Rudichuk v Genesis Land Development Corp, 2017 ABQB 285

Court of Queen’s Bench of Alberta Citation: Rudichuk v Genesis Land Development Corp, 2017 ABQB 285 Date: 20170424 Docket: 1601 06997 Registry: Calgary Between: Bruce Rudichuk and Mark Scott Plaintiffs - and - Genesis Land Development Corp. and Stephen Griggs Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] The plaintiffs sue for wrongful dismissal. In this application for

summary judgment, they ask for awards of liquidated damages (essentially judgments for debt, since their severance entitlements are set out in their written employment agreements), as well as other relief relating to stock options, arising out of the terms of their employment contracts with the defendant Genesis Land Development Corp. Stephen Griggs, the chairman of the board of directors of Genesis, is also a defendant, but the claim against him is not part of this application. [ 2 ] Mr. Rudichuk was the President and Chief Executive Officer, and Mr.

Scott was the Executive Vice President and Chief Financial Officer of Genesis. They have employment agreements that contain two provisions that are central to the conflict. [ 3 ] The first of these was the definition of “Just Cause”, which imported an express obligation by the corporation, Genesis, to

act in good faith in determining whether a breach of

article 6 constituted Just Cause. The second is

section 6.2 which set out an express prohibition against certain activities. Genesis asserts that the plaintiffs breached

section 6.2, and that it determined in good faith that this breach amounted to Just Cause. [ 4 ] The amounts of the monetary claims are not open to debate: if there was not Just Cause, the express terms of the agreements provide that the amounts to be awarded result from mathematical calculations, and the agreements expressly provide that mitigation does not apply to the plaintiffs’ claims. [ 5 ] For the reasons set out below, I grant

summary judgment. The Relevant Provisions in the Agreements [ 6 ] Each of the two employment agreements define “Just Cause” as follows: “Just Cause” means any act or course of conduct which at law constitutes just cause for termination of employment and shall include, without limitation: ...; (iii) a breach of any provision in

article 6 (provided that the Corporation acts in good faith in determining that such a breach constitutes Just Cause) or a material breach of any other provision of this agreement; [ 7 ] From this it is clear that not every breach of

article 6 amounts to just cause. The corporation must act in “good faith” in determining that the breach constitutes Just Cause. However, the words “good faith” are not defined in the agreement. [ 8 ] The prohibition in

section 6.2 that is relied upon by Genesis, and which it says the plaintiffs violated, is this: During the Executive’s employment with the Corporation and for a period of two (2) years after the Date of Termination, the Executive shall not, without the prior written consent of the Corporation, directly or indirectly through any person, agent, employee or representative: ...; (

e) engage in any discussions or negotiations, conclude any understandings or enter into any agreement, or otherwise act in concert, with any third party to propose or effect any takeover bid, an amalgamation, merger, arrangement or other business combination with respect to the Corporation or any of its Affiliates, or Associates or substantially all of the assets of the Corporation or any of its Affiliates or Associates or to propose or effect any acquisition or purchase of any assets of the Corporation or any of its Affiliates or Associates; ...; whether for or on his behalf or for any entity in which he shall have a direct or indirect interest (or any Affiliate or Associate of any such entity) whether as a proprietor, partner, co venturer [sic], financier, investor or stockholder, director, officer, employer, employee, servant, agent, representative or otherwise. [ 9 ] As I will discuss below, both the reference to “any third party” and the closing words are important to understand this provision.

The Arguments For and Against [ 10 ] The plaintiffs were dismissed in January 2016. They say there was not Just Cause, because: (

a) they were not acting contrary to

section 6.2, because it did not apply to the activities that are said to have contravened it; (

b) if it otherwise did contravene it, they had written authorization to do what they did; (

c) the corporation (Genesis) did not act in good faith in considering whether their activities constituted Just Cause as defined; and (

d) for approximately a seven month period prior to their dismissals they were acting on the express directions of Mr. Griggs, the Chairman of the board of directors of Genesis and the person to whom Mr. Rudichuk as CEO was required to report (as expressly set out in his employment agreement), and therefore the corporation is estopped from relying on

section 6.2. [ 11 ] They argue that they were managing the company, they were doing so in what they in good faith believed to be an attempt to carry out the Board of Directors’ strategic plan, and they did so in a transparent manner in discussions with Stephen Griggs, the Chairman of the board. Mr. Rudichuk’s employment agreement stated that he was to report to the chairman, who was Mr. Griggs. Mr. Scott’s obligation was to report to Mr. Rudichuk. They argue that Genesis is estopped from asserting that their activities in this regard were in violation of their agreements. [ 12 ] Genesis opposes on several grounds. Genesis argues that (

a) they were clearly in violation of

section 6.2; (

b) their dealings with Mr. Griggs was not with the board of directors as a whole; (

c) they had many opportunities to discuss their activities with the board of directors but did not;

(

d) they compromised their obligations of confidentiality by having discussions with “third parties”, being one of the prohibitions in

section 6.2; (

e) the law surrounding promissory estoppel does not apply to these facts; and (

f) the plaintiffs did not plead estoppel in their statement of claim, only in their reply to the statement of defence. Evidentiary Gaps [ 13 ] There are two curious voids in the evidence. [ 14 ] Firstly, there is no affidavit from Mr. Scott. Mr. Rudichuk’s affidavit in support of the application was filed on behalf of both of the plaintiffs. Their employment agreements are virtually identical; their specific duties are different because of their different positions.

Section 6.2 appears in both agreements. The plaintiffs argue that rule 7.3 of the Alberta Rules of Court does not require affidavits from all plaintiffs. [ 15 ] Secondly, there is no affidavit for Mr. Griggs, who was both (

a) the CEO of a corporate shareholder that owned more than one third of the shares of Genesis as well as being (

b) the Chairman of the board of directors of Genesis. [ 16 ] The substance of the claim is that from June 2015 until January 2016 Mr. Rudichuk and Mr. Scott were engaged in devising a plan for the reorganization of Genesis. They say that their activities were not, in any analysis, a violation of the prohibition set out in

section 6.2 of their employment agreements, but in any event, their activities were known to Mr. Griggs, who was the Chairman of the Board of Directors of Genesis. He was also the chief executive officer of its largest shareholder. No reorganization of the company could have been successful without the support of Mr. Griggs, because it would have required a special resolution, which requires a two- thirds vote. As the representative of the shareholder, Mr.

Griggs essentially had a veto. [ 17 ] They further argue that the activities in question were efforts to flesh out the strategic plan, which they had written authorization to do. [ 18 ] The nature of the evidence put forward on behalf of the plaintiffs focuses on their interaction with Mr. Griggs. It is their interactions with him that they point to in order to demonstrate that they were simply doing their jobs, and in support of their argument that Genesis is estopped from making the arguments that it does. [ 19 ] The affidavit filed by Genesis in reply was sworn by Steven Glover, the “lead director” of Genesis.

He explains the steps the Board of Directors took in concluding that there was Just Cause - although it was Mr. Griggs who signed the letters terminating the plaintiffs’ employment. [ 20 ] When Mr. Glover was asked in cross-examination if he was aware why Mr. Griggs could not have sworn an affidavit, Genesis’ counsel objected on the basis of relevance, with no further explanation. Mr. Glover admitted that he has no first-hand knowledge of meetings amongst the plaintiffs and Mr. Griggs in June and October 2015. He acknowledged that Mr.

Griggs is a member of the compensation committee and a member of the governance committee, as well as being the Chairman of Genesis’ board of directors. [ 21 ] The definition of “Just Cause” in these agreements makes it clear that a breach of

article 6 does not automatically justify dismissal for Just Cause: there must be a good faith determination that the breach constitutes Just Cause. [ 22 ] The plaintiffs argue that there could not have been “good faith” in making that decision, because Mr. Griggs was not called upon to explain his knowledge of, and involvement in, the activities which are central to the defence of just cause. The fact that other steps were taken does not excuse this basic failure by the board of directors. [ 23 ] Without Mr. Griggs swearing an affidavit, and with Mr. Glover not able to give evidence as to Mr.

Griggs’ knowledge and participation in meetings with the plaintiffs, Mr. Rudichuk’s description of the plaintiff’s activities and their interactions with Mr. Griggs must be taken as it stands. [ 24 ] Mr. Griggs did not provide any evidence at all, although he was the one who, as Chairman of the board of directors of Genesis, signed the letters terminating the plaintiffs. The Burden of Proof on

Summary Judgment Applications [ 25 ] As is often the case in

summary judgment applications, there is some debate over whether the plaintiffs have satisfied their burden sufficient to require the defendant to respond, and then whether the defendant’s response was sufficient to establish that there is “an issue of merit that genuinely requires a trial”. In a

summary judgment application, there is a burden to be met by the applicant and if it is met, the burden shifts to the respondent: Murphy Oil Company Ltd v Predator Corporation Ltd , 2006 ABCA 69 , 384 A.R. 251 at para. 25 ; Canada (Attorney General) v. Lameman , [2008] 1 S.C.R. 372, 2008 SCC 14 at para. 11 .

Although it may be said that the non-moving party has no legal persuasive burden to discharge, the non-moving party may be at risk of losing if it fails to present a version of the facts inconsistent with that relied upon by the applicant: Murphy Oil, Lameman and Beier v Proper Cat Construction Ltd , 2013 ABQB 351 at para. 67 . [ 26 ] At para.63 of Beier , Wakeling, J.A. gave an example particularly relevant here: he used the circumstance of a wrongful dismissal claim where the employment agreement provided for an obligation to pay a certain amount of money upon termination.

Upon proving the agreement and the failure of the employer to comply, the plaintiff would be entitled to

summary judgment. [ 27 ] In a wrongful dismissal claim where “just cause” is pled as the defence, as here, the primary burden is on the employer to prove that there was just cause. This is, at its core, simply an example of the proposition that he who asserts must prove, which applies

across all areas of law unless there is a specific reverse onus. See, for example Garry v. Canada, 2007 ABCA 234 at para. 8; Workum v.Canada Customs and Revenue Agency, 2005 FC 991 , 2005 F.C. 991; Totem Electric Ltd. v. Humford Developments Ltd., (AB QB), 68 A.R. 217, [1986] A.J. No. 146 (M.C.); and Slater v. Burgoin, 2001 ABCA 213 at paragraph12. [28] Accordingly, an employer who asserts that there was just cause for dismissal must prove it.

At trial, a plaintiff theoreticallyneed only prove that he or she was employed, the terms of compensation, the factors that should be considered in assessing damages, thathe or she was dismissed allegedly for cause, and then the employer is called upon to prove the case that there was just cause. [29] This has long been the law, and in my view it has a bearing on the analysis of the adequacy or inadequacy of the evidenceprovided in support of, and in response to, an application for

summary judgment. [30] Some of the case law addressing the burden of proof in wrongful dismissal cases in Alberta are these cases: Gillman v Saan Stores Ltd, (ABQB); Chettleborough v Canadian Concrete Products Ltd, (ABQB); Milsom v Corporate Computers Inc, 2002 ABQB 948; and Chapell v Canadian Pacific Railway Company, 2010 ABQB 441. [31] In Milsom, Madam Justice Veit dealt with the question of whether the plaintiff could call two witnesses and re-take thewitness stand to give evidence after the defence had closed its case. The claim was for wrongful dismissal and the defence was justcause.

At paragraph 4, she pointed out that, “in wrongful dismissal cases generally, and in any event in this case, the employer has theburden of proving just cause”. She went on to point out that the employer also filed a counterclaim, which is a separate lawsuit.

Atparagraph 5, she mused that, “perhaps the employer should have been called upon to present its case first so that the employee could thenhave responded on all issues, including the just cause and the counterclaim.” [32] She concluded that the plaintiff would be allowed to call the witnesses he intended to call, including, in response to thecounterclaim, the two other witnesses and himself as a rebuttal witness. She suggested that in wrongful dismissal cases it would be wiseto address trial procedures before the commencement of trial. [33] As mentioned, Mr. Scott did not file an affidavit. Only Mr.

Rudichuk filed an affidavit in support of the application. However, their employment agreements were almost identical, and the activities that Genesis says gave rise to the right to dismiss weredone jointly. Mr. Scott did some things without Mr. Rudichuk’s direct involvement, but they were acting together. Mr. Rudichuk wascross-examined. [34] Genesis complains that it was not given an opportunity to cross-examine Mr. Scott. Its counsel did not ask Mr. Rudichuk forundertakings about Mr. Scott’s specific activities. He said he wanted to challenge him directly.

But no pretrial questioