a weight loss consultant at a Jenny Craig Centre Mr. Carter operated. Ms. Vaillancourt worked on and off for Mr. Carter until 1997. She considered Mr. Carter as a business mentor and he considered her a valued employee. In the fall of 1999, Mr. Carter was looking for someone to help run his four Jenny Craig Centres in Calgary and entered into discussions with Ms. Vaillancourt to that end. The discussions included Ms.

Vaillancourt working towards an equity interest in the Jenny Craig Centres. Ms. Vaillancourt commenced work as a regional manager on this basis in January 2000. Her employment ended abruptly on April 7, 2003. The parties’ plan to purchase a building also fell through on that date. These two actions concern the events that occurred between the fall of 1999 until that date. [1] The issues that I must consider include: 1. whether the parties came to an agreement about Ms. Vaillancourt earning an equity interest, and the terms of the agreement if so; 2. whether Ms.

Vaillancourt resigned or was terminated on April 7, 2003; 3. whether liability attaches to Mr. Carter for the failed transaction to purchase the building. Background [ 2 ] The events that led to the two actions before the Court transpired between the fall of 1999, and April 2003, some 12 years and more before the trial commenced. Obviously, memories have faded. Much of the evidence of Ms. Vaillancourt and Mr. Carter regarding the circumstances leading up to the events themselves are not in dispute. However, there are key areas where their evidence does differ. Where the evidence of Ms. Vaillancourt and Mr.

Carter differs, I have looked to whether there is confirmatory evidence, either viva voce , documentary or both, to make my findings of fact. [ 3 ] I find the majority of the confirmatory evidence substantiates the evidence of Ms. Vaillancourt where the evidence of Ms. Vaillancourt and Mr. Carter differs. An example of this can be seen at paragraphs 59 to 65. [ 4 ] In addition, Mr. Carter’s testimony was at times inconsistent, misleading, and far from forthright. Examples can be seen at paragraphs 43, 82. [ 5 ] Therefore, where the evidence of Ms. Vaillancourt and Mr. Carter differs, I prefer the evidence of Ms.

Vaillancourt unless I state otherwise. [ 6 ] The factual findings I make follow. [ 7 ] In September 1991, Mr. Carter and his then wife, through their company, Encott Enterprises Corp., (“Encott”) became a franchisee of Jenny Craig International and began to operate two Jenny Craig Weight Loss Centres in Calgary. [ 8 ] In July 1992, Ms. Vaillancourt began to work as a weight loss consultant at one of the Jenny Craig Centres, having just graduated from McGill with a B.Sc. in Nutritional Science.

By that time, Encott operated four Jenny Craig Centres in Calgary- one in the northeast, one in the northwest, one in the southwest, and one in the core. [ 9 ] Ms. Vaillancourt became a valued employee of Encott and was running one of the Jenny Craig Centres by the end of that year. Ms. Vaillancourt worked for Encott until June 1993 when she left to go to Australia for a year. [ 10 ] Ms. Vaillancourt returned to Calgary and was re-hired by Encott to run a Jenny Craig Centre. After another year, Ms. Vaillancourt again left Calgary for Australia. When she returned to Calgary in approximately April 1996, Mr.

Carter hired Ms. Vaillancourt to work for him in one of his other businesses, and she worked there until August 1997. [ 11 ] I accept Ms. Vaillancourt’s evidence that she saw Mr. Carter as a business mentor. I also find that Mr. Carter saw Ms. Vaillancourt as a valued employee. [ 12 ] Ms. Vaillancourt and Mr. Carter reconnected in the summer of 1999. At that time, Ms. Vaillancourt and her husband, Stephen McDonough, were the parents of a one year old child; Ms. Vaillancourt was not employed out of the home but was looking for a new opportunity. [ 13 ] Mr.

Carter was in midst of a divorce, and as part of the property settlement, he had agreed to buy out his wife’s interest in Encott, which resulted in Mr. Carter returning to Encott to operate the weight loss centres. At approximately the same time, Mr. Carter began to buy out the other shareholders in Encott. I find Mr. Carter had finalized the agreements to purchase the shares of the all the other shareholders by March 19, 2000 as evidenced by the Minutes of Meeting of Board of Directors of Encott Enterprises Corporation dated March 19, 2000. Once Mr.

Carter paid out all of the other shareholders, including the shares of his wife, Judy, Encott was 100% owned by Mr. Carter personally or by other corporations owned and controlled by Mr. Carter. [ 14 ] After Ms. Vaillancourt and Mr. Carter reconnected, Ms. Vaillancourt spoke to Mr. Carter about a position she had applied for as a dietitian at a spa. I find this took place in the early fall of 1999. Mr. Carter suggested to Ms. Vaillancourt she should seek an equity

position in the spa and in fact, accompanied Ms. Vaillancourt to the meeting. Nothing came of the spa meeting for Ms. Vaillancourt andso the two went for coffee and talked. [15] Mr. Carter told Ms. Vaillancourt at this time that he was prepared to offer her an equity position in Encott if she came andworked for Encott and its Jenny Craig Centres. Ms. Vaillancourt was interested in the opportunity. Ms. Vaillancourt and Mr. Cartercontinued to discuss his offer to her of an equity position in Encott, as well as her employment role, into the fall of 1999. [16] In January, 2000, Ms.

Vaillancourt commenced work with Encott at the southwest Jenny Craig Centre as the regionalmanager and began working towards obtaining equity in Encott. Encott prospered quickly, in large part due to Ms. Vaillancourt’sefforts. Unfortunately, Ms. Vaillancourt and Mr. Carter’s working relationship eventually deteriorated, primarily due to a disagreementabout her equity interest in Encott. Her work with Encott came to an end on April 7, 2003, which has spawned this lawsuit, and acompanion lawsuit which was joined to this action. [17] The issues that arise include whether Mr. Carter and Ms.

Vaillancourt came to an agreement about her employment and equityposition in Encott; whether the agreement was breached; whether Ms. Vaillancourt was constructively dismissed; and the appropriateremedy. The companion lawsuit concerns a failed transaction for a building that Ms. Vaillancourt and Mr. Carter intended to buytogether, and will be dealt with in the latter part of this decision. Did the parties form an agreement? [18] The first issue I must decide is whether there was an oral agreement between Ms. Vaillancourt and Mr. Carter prior to hercommencing work with Encott in January 2000.

If there was an agreement, the second issue that I must decide is what were the terms ofthat agreement? [19] The position of the Plaintiff is that there was an agreement between the parties and the terms of it were that Ms. Vaillancourtwas able to earn a maximum of 25% of Encott the earlier of: 1. a 5% equity on January 1, 2001 and 5% on each anniversary thereafter; or 2. the point in time at which the cumulative operating profits totaled $300,000 or enough monies to buy out the other shareholders inEncott from January 1, 2000 onward. In addition, the agreement was that Ms.

Vaillancourt would be employed by Encott for a minimum of a 5 year period. [20] The position of Mr. Carter is twofold. First, there was no agreement. Second, if there was an agreement, the agreement wasMs. Vaillancourt would earn 25% of Encott if she stayed with the company for five years. In addition, once there was enough profit tobuy out the other shareholders in Encott, she would start to earn bonuses. Further, while Mr. Carter acknowledges Ms.

Vaillancourt washired by Encott, he submits she has no claim for wrongful dismissal because her salary, at the time of her dismissal, was paid to hercompany, Alpha Dog Enterprises Inc, and not to Ms. Vaillancourt personally. [21] I find Ms. Vaillancourt and Mr. Carter entered into an oral agreement in the fall of 1999. The terms of that agreement werethat Ms. Vaillancourt would receive 25% of the equity in Encott from Mr.

Carter at the earliest of: 1. receiving 5% each January 1st for five years, commencing January 1, 2000; or 2. receiving the full 25% at the point in time in which the cumulative operating profits totaled the monies required to buy out the othershareholders from January 1st, 2000 forward. That amount was ultimately determined to be $350,000. [22] I also find that Mr. Carter agreed that Encott would hire Ms. Vaillancourt as the regional manager for Encott and all its JennyCraig centres.

Her responsibilities included increasing sales, coaching the existing managers, the design of training programs and thetraining for all staff, as well as covering various shifts in the centres. In her testimony, Ms. Vaillancourt described herself as a salesperson, a counsellor and a trainer. [23] I make this finding as I accept the evidence of Ms. Vaillancourt who testified to this agreement. Further, I find Ms.Vaillancourt’s evidence to be confirmed by a number of pieces of evidence in the trial which I set out below.

I note that I haveconsidered evidence on the course of negotiations leading to the agreement, as well as conduct after the alleged agreement. Post-agreement conduct can show whether the parties acted as though they had a binding agreement or not. Such conduct is appropriate toconsider when the issue is whether a contract was formed or not: Lethal Energy Inc. v Kingsland Energy Corp., 2014 SKQB 10, 436Sask. R. 105, at paras 56-57; Le Soleil Hotel & Suites Ltd. v Le Soleil Management Inc., 2009 BCSC 1303, [2009] B.C.J.

No. 1900, atparas 328-335 [24] Turning first to the parties’ negotiations, I find that in the fall of 1999, Mr. Carter told Ms. Vaillancourt over coffee that hewas prepared to offer her an equity position in Encott if she came to work for Encott and its Jenny Craig Centres. I make this findingbased on the evidence of Ms. Vaillancourt and Exhibit 2, Tab 1. This exhibit is a handwritten note, kept by Ms. Vaillancourt, which sheidentified as being in Mr. Carter’s handwriting. [25] While Mr. Carter would only concede that “it looks like my handwriting” I find it to be Mr.

Carter’s handwriting based on Ms.Vaillancourt’s testimony. Ms. Vaillancourt, who worked for Mr. Carter for a number of years, would be in a position to identify hishandwriting. See R v Graat, (SCC), [1982] 2 S.C.R 819, 144 D.L.R. (3d) 267(SCC). [26] Exhibit 2, Tab 2 is a second handwritten note I find authored by Mr. Carter, after the first note, later in the fall of 1999. Ms.Vaillancourt testified to the note being Mr. Carter’s handwriting. Mr. Carter admitted the note “could have been his handwriting”.

[ 27 ] I interpret this note as setting out three options for Ms. Vaillancourt: Option 1- Ms. Vaillancourt had five years to earn 25% of Encott at 5% a year; Option 2- Ms. Vaillancourt would receive 25% of Encott from Mr. Carter when the company generated $300,000 profit; or Option 3- A combination of 1 and 2 [ 28 ] I find the third option was abandoned by the parties before they came to their agreement. [ 29 ] Conduct suggesting that the parties came to an agreement in the fall of 1999 is evidenced by two emails from Mr. Carter written in 2003. Mr.

Carter wrote an email dated March 24, 2003 at Exhibit 2, Tab 7 in the context of “papering” the agreement with Ms. Vaillancourt, stating: “I wish it, the agreement, had been completed a long time ago. The terms of the deal were negotiated in 1999. I do not want renegotiate any of the terms at this point...” [ 30 ] Mr. Carter also wrote an email dated April 22, 2003 to Ms. Vaillancourt, at Exhibit 2, Tab 12: “As I have explained to you on several occasions, I am not willing to renegotiate our deal of October/November, 1999.” Mr. Carter’s emails in 2003 do not make sense in terms of Ms. Vaillancourt and Mr.

Carter having made an agreement in the fall of 1999 unless in fact it had happened. [ 31 ] Further corroboration comes from a document Mr. Carter authored in February, 2000, which stated at page 2: In consideration to Ms. Vaillancourt for entering into this long-term management contract and assuming day to day responsibilities of Encott, which will allow Mr. Carter to pursue other business opportunities, she will earn equity to a maximum of 25% in Encott according to the following formula. The earlier of a) 5% equity on January 1, 2001 and 5% on each anniversary thereafter, or

b) the point in time at which the cumulative operating profits total $350,000 from the period January 1, 2000 onwards. [ 32 ] These terms are consistent with the second handwritten note and the evidence of Ms. Vaillancourt. [ 33 ] I acknowledge this document begins “The following is provided for discussion purposes only.” At page 2 of the document, it reads: “The following are items to be negotiated with wording agreeable to both sides. -an option to purchase given to Mr. Carter by Ms.

Vaillancourt whereby Carter has the option to purchase Vaillancourt’s share should Vaillancourt choose to leave the position of Regional Manager prior to earning 25% equity; with a pricing formula attached to value the shares based on profitability for the period January 1, 2000 – -a right of first refusal given to Vaillancourt by Carter which provided Vaillancourt with a reasonable notice period to purchase Carter’s shares in Encott should he decide to sell... [ 34 ] I find that while the February 2000 document is described “for discussion purposes only”, that phrase only refers to the option to purchase and the right of first refusal. [ 35 ] Aside from the written documentation, the parties also acted as though they had a binding agreement entitling Ms.

Vaillancourt to equity in Encott. [ 36 ] After Ms. Vaillancourt began to work for Encott, its revenues began to grow more quickly than Mr. Carter anticipated. He had anticipated it would take 2-3 years after Ms. Vaillancourt joined Encott, for Encott to generate enough profit for Mr. Carter to pay out the remaining shareholders, which would trigger Ms. Vaillancourt earning her 25% equity interest. However, this was accomplished by June 2001. [ 37 ] On June 15, 2001 Ms.

Vaillancourt received a cheque from Encott in the sum of $10, 000 with a note “advance on future dividends”. [ 38 ] Thereafter, whenever Encott paid out any profits, Mr. Carter received 75% of the total and Ms. Vaillancourt received 25%. [ 39 ] The evidence of the payout of the 75/25 split of the profits is consistent with an agreement that after Encott reached profits of $350,000, which allowed Mr. Carter to pay out the existing shareholders, Ms. Vaillancourt would receive 25% of the profits. [ 40 ] Ms.

Vaillancourt testified as follows with respect to this event: A ...but in June, 2001, Ken walked into the office one day and he was all happy and he had a $10,000 cheque for me. Q Okay. A So -- and he said that we had reached $350,000. So I had become an owner which was interesting because he didn’t tell me that. Like, we didn’t really celebrate January, 2001 when technically I became a 5 percent owner. You know, that day just kind of came and went, whatever. But June, 2001 was exciting. So then I asked him to crystal -- you know, I said my deal just crystallized, write it down.

Q What did he say to that? A And then he said -- well, because I said go ahead and write it down and he – you know, 25 percent owner, yeah, it’s exciting. And he goes whoa, whoa, you’ve got 5 percent equity and you’re going to get 25 percent of the profits. And I’m like what? And then he’s like, yeah, that’s the deal. And then I remembered that I had the February, 2000 document so I gave him that document a few days after. Q Yeah? A And that day when I gave him that February, 2000 document -- I don’t know if it was days after or weeks after but I said, come on, like, this is our deal.

Like you can’t tell me it’s 5 percent equity when it was one or the other, whichever happened faster and, yes, it happened a year and a half, not three to five years. And then he goes, if you’re not happy get the fuck out. And of course I didn’t get the fuck out because $10,000 was pretty nice. [ 41 ] I find that Mr. Carter had forgotten about the February document by June 2001, which as I have found, did reflect the agreement between Mr. Carter and Ms. Vaillancourt. [ 42 ] After June 2001, Mr. Carter spoke of Ms. Vaillancourt as “his partner”. Mr. Carter authored undated letters to Ms.

Vaillancourt in which he referred to her as “his partner”, and “her company”. Ms. Vaillancourt testified Mr. Carter introduced her as an owner and leader at manager meetings after June 2001, and told her to tell others she owned 25% of the company. [ 43 ] Mr. Carter was asked in cross-examination if he encouraged Ms. Vaillancourt to say she was an owner to which he replied “I don’t know.” This is not the answer one would expect from a witness who testified Ms. Vaillancourt’s interest would not vest until she had remained with Encott for 5 years. [ 44 ] Keila Lunt testified Mr. Carter called Ms.

Vaillancourt his partner and that his other actions demonstrated she was his partner. Micheala Balick testified Mr. Carter said Ms. Vaillancourt had become a partner on a number of occasions. In particular, she recalled Mr. Carter announcing Ms. Vaillancourt was his partner at a managers’ meetings. She also recalled Mr. Carter introducing Ms. Vaillancourt at a Jenny Craig International Conference and at a staff Christmas party as his partner. In addition, Ms. Balick testified Mr. Carter referred to Ms. Vaillancourt as a part owner.

All of these occurred prior to April 7, 2003. [ 45 ] In 2001 – 2002, franchise issues arose between Mr. Carter and Jenny Craig International Inc. Mr.

Carter and Encott received a letter from the Chief Administrative Officer of Jenny Craig International Inc. dated March 22, 2002 that commenced: “We here at Jenny Craig International, Inc., are pleased that we have been able to resolve the issues that arose between us and look forward towards a productive relationship.” The letter continued with respect to various aspects of the franchise agreement. [ 46 ] Page 3 of the letter reads as follows: Ownership Structure of Encott Encott has informed JCI that the following are the sole shareholders of Encott: (

i) Carter Management Co., (ii) 403620 Alberta Ltd., (iii) Ken Carter, jointly with 865032 Alberta Ltd., and (iv) Ken Carter, individually. These shareholders are referred to collectively as the “Encott Shareholders.” Encott has represented that Ken Carter owns Carter Management Co., Ltd., 403620 Alberta Ltd., and 865032 Alberta Ltd. This letter confirms our agreement that the Encott Shareholders shall transfer, on or before December 1, 2002 , all of their shares in Encott either to:

a) one holding company solely owned by Ken Carter (the “Carter Holding Company”), or

b) up to and including 25% of such shares to one holding company solely owned by Anne-Marie Vaillancourt (the “Vaillancourt Holding Company”), with the remainder of such shares to the one holding company solely owned by Ken Carter. Such transaction(

s) shall be deemed not to be a transfer of any interest in Franchisee such that

Section 13 of the Franchise Agreements and

Section 9 of the Area Development Agreement shall have no application to such transaction(s). Any subsequent transfer by Encott, or by the Carter Holding Company or Vaillancourt Holding Company during such period as these companies own shares of the Franchisee, shall be deemed to be transfers of an ownership interest in the Franchisee, shall be deemed to be transfers of an ownership interest in the Franchisee, and as such shall be governed by

Section 13 of the Franchise Agreement and

Section 9 of the Area Development Agreement. [Emphasis added] [ 47 ] Mr. Carter signed the letter as “Agreed and Accepted” on behalf of himself personally and on behalf of Encott. His evidence, which I accept on this point, was that Jenny Craig had “very tight clauses” respecting who could be an owner, and he had faced franchise issues in 2001 with Jenny Craig International Inc. regarding Mr. Carter purchasing the minority shareholders’ interests in Encott without obtaining Jenny Craig’s approval. [ 48 ] With that background, this agreement between Mr.

Carter and Jenny Craig International is more consistent with the evidence of Ms. Vaillancourt than the evidence of Mr. Carter respecting the terms of the agreement between Ms. Vaillancourt and Mr. Carter; Mr. Carter agreed that the shares would be transferred by December 1, 2002, which would have been 2 years before Ms. Vaillancourt had earned 25% of Encott according to the evidence of Mr. Carter. [ 49 ] Additionally, Mr. Gibson testified that in late 2002 early 2003, Mr. Carter and Ms. Vaillancourt began the process of purchasing life insurance so that should Mr. Carter die, Ms.

Vaillancourt would have sufficient funds to purchase his shares in Encott and vice versa. It makes no sense for the parties to have purchased insurance unless Ms. Vaillancourt was entitled to 25% of the Encott shares. [ 50 ] This is the same time frame in which Mr. Carter and Ms. Vaillancourt had a company incorporated for them – Engine Block

Holdings Ltd. (“Engine Block”) in order to purchase a building. The shareholdings of this new company were split 75% for Mr. Carter and 25% for Ms. Vaillancourt. Again, it makes no sense to have this split unless Ms. Vaillancourt was entitled to 25% of Encott. [ 51 ] I find that Mr. Carter made the offer to Ms. Vaillancourt because it was advantageous to him to have her as a part owner. Mr. Carter explained this in his testimony when he said: Q Okay. That’s fair. If you don’t recall, you just say that. And do you recall why she was offered an interest- - an equity interest in Encott?

Was that something you came up with or is that something she asked for? A It was probably a little of both. At the time I had been out of Jenny Craig for several years. My ex-wife was running it. You know, I didn’t know how much I was going to like being back or- -so I- -part of sitting down with her was getting a long term commitment from her that, you know, if we got in and if I wanted to go do other things, that she would be there long term. [ 52 ] It was clear on the evidence that when Mr.

Carter “had been out of Jenny Craig”, he had been pursuing other business opportunities and he desired the ability to continue to pursue those opportunities after he returned to running Encott and the Jenny Craig Centres. With Ms. Vaillancourt as his partner in Encott, he gave himself that continued ability. [ 53 ] Taken as a whole, the above evidence overwhelmingly establishes that the parties acted as though they had reached a binding agreement in the fall of 1999 to provide Ms. Vaillancourt with 25% equity in Encott once certain conditions were met.

I find the terms of the oral agreement were met June 15, 2001 when Mr. Carter gave Ms. Vaillancourt a cheque in the sum of $10,000. Therefore, as of June 15, 2001 Ms. Vaillancourt was the beneficial owner of 25% of Encott. I state that she was a beneficial owner because the transfer of shares never took place, despite repeated requests from Ms. Vaillancourt. Conflict over this issue eventually led to the demise of their relationship. [ 54 ] I also find the agreement was between Mr. Carter and Ms. Vaillancourt. I make this finding for two reasons: 1. Mr.

Carter had to purchase the shares of the minority shareholders in Encott so that either Mr. Carter or one of his other companies owned all of the shares in order to effect the agreement. 2. Exhibit 12 demonstrates that Mr. Carter, either personally or through other corporate entities he controlled, owned 100% of Encott. As such, only Mr. Carter, in his personal capacity, had the ability to transfer 25% of Encott to Ms. Vaillancour t. [ 55 ] I find that by failing to transfer the 25% interest in Encott to Ms. Vaillancourt, Mr. Carter was in breach of their agreement. Ms.

Vaillancourt’s relationship with Encott Ends [ 56 ] Encott’s financial success continued, until at least April, 2003, in that the Calgary Jenny Craig centres were routinely in the top 20 Jenny Craig centres in the world based upon weekly deposits. This improvement in Encott’s operations was in large part due to Ms. Vaillancourt’s efforts. [ 57 ] Although Ms. Vaillancourt was the beneficial owner of 25% of the shares of Encott, and Mr. Carter made multiple representations to her and others of this fact, Mr. Carter failed to transfer the shares. Mr.

Carter stated initially that there were logistical problems with the share transfer, and later that certain tax disadvantages were at issue with the transfer plan. The company’s accountant became involved and discussions of an estate freeze occurred. After weathering many delays, Ms. Vaillancourt attempted to at least have written documentation of their deal coincide with the parties’ purchase of the building by their company Engine Block in the spring of 2003. [ 58 ] The building which Engine Block Holdings wished to purchase was partly owned by Ms. Vaillancourt’s husband, Mr. McDonough.

As a part of the deal, Mr. Carter requested that Mr. McDonough loan back his portion of the sale proceeds to the company in a vendor-take back, to supplement funds that were going to be used to purchase the building. Mr. McDonough agreed to this plan, but as a term of the agreement, he inserted a condition that the 25% share transfer in Encott to Ms. Vaillancourt occur or at least be documented in writing with a promise to make the transfer. Some negotiations occurred to this end, but the parties were unable to agree. Tensions rose as a result. [ 59 ] Ms. Vaillancourt testified that on April 7, Mr.

Carter came to the Crowfoot Centre Jenny Craig where Ms. Vaillancourt was working that day. She testified Mr. Carter said to her “Give me your keys. You and your husband just have to learn a lesson. Don’t set foot back in the stores.” When she asked Mr. Carter about obtaining her own things which were at head office, he told her they would be packed up for her. Ms. Vaillancourt considered herself fired by Mr. Carter. [ 60 ] Mr. Carter testified that on April 7, 2003, “he asked Ms. Vaillancourt to go home” after he learned Mr.

McDonough’s vendor financing was withdrawn for Engine Block’s purchase of 514-11 Ave SW due to failed negotiations about the equity transfer in Encott. [2] Mr. Carter denied firing Ms. Vaillancourt. Mr. Carter did acknowledge in his evidence that he asked Ms. Vaillancourt for her keys that day. [ 61 ] After April 7, 2003, Mr. Carter sent Ms.

Vaillancourt an e-mail respecting the event at the Crowfoot Centre in which he characterized his actions as him asking her to take a “temporary leave” as well as “her going home until matters with the purchase of a building were sorted out”. [ 62 ] Keila Lunt, an employee of the Crowfoot Centre Jenny Craig on that date, testified to the events of April 7. Ms. Lunt described hearing the raised voices of Mr. Carter and Ms. Vaillancourt, while she was meeting with a client behind closed doors. She testified that as she said good bye to her client in the lobby area of the centre, she heard Mr. Carter yell at Ms.

Vaillancourt “get the fuck out and never come back”.

[63] Ms. Lunt recalled the event because she was shocked by it. Prior to that day, she described Ms. Vaillancourt as one of thebosses, and Ms. Vaillancourt and Mr. Carter as having a good relationship. For example, she testified Mr. Carter referred to Ms.Vaillancourt as ‘his partner’ and did things that were consistent with that. [64] I accept the evidence of Ms. Lunt. She had good reason to recall what she described as a shocking scene; in addition, she hadno reason to favour one of the parties over the other in giving her evidence. [65] I find the evidence of Ms. Lunt confirms the evidence of Ms.

Vaillancourt that Mr. Carter fired Ms. Vaillancourt on April 7.Ms. Lunt’s evidence does not confirm in the least Mr. Carter’s evidence that he sent Ms. Vaillancourt home on a temporary leave.Further, Mr. Carter’s admission he demanded Ms. Vaillancourt give him her business keys that day, is an action I find more consistentwith Mr. Carter firing Ms. Vaillancourt, which is in turn, consistent with the evidence of Ms. Vaillancourt and Ms. Lunt. [66] As I have set out above, I find Mr. Carter terminated Ms. Vaillancourt on April 7, 2003. I also find that he terminated herwithout cause.

There were no work performance issues and the Jenny Craig centres were performing at record high levels. Mr. Carter’sown email dated April 8, 2003 is consistent with this finding in that he wrote to Ms. Vaillancourt “We have accomplished a lot togetherand can do much more if we choose...Your team and I want you back. [67] A final issue here is whether Ms. Vaillancourt was an employee of Encott at the time of her termination or whether either Ms.Vaillancourt or her company, Alpha Dog Enterprises Inc., was an independent contractor with Encott. Mr.

Carter argues that onlyemployees are entitled to damages for wrongful dismissal, relying on the following statement in in The Law of Dismissal in Canada,looseleaf ed. (Toronto: Canada Law Book, 2012), at p.1-16: “Prerequisite to an action for wrongful dismissal is the establishment of anemployer-employee relationship rather than that of a principal and independent contractor”. [68] When Ms. Vaillancourt began her employment with Encott, she was hired and paid as an independent contractor. I find,however, that neither she nor Mr. Carter were concerned whether Ms.

Vaillancourt was an employee of Encott or whether she was anindependent contractor. Rather, what was important to Mr. Carter was that she in fact she did work for Encott. [69] On July 1, 2000, Ms. Vaillancourt became an employee of Encott. That relationship remained until approximately February2002 when, again, Ms. Vaillancourt became an independent contractor and Ms. Vaillancourt’s company, Alpha Dog, began to receiveher remuneration. [70] I find these various changes in the manner of employment did not change the essential fact that an employment relationshipexisted between Encott and Ms. Vaillancourt.

Alpha Dog appears to have been a company formed for business or tax purposes. This iscommon and does not negate the possibility of an employment relationship, as discussed in Canadian Employment Law: Individuals will incorporate for, inter alia, the purpose of minimizing taxes. As a result, individuals often provide services through a‘personal service’ corporation to an entity which, in other circumstances, could be considered a direct employer.

If a personal servicecorporation is merely a mechanism through which an employee is paid, it is of no legal consequence to a wrongful dismissal claim and itmay be pursued either personally or through the corporation. Stacey Reginald Ball, Canadian Employment Law, loose-leaf, (Toronto: Canada Law Book, 2015), ch 3 at 3-19. [71] An example of a case with some similarities is Braiden v La-Z-Boy Canada Ltd., [2006] O.T.C. 648, [2006] O.J. No. 2791,aff’d 2008 ONCA 464, [2008] O.J. No. 2314.

The plaintiff worked for the employer for many years before receiving a directive that hewould need to sign an agreement as an independent sales consultant and incorporate a company. There were no actual changes to thejob or compensation made concurrent to the change, and it was apparent the change was made so that the employer did not have to makecontributions to the Workplace Safety & Insurance Board. A few years later, after a change in his sales territory and some problems withsales targets, the plaintiff received a letter purporting to terminate the plaintiff’s company with 60-days notice and no severance.

Theplaintiff claimed that he was an employee of the company and was entitled to a longer reasonable notice period. [72] The Court found the label of “independent contractor” was not determinative of the character of the relationship. Theplaintiff’s corporation was a vehicle for the employment relationship, but it remained an employer/employee relationship that attractedreasonable notice, at para 37: The circumstances in this case became more complex when the defendant insisted upon the incorporation of Braiden as the "independentsales and marketing consultant".

However, as a matter of fact, the changes required by the defendant regarding EHT and WSIBregistration, GST registration, as well as the incorporation itself, simply provided for a vehicle representing the relationship between thetwo parties. [73] I find the same was true in this case and that an employment relationship existed between Encott and Ms. Vaillancourt.

Herrole as regional manager did not change between the years 2000 to 2003, even though her contractual relationship changed fromindependent contractor, to employee, to a personal services corporation over that time. [74] According to the terms of the consulting portion of their agreement, Ms. Vaillancourt was on a fixed term contract for fiveyears. She worked for Encott for two years and just over three months, with approximately two years and nine months remaining.

Anemployee on a fixed term contract is entitled to damages for the unexpired portion of the contract; however, there remains a duty tomitigate for losses: Spark v Generex Pharmaceuticals Inc, 107 O.T.C. 56, [1999] O.J. No. 4541 (ONSC), at paras 33-37, aff’d (2003), (ON CA), 169 O.A.C. 182, [2003] O.J. No. 675 (ONCA). [75] Mr. Carter argued that Ms. Vaillancourt failed to mitigate her damages by not returning to Encott after Mr. Carter advised thathe wanted her back, relying on Evans v Teamsters Local 31, 2008 SCC 20, [2008] 1 S.C.R. 661. Mr. Carter did send Ms.

Vaillancourtemails advising that he wanted her back in the days after the dismissal. Ms. Vaillancourt responded by email, stating that she would not

return unless Mr. Carter honoured the terms of their 1999 agreement and transferred her 25% equity in Encott. Mr. Carter refused to do so, taking the position that the terms of their 1999 agreement were different than she alleged. Ms. Vaillancourt attended Mr. Carter’s home on April 27, 2003 hoping they could sort matters out. She could see that Mr. Carter was home, but he refused to answer the door. The parties had no further communication. [ 76 ] I do not find this a failure to mitigate on Ms. Vaillancourt’s part.

Evans considers whether a reasonable person would accept the opportunity to mitigate by returning to the employer. Returning to the employer can be reasonable where the salary offered is the same, the working conditions are not substantially different or demeaning, and the personal relationships are not acrimonious. An employee is not expected to return to a situation of hostility or humiliation: Evans , at para 30 . It is clear that relations between Mr. Carter and Ms.

Vaillancourt were no longer friendly by April 2003, and a return to Encott without fulfillment of the equity transfer would be demeaning and embarrassing for Ms. Vaillancourt. There was no failure to mitigate in these circumstances by not returning to Encott. [ 77 ] I also find that Ms. Vaillancourt met her duty to mitigate by finding alternative employment. She wrote a letter to LA Weight Loss, an American franchise that operated in the diet industry, advising that she would be interesting in opening a location in Canada. They responded favourably and Ms.

Vaillancourt and her husband opened the first LA Weight Loss store in November 2003. They expanded to other locations, including in Saskatchewan and Manitoba, and operated until 2011. Limitations Argument [ 78 ] I do not accede to the defendant’s position that Ms. Vaillancourt’s claim is barred by a limitation defence. Her Statement of Claim was filed June 5, 2003, less than 2 years after Ms. Vaillancourt became the beneficial owner of 25% of Encott, on June 15, 2001. Further Grounds of Liability and Remedies [ 79 ] I have found that Mr. Carter breached his agreement with Ms.

Vaillancourt to transfer the 25% equity in Encott and that Encott wrongfully terminated Ms. Vaillancourt’s employment. Ms. Vaillancourt has alleged that beyond these grounds of liability, the defendants’ conduct also grounds other heads of liability, including breach of the duty of good faith; fraudulent misrepresentation; negligent misrepresentation; breach of fiduciary duties; and oppression. [ 80 ] The concern for these alternative grounds of liability stem from the fact that Encott was dissolved in 2012, and no longer has any assets to satisfy a judgment.

Over the number of years that it took for this action to reach trial, various transactions occurred which ultimately left Encott without any assets and then dissolved. Some of these transactions remain unclear as Mr. Carter and Encott did not provide financial or other disclosure past 2006. Mr. Carter was also less than forthcoming at trial. [ 81 ] One of the known transactions is that $636,935 was issued out of Encott in 2003 as dividends. Ms. Vaillancourt alleges those funds were used to purchase additional Jenny Craig franchises in Alberta in 2004. Mr.

Carter testified that he purchased two other Jenny Craig franchises in 2004. Other transactions, which were not known to Ms. Vaillancourt until the eve of trial, included Mr. Carter incorporating a new corporate entity called Champion Weight Management Inc. to own the additional Jenny Craig Centres and authorizing the same entity to take over the four Calgary Jenny Craig Centres. Details on these transactions were scant. [ 82 ] The corporate documentation shows that Champion Weight Management was incorporated in 2006 and that Mr. Carter is the sole director and shareholder of that corporation. Mr.

Carter was not forthcoming regarding this fact at trial. When he was asked initially in cross-examination whether he was a principal of Champion Weight Management, he said no. However, later in cross- examination, when presented with the corporate documentation from counsel, Mr. Carter was forced to admit that he is both the sole director and the shareholder of Champion Weight Management. He attempted to explain his earlier answer was because he did not understand the meaning of the word “principal”, an explanation I find disingenuous based on Mr.

Carter’s testimony respecting his post- secondary education and his extensive business experience. [ 83 ] Mr. Carter admitted at trial that he remains involved in running the Jenny Craig operations and that all the Jenny Craig Centres were merged into Champion Weight Management at some point in time. When Encott’s operations were voluntarily dissolved on September 27, 2012, Mr. Carter represented on the dissolution form to the Alberta Corporate Registrar that Encott had no liabilities. This was untrue, as this lawsuit remained ongoing. Encott’s only director at the time was Mr.

Carter, and the only shareholder was Carter Management Co. Inc. (CMCI), which is Mr. Carter’s holding company. [ 84 ] As noted, the result of these various transactions is that Encott itself has been dissolved and is unable to satisfy a judgment. The concern is that Encott’s assets went into the hands of Mr. Carter, through CMCI, and to Champion Weight Management. Although I have found Mr. Carter liable for the breach of contract action, Encott alone would typically be liable for the wrongful dismissal action: Therrien v True North Properties Ltd , 2009 ABCA 44 , 446 A.R. 324. Ms.

Vaillancourt is concerned about collecting on a judgment and has therefore pursued other grounds of liability that offer more flexible remedies that attach to Mr. Carter personally and potentially his assets held in Champion. The grounds of fiduciary duty and oppression therefore merit further discussion. Fiduciary Duty [ 85 ] Ms. Vaillancourt urges this court to find that Mr. Carter owed Ms. Vaillancourt a fiduciary duty to transfer her ownership in Encott once it was earned, to provide Ms. Vaillancourt with her ongoing share of the profits, and to protect and preserve the asset in which the shares were held.

To remedy this breach, she asks that a constructive trust be placed on her ownership interest in Encott and on her share of profits over the years, as she was not paid profits after January 2003. She asks for an accounting of the profits, and an equitable tracing order to identify where the assets from Encott currently reside.

[86] For his part, Mr. Carter submits that there was nothing sinister in the dissolution of Encott and that the changes occurrednaturally over a number of years. He argues no fiduciary duty was owed by him to Ms. Vaillancourt, as he owed fiduciary duties to actin Encott’s best interests as its director. Relying on BCE Inc. v 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, he arguesa director’s fiduciary duty is owed exclusively to the corporation and he could not owe an additional conflicting duty to Ms.

Vaillancourt. [87] Traditionally, fiduciary duties arose in the context of a trust relationship, where one person stood in a position of trust toanother. This has expanded over time to other relationships where there is not a formal trust relationship. If one party places their trustand confidence in another, and the latter accepts, promising to act in a manner consisted with the reposing of such trust, a fiduciaryrelationship can be established. [88] There are established categories which attract fiduciary duties, such as trustee and beneficiary, principal and agent, or solicitorand client.

A fiduciary duty can also be established on an ad-hoc basis according to a test developed over time by our Supreme Court.

The test was recently clarified by the Supreme Court in Elder Advocates of Alberta Society v Alberta, 2011 SCC 24, [2011] 2 S.C.R.261. [89] The traditional hallmarks of a fiduciary duty have three general characteristics that were first identified in Frame v Smith, (SCC), [1987] 2 S.C.R. 99 (SCC): 1) the fiduciary has scope for the exercise of some discretion or power; 2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and 3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [90] An important development in recent years is that the vulnerability referred to is not enough, on its own, to support a fiduciaryclaim.

In addition to the characteristics from Frame v Smith, the Supreme Court held in Elder Advocates that the following threeelements must also be present, at paras. 30-34: 1) there must be evidence that the fiduciary gave an undertaking of responsibility to act in the best interests of the beneficiary; 2) the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciaryhas a discretionary power over them; and 3) the claimant must show that the fiduciary’s power may affect the legal or substantial practical interests of the beneficiary. [91] The plaintiff did not cite any case law to support her position that a fiduciary duty was owed in the circumstances of thiscase.

I found two decisions from Ontario that considered whether a fiduciary duty was owed and/or breached in situations similar to theone at hand. [92] In Boyd v Wright Environmental Management, 2008 ONCA 779, 303 D.L.R. (4th) 747 the plaintiff helped a friend who wasdeveloping a composting technology company during its start up. Initially the plaintiff acted as a salesman on commission andprovided short-term financing. He was promised a 5% share in the company for his help building up the company. Once the companywas up and running, the plaintiff became a full time employee and salesman.

He worked for the company for a number of years. Theplaintiff pressed for the transfer of his equity interest over the years, but the defendant always provided excuses and delayed matters. Eventually, a meeting was scheduled with lawyers to discuss the equity issue, but a few days prior to the meeting the defendantterminated the plaintiff. [93] At trial, the court found a fiduciary duty existed based on the unique relationship that had developed between the parties,which required the owner to act in good faith in his dealings with the plaintiff. However, this finding was overturned by the OntarioCourt of Appeal.

The Court found these types of arrangements between employers and employees are not unique and do not give rise toa fiduciary relationship, at para. 29: Arrangements entitling employees or others to shares in a business are not unique or even unusual. Other than the ability to honour orbreach the contract with Ed, Jim and WEMI held no discretion or power that they could unilaterally exercise to affect his interests and towhich he was peculiarly vulnerable.

More than a contract entitling Ed to equity in the business is required to create a fiduciaryrelationship. [94] Another factually similar case is Beck v Dumais (2003), (ON SC), 33 B.L.R. (3d) 118, [2003] O.J. No.1265 (ONSC). The plaintiff Mr. Beck was recruited by Mr. Dumais to work in his information technology consulting business, whichhe wished to expand to Toronto. Mr. Beck was not looking for employment at the time, but was contacted by a recruiter and becameinterested because he was promised an equity position in the business. The parties created a new company for the Toronto operations.

They created an agreement to operate as partners on a 65/35 basis under a Memorandum of Understanding. Mr. Beck receivedconsulting fees, a car allowance, and other benefits and bonuses. The company did well for a while but then declined. Mr. Dumaisblamed Mr. Beck and terminated his position. Mr. Beck had never received his shares in the company, despite several writtenrequests. [95] At trial, Mr. Dumais conceded that the parties were partners and owed fiduciary duties to each other. Mr. Beck argued thatMr.

Dumais breached his fiduciary duty to him by not issuing the shares, by firing him, and locking him out of the premises, and by notcomplying with their Memorandum of Understanding.

The Court found the failure to transfer shares and firing were breaches ofcontract, but did not have the element of dishonest dealing that engages fiduciary concerns, at paras. 100-101: The plaintiffs say that Dumais breached his fiduciary duty to Beck in that he repeatedly failed to honour the MOU as early as April 1997,altering Beck's compensation to pay for performance in October 1997, not issuing him his shares, demoting him to an employee effectiveJanuary 1, 1998, not setting performance milestones for establishing bonuses, terminating Beck, and changing the locks on the premises

"in which Beck had an interest". Such allegations, if established, are surely instances of breach of contract (the MOU), but are they also instances of breach of fiduciary duty? With the exception of the failure to set performance milestones they are not, lacking as they do that distinctive element of dishonest dealing. ... [ 96 ] I find these cases on point with the facts in this case. This was a breach of contract and wrongful dismissal, but does not rise to the level of a breach of fiduciary duty. The nature of the relationship between the defendants and Ms. Vaillancourt was one of employer/employee, with Ms.

Vaillancourt being promised equity in the company as compensation for her efforts and commitment. She trusted that Mr. Carter would fulfil his promise when she met the agreed-upon target. He failed to do so, and terminated her employment unfairly. However, Ms. Vaillancourt’s vulnerability in this situation was the same as any contracting party who trusts another to uphold their bargain; nor do I find Mr. Carter expressly or impliedly undertook to act in Ms. Vaillancourt’s best interests when they came to their agreement or afterwards.

Oppression [ 97 ] Although I do not find merit in the breach of fiduciary duty argument, Ms. Vaillancourt has made out a case for the oppression remedy on these facts. [ 98 ]

Section 242 of the Business Corporations Act , RSA 2000, c. B-9 (“ ABCA ”) provides a complainant with the ability to seek relief from the court where a corporation or its affiliates oppresses, unfairly prejudices or unfairly disregards the interests of any security holder, creditor, director or officer.

Section also 242 provides the court with broad discretion to formulate an appropriate remedy, including an award compensating an aggrieved person: 242

(1) A complainant may apply to the Court for an order under this section.

(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the Court may make an order to rectify the matters complained of.

(3) In connection with an application under this section, the Court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing, any or all of the following: (

a) an order restraining the conduct complained of; (

b) an order appointing a receiver or receiver-manager; ... (

l) an order compensating an aggrieved person; ... [ 99 ] Complainant is defined in s. 239: 239 In this Part, ... (b) "complainant" means (

i) a registered holder or beneficial owner, or a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (ii) a director or an officer or a former director or officer of a corporation or of any of its affiliates, (iii) a creditor (

A) in respect of an application under

section 240, or (

B) in respect of an application under

section 242, if the Court exercises its discretion under subclause (iv), or (iv) any other person who, in the discretion of the Court, is a proper person to make an application under this Part.

[100] Oppression is an equitable remedy.

It is fact-specific and ensures settlement of disputes on equitable principles of fairness, asopposed to strict adherence to legal rights: BCE, at paras 58-59; Noble v Keho Holdings Ltd, 1987 ABCA 84, 78 AR 131, [1987] A.J.No. 334, at pgs 4-5 (QL). [101] To prove an action for oppression, the claimant must satisfy a two-part test showing that their reasonable expectations wereviolated: [1] Does the evidence support the reasonable expectation asserted by the claimant? and [2] Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression","unfair prejudice" or "unfair disregard" of a relevant interest?

BCE, at para 68 [102] In BCE, the Supreme Court set out the relevant considerations for determining whether a reasonable expectation exists, at para.72: Factors that emerge from the case law that are useful in determining whether a reasonable expectation exists include: general commercialpractice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protectitself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders. [103] In the case of shareholders, it is a reasonable to expect the directors act in the best interests of the corporation, makinginformed business decisions in good faith that endeavour to serve the corporation's best interests: BCE at para 66; Krulc v.

Krulc, 2015 ABQB 213, 40 B.L.R. (5th) 142, at para 20. Further, stakeholders are entitled to expect fair treatment, BCE at para. 64. [104] Similar expectations are true for creditors. In Builders’ Floor Centre Ltd. v Thiessen, 2012 ABQB 86, 532 A.R. 271, aff’d, 2013 ABQB 23, 75 Alta. L.R. (5th) 62 , Master Wacowich noted the reasonable expectations of creditors as follows, at para. 43: 1. A creditor reasonably expects that a corporation will not be used as a vehi-cle for fraud; 2.

A creditor reasonably expects that the debtor will not convey away, for no consideration, exigible assets which will leave thecreditor unpaid and unable to realize upon assets to satisfy the debt; 3. A creditor reasonably expects that the directors of a corporation will man-age the company in accordance with their legalobligations, namely to act honestly and in good faith in the best interests of the corporation and to exercise the diligence expected of areasonably prudent person. 4.

A creditor reasonably expects that the debtor will honour the understand-ings and expectations which the debtor has created andencouraged. M.A. Springman, George R. Stewart, and J. J. Morrison, Frauds on Creditors: Fraudulent Conveyances and Preferences (Toronto:Thompson Reuters Canada Limited, 2009) ("Springman") at p. 24 - 12.1, 24-13, 24-15, 24-16. [105] Ms. Vaillancourt argues that she qualifies as a complainant under s. 242 due to her role as a beneficial owner of a security ofcorporation, and as a creditor owed profits from the corporation: s. 239 ABCA.

Her reasonable expectation was that the 25% ownershipinterest would be transferred and the corresponding profits paid from the time they were earned in June 2001 onwards. Instead, Mr.Carter used his position of power in Encott to deprive her of her legal ownership rights and profits in Encott after January 2003. Heallowed the company to pay out dividends and profits to his benefit only and failed to disclose relevant financial and legal informationpertaining to Encott pending the litigation.

He also failed to protect and preserve her interest in Encott by allowing the assets to bemoved, without notice, to his new corporate entity Champion Weight Management. Ms. Vaillancourt argues that the ABCA permitsrelief against Encott and Mr. Carter in his personal capacity as the head of the corporate entities which he owns and controls. [106] Mr. Carter’s position is that Ms. Vaillancourt has no standing to seek the oppression remedy. He states she was not a beneficialowner of Encott, as her interest was contingent on her working for five years, relying on Mackenzie v Craig, 1999 ABCA 84, 171 D.L.R. (4th) 268.

He also argues that Ms. Vaillancourt was not a creditor, as she was not a creditor at the time of the oppression, but onlybecame one as a result of the alleged oppression when she was not paid profits after her termination, relying on Apotex Inc. v. Laboratories Fournier S.A.(2006), (ON SC), 54 C.P.R. (4th) 241, [2006] O.J. No. 4555 (ONSC). [107] Mr. Carter argues that Ms. Vaillancourt has also not met the test for violation of reasonable expectations under BCE.

Herexpectation of receiving profits indefinitely, even after she ceased working for Encott, was unreasonable, especially as she contributed nocapital to the enterprise. It was also unreasonable for her to expect she could establish a competing business and remain a shareholder ofEncott and receive its profits. Her only reasonable expectation could have been that Mr. Carter would act in the best interest of Encott,which he did. [108] The problem with Mr. Carter’s argument is that it relies on his version of events, which are contrary to a number of my findingsof fact. Mr.

Carter did enter into an agreement promising Ms. Vaillancourt a 25% equity interest in Encott upon meeting the targetedprofits. It was not contingent on her working for five years. Further, he did not ask her for a contribution to capital, but agreed that shecould earn an equity interest by making Encott more profitable. [109] I found Ms. Vaillancourt became a beneficial owner of Encott in June 2001 when the target was reached. This qualifies her as acomplainant for the oppression remedy: s. 239 ABCA; Frydman v Pelletier, 2013 ABQB 225, 559 A.R. 388, at para 23. Alternatively, I

also accept Ms. Vaillancourt’s evidence that she was owed profits from the January to April 2003 period prior to her termination, as wellas after April 2003; thus, she qualifies as a creditor on those grounds. [110] I find Ms. Vaillancourt reasonably expected to receive her equity interest and share in profits from the time the target wasreached in June 2001 until she decided to divest herself of the shares. Her reasonable expectations were clearly violated by Mr.

Carter byfailing to transfer her shares and by failing to account properly for Encott’s profits after January 2003. [111] There is authority for these findings in the cases I previously discussed under the fiduciary duty ground, Beck and Boyd. Bothcases also considered whether the oppression remedy was made out where an employee and beneficial shareholder of a closely-heldcorporation was denied their shares and terminated from their employment improperly, and found that it was. The Ontario Court ofAppeal upheld the oppression finding in Boyd.

As in this case, the plaintiff’s equity was earned “in the business by ‘sweat labour’ but[he] was unfairly deprived of the interests and rights of a shareholder by the way the affairs of the corporation were conducted”, at para36. [112] Other cases have also found a shareholder’s interests unfairly disregarded when a shareholder was deprived of their interest in aclosely-held corporation. Termination of employment adds to the oppressive conduct: Frydman, at para 38; Kabutey v New-FormManufacturing Co. (1999), 103 O.T.C. 373, [1999] O.J.

No. 3635 (ONSC), at paras. 53-54; Naneff v Con-Crete Holdings Ltd (1993),11 B.L.R. (2d) 218, [1993] O.J. No. 1756 (Ont. Ct J Gen Div), varied on other grounds (1995) (ON CA), 23 O.R. (3d)481, [1995] O.J. no. 1377 (ONCA). [113] Additionally, I find Mr. Carter’s conduct after Ms. Vaillancourt’s wrongful termination was oppressive. He allowed Encott’sassets, including dividends and the franchise agreements, to be removed from Encott and transferred to Champion Weight Management,another corporate entity that he owns and controls, while this litigation was pending.

He left Encott without assets, and dissolved thecompany by misleading the Alberta Corporate Registrar. The effect of these actions was to unfairly disregard Ms. Vaillancourt’s interests: Builders’ Floor Centre Ltd. v Thiessen, 2013 ABQB 23, 75 Alta. L.R. (5th) 62, at paras 92-93; Schreiber Foods Inc. v Wepackit Inc., 2013 ONSC 338, 11 B.L.R. (5th) 157; Downtown Eatery

(1993) Ltd. v Ontario (2001), (ON CA), 54O.R. (3d) 161, [2001] O.J. No. 1879 (ONCA). [114] It was improper to dissolve Encott knowing this litigation was pending and to not have retained a contingency fund to pay for apotential judgment. I find the following comments from the Ontario Court of Appeal in Downtown Eatery to be particularly relevant,at paras 62-63: .... It was the reasonable expectation of Alouche that Grad and Grosman, in terminating the operations of Best Beaver and leaving itwithout assets to respond to a possible judgment, should have retained a reserve to meet the very contingency that resulted.

In failing todo so, the benefit to Grad and Grosman, as the shareholders and sole controlling owners of this small, closely held company, is clear. Bydiverting the accumulated profits of Best Beaver to other companies that they owned, they were able to insulate these funds from beingavailable to satisfy Alouche's judgment. For the foregoing reasons, it is our opinion that Alouche has demonstrated his entitlement to an oppression remedy against Grad andGrosman. [115] In light of the foregoing, I have no hesitation in finding Ms. Vaillancourt has made out a case for oppression under s. 242 of theABCA.

Remedy [116] Ms. Vaillancourt asks for 25% of the value of Encott as of April 7, 2003, to quantify the ownership interest she was entitled towhen she was dismissed. She also asks for an accounting of her unpaid profits from Encott. Finally, she asks for $204,791 for theremaining portion of her employment contract with Encott.

I find that she is entitled to these damages, with some qualifications, asthey will compensate her for the losses she suffered from the breach of contract, wrongful dismissal, and oppression. [117] In terms of quantifying the damages, I rely on the expert report of Scott Lawritsen, CFA, CBV, presented at trial. Mr.Lawritsen determined the fair market value of Encott around the time of Ms. Vaillancourt’s termination. Using the going concernapproach, he determined that the fair market value of Encott on May 31, 2003 was between $3.7 million to $4.1 million dollars.

Iaccept the mid-way point of this valuation at $3.9 million dollars. Ms. Vaillancourt is therefore entitled to 25% of this amount, whichcomes to $975,000.00. [118] Mr. Lawritsen also prepared an analysis of the profits and dividends that Ms. Vaillancourt would have been entitled to receive. I understand from the evidence that Ms. Vaillancourt was not paid dividends or profits from January 2003 onwards. Based on Schedule9 of his Report, I understand 25% of the profits for the July 31, 2002 to July 31, 2003 year amounted to $268,533.00.

Without detailedevidence regarding what the month by month profits after January 2003 were, I have done an estimate. I have taken the figure of$268,553 and divided it by12 to obtain a monthly figure, of $22,378.00. I award Ms. Vaillancourt three times that amount for the firstthree months of 2003, to bring her close to the termination date. This amounts to $67,134.00. I do not award any further damages underthis heading as that would amount to double dipping as she is already being compensated for her 25% ownership valued at that time. [119] In terms of her compensation relating to the wrongful dismissal, Ms.

Vaillancourt asks for $204,791 for the remaining twoyears and eight months and 23 days remaining in her contract. As I noted earlier, there is a duty to mitigate with a fixed-term contract,and Ms. Vaillancourt met that duty by finding alternative employment by operating a LA Weight Loss starting in November 2003. Assuming that it would take a couple of months to bring in clients, I will allow Ms. Vaillancourt compensation to the end of December31, 2003. Her salary with Encott was $35 per hour which amounted to $75,000 per year.

Considering this, I award her damages of$55,000 for the time period of April 7, 2003 to December 31, 2003.

[120] I find these remedies sufficient for the breach of contract, wrongful dismissal and oppression, and do not make a further awardfor punitive damages. [121] Earlier I made findings that in the case of the breach of contract, liability for the damages rests with Mr. Carter. This isbecause it was Mr. Carter who promised he would be able to transfer the shares in Encott to Ms. Vaillancourt in whatever form orcorporate entity they took.

I found that he had the power to do so by March 19, 2000, when he had finalized agreements to purchase theshares of all the other shareholders of Encott. [122] In terms of the loss of profits and wrongful dismissal damages, normally they are only payable by the corporation. In this casethe corporation is dissolved, leaving Ms. Vaillancourt without a remedy for those damages. Can Ms. Vaillancourt seek her loss of profitsand wrongful dismissal damages from Mr. Carter, or the other companies he owns and controls? [123] Mr.

Carter argues that any attempt to use his property to satisfy a claim against Encott would run afoul of s. 227 of the ABCA. Section 227(2) provides that an action can commenced before a company’s dissolution can be continued post-dissolution, and anyproperty that would have been available to satisfy judgment had the corporation not been dissolved remains available for that purpose. Section 227(4) provides that each shareholder of a dissolved corporation remains liable to the creditors of the dissolved company, andpermits actions to enforce such liability within two years after dissolution. Mr.

Carter sees s. 227(4) as a limit on the liability ofshareholders of a dissolved corporation. He notes that on dissolution, Encott’s only shareholder was CMCI. In his view, Ms.Vaillancourt could only recover property distributed to CMCI if an action was brought against it within two years from the dissolution.Since CMCI was never added as a party to the litigation, Ms. Vaillancourt cannot seek to recover from CMCI, or Mr. Carter. [124]

Section 227 of the ABCA reads as follows:

(1) In this section, “shareholder” includes the legal representatives of a shareholder.

(2) Subject to

section 15.7, notwithstanding the dissolution of a body corporate under this Act, (

a) a civil, criminal or administrative action or proceeding commenced by or against the body corporate before its dissolution may becontinued as if the body corporate had not been dissolved, (

b) a civil, criminal or administrative action or proceeding may be brought against the body corporate within 2 years after its dissolutionas if the body corporate had not been dissolved, and (

c) any property that would have been available to satisfy any judgment or order if the body corporate had not been dissolved remainsavailable for that purpose. ….

(4) Notwithstanding the dissolution of a body corporate under this Act, a shareholder to whom any of its property has been distributed inthe liquidation is liable to any person claiming under subsection (2) to the extent of the amount received by that shareholder on thedistribution, and an action to enforce that liability may be brought within 2 years after the date of the dissolution of the body corporate. [125] I find Mr. Carter’s

interpretation of s. 227 is inconsistent with the purpose of the legislation and one that could lead to unjustresults. The purpose of the legislation has been discussed in one Alberta case and two Ontario cases that considered a similar section. [126] In Enron Canada Corp. v Husky Oil Operations Limited, 2007 ABCA 27, 70 Alta. L.R. (4th) 52, the Alberta Court of Appealhad the chance to briefly comment on the purpose of s. 227 as follows at para 28: In simple terms, therefore,

section 227 is really an action against a shareholder. The shareholder is the party at risk. The sole purpose ofthe

section is to allow a claimant to pursue the shareholder, otherwise a judgment against the dissolved corporation would be fruitless. ... [127] In Reliable Life Insurance Co. v Ingle, (ON SC), [2009] O.J. No. 2312, , the OntarioCourt discussed very similar provisions in the context of the Ontario Business Corporations Act. The Court explained that their purposeis to ensure that a corporation cannot escape its debts by being dissolved, at para 30: Dissolution is quiet (sic) different from bankruptcy. It does not protect a corporation from its creditors.

It does not permit the corporationto escape its debts or its liabilities or to reduce them.... [128] The Court also explained that the goal of these provisions is “to allow a creditor to recover what it is owed even if the dissolved

corporation siphons off its property to others”. [129] A similar conclusion was reached in Cold River Resources v 1279514 Ontario Inc., 2012 ONSC 6937, [2012] O.J. No. 5867.The plaintiff was not aware that shortly after the litigation commenced the corporate defendants had actually been dissolved. Therefore,the corporate successor was never added as a party to the litigation.

The plaintiff brought a motion seeking to add the successorcorporation to a judgment against the dissolved corporate defendants or a declaration that the judgment is enforceable against thesuccessor corporation to the extent of the property received upon dissolution. Following a motion to compel answers from the successorcorporation in relation to the property received, the Court stated the following, at para 17: I agree with Master Haberman’s characterization of the relevant sections of the OBCA.

In theory, and without in any way prejudging themain motion, it seems to me that it is at least arguable that s. 242(1)(

c) and s. 243(1) of the OBCA contemplate that a successorcorporation may well be liable for a judgment obtained against a dissolved corporation. Thus, although the Court may be functus to theextent that the Plaintiffs seek to vary or amend the trial judgment, it does not necessarily follow that the Court cannot take measures toenforce its own judgments – which is what the Plaintiffs really seek. [130] Thus, I find

section 227 was introduced in the Alberta Business Corporations Act to protect plaintiffs when a corporation isdissolved by allowing them to pursue the property of the corporation. It is not meant as a shield to protect shareholders, as argued byMr. Carter. It prevents a corporation from escaping its debts or its liabilities by dissolving and transferring its property to a shareholder. [131] The second argument Mr.

Carter raised is that a shareholder potentially liable under s. 227(4) is always entitled to raise all thedefences available to the dissolved corporation, even if the dissolved corporation is also being sued in the same action. Mr. Carter arguesthat Ms. Vaillancourt cannot seek to recover any property that CMCI received from Encott upon its dissolution because CMCI did nothave the opportunity to contest liability, relying on Enron. [132] In Enron the issue was not squarely before the court. However, if anything, this case actually assists Ms. Vaillancourt’sposition.

The main issue was whether a shareholder is entitled to defend the merits of an underlying action under s. 227(4) against thedissolved corporation, or whether such a defence will always amount to an abuse of process. In that case, the shareholder that receivedproperty from the dissolved company intervened in the litigation just before the expiration of the two-year limitation period. The otherparty brought a motion seeking to strike the defences raised by the shareholder on the basis that their inclusion would prejudice or delaythe fair trial of the action, or amount to an abuse of process.

The Court held that a shareholder has the right to defend an action under s.227(4) by contesting the underlying liability of the dissolved company. An abuse of process does not arise automatically. This is“primarily due to the nature of the shareholder’s liability, which is contingent upon the liability of the dissolved corporation” and that “itis the shareholder who is the real party at risk when a plaintiff elects to proceed with an action against a dissolved corporation” under s.227.

The effect of holding otherwise may prejudice a shareholder, particularly if a dissolved corporation decides to not defend, resultingin default judgment. In such event, a shareholder would have to disgorge assets with no review of the actual merits of the claim.However, in Enron the Court also recognized that in some circumstances the exercise of the right to a full defence under s. 227(4) mayamount to an abuse of process. This would happen if it causes unreasonable delay or prejudice a party.

At para 38 the Court stated thefollowing: Having come to this conclusion, however, I recognize that there may be cases where a new defence, advanced by a fully-informedshareholder who has been sitting idly by before being sued or added to the underlying lawsuit, may constitute an abuse of process. [133] The Court concluded that, after considering the potential prejudice to the parties, a court “always has the right to find that theparticular exercise of the right to defend amounts to an abuse of process” and to limit it. [134] In the present matter, the evidence indicates that after March 2000, Encott was owned by Mr.

Carter personally or throughcompanies he owned and controlled, and by 2012 was fully owned by his holding corporation CMCI. Both Encott and Mr. Carter weredefendants in the litigation brought by Ms. Vaillancourt, and they were both afforded the right to a full defence. Mr. Carter dissolvedEncott and its property was distributed, likely through CMCI to Mr. Carter and other entities controlled by him. It seems reasonable toinfer that CMCI was fully aware of the claims against Encott and Mr. Carter.

Nonetheless, CMCI decided to “sit idly by” and notintervene in the litigation to contest Encott’s underlying liability. Any new defence raised by CMCI at this point would amount to anabuse of process. Further, if Mr. Carter was concerned that CMCI was the truly liable party in this case, he could have added it as a thirdparty to the action. [135] Under s. 227(2)(

c) of the ABCA, “any property that would have been available to satisfy any judgment or order if the bodycorporate had not been dissolved remains available for that purpose”. Thus, I find that s. 227(2)(

c) allows Ms. Vaillancourt to pursue anyproperty that would have been available if Encott had not been dissolved. The

section would have little purpose otherwise. This sectionallows Ms. Vaillancourt to follow or trace Encott’s property to its current location. The details of how and when Encott’s property wasdistributed are not known in detail, though it appears they were at least partially transferred out of CMCI to Champion, as Mr. Carteradmitted this was the entity that essentially merged with Encott. If this information is not forthcoming, Ms.

Vaillancourt can return tocourt for assistance. [136] There is little case law interpreting s. 227, so in case I am incorrect in my findings, I also hold that under the oppression remedyMr. Carter is personally liable for Encott’s damages. [137] In cases of closely-held corporations where a sole director controls the company and is behind conduct that unfairly disregardsthe complainant, the oppression remedy may lie against the director personally. In Sidaplex-Plastic Suppliers Inc. v Elta Group Inc. (1995), (ON SC), 131 D.L.R. (4th) 399, [1995] O.J.

No. 4048 , aff’d on this point, varied on another point (1998), (ON CA), 40 O.R. (3d) 563, [1998] O.J. No. 2910, (ONCA), the Court considered the oppression remedy in a casewhere there had been unfair prejudice or disregard of Sidaplex’s interest. The Court considered whether the remedy could be extendedto the sole directing mind of the defendant company Elta, Mr. Lin. It noted that such orders have been made in other cases, often where

the impugned oppressive conduct was directed by the sole owner in a closely-held corporation, and where the conduct was to the owner’s benefit, at para. 22: Courts have made orders against directors personally, in oppression remedy cases: see, for example, Canadian Opera Co. v. 670800 Ontario Inc., supra, Prime Computer of Canada Ltd. v. Jeffrey and Robinson & Jeffrey Ltd., supra, Tropxe Investments Inc. v. Ursus Securities Corp. and Michael Ryan [1993] O.J. No. 1736 (Ont. Gen. Div.) .

These cases, in particular, have involved small, closely held corporations, where the director whose conduct was attacked has been the sole controlling owner of the corporation and its sole and directing mind; and where the conduct in question has redounded directly to the benefit of that person. [ 138 ] The Court noted there was concern over doing this as it amounts to piercing the corporate veil, which is well-protected in corporate law.

In the Court’s view, in an oppression action the concern is providing a remedy for oppressive conduct, and the courts are provided with a broad discretion to make any order they see fit to compensate an aggrieved person, at paras. 24-26: Lawyers and judges tend to worry and fuss a great deal about whether or not a given set of circumstances permits the piercing of the "corporate veil". They do so for legitimate reasons pertaining to corporate law.

While personal liability of a director in an oppression remedy situation may be founded upon such a base -- as it was in the authorities referred to above -- the issue, in my view, is not so much one of piercing the corporate veil as it is a question of the overall application of subsection 248(2) of the OBCA and the interplay between its various provisions. When "oppressive" conduct (in the broad sense), has been found to have occurred under subsection 248, the Court has a very broad discretionary power to "me [sic] an order to rectify the matters complained of.

That broad discretionary power, under subsection 248(3) is to "make any interim or final order it thinks fit", including, (

j) an order compensating an aggrieved person In its targeting of the kinds of conduct encompassed by the oppression remedy provision of the Act, the Legislature has focused specifically upon the acts or omissions of the corporation (s. 248(2)(a)), the business or affairs of the corporation (s. 248(2)(b)) and the exercise of the powers of the directors (s. 248(2)(c)). ... [ 139 ] In Sidaplex , where the source of the oppressive corporate conduct was the director, Mr. Lin, it was appropriate to find liability rested with him, at paras. 26-27: ...

In a small, closely held corporation such as Elta, it is the director who is in the position of a Mr. Lin, who is the source of all such conduct. When the power of the director is exercised in a fashion which causes

an act or omission of the corporation which effects an unfairly prejudicial result, or a result which unfairly disregards the interests of the complainant -- or which causes the business or affairs of the corporation to be conducted in a manner which has the same effect -- those powers themselves have been "exercised in a manner" which is caught by the section, in my opinion. Liability therefore lies directly with the director, under the section, in appropriate cases. This, in my view, is one of those cases.

The proper way in which to rectify the matters complained of in this case is to make an order directing that Mr. Lin pay to Sidaplex the amount of Elta's judgment debt that should have been continually secured by the letter of credit, but which was not. ... [ 140 ] In Beck , the case I discussed earlier where a director failed to transfer promised equity in his IT consulting business to his partner Mr. Beck, and terminated Mr. Beck’s employment, oppression was found. The Court concluded the oppression remedy should extend to Mr.

Dumais, the party who controlled the closely-held corporation, citing Sidaplex , at paras. 113-114: Courts will make oppression orders against directors personally in cases involving small, closely held companies, where the director whose conduct is under review was the sole controlling owner and directing mind of the company, and where the conduct in question has redounded directly to that person. When the power of that director is exercised in such a manner as to cause

an act or omission of the company which in turn cau

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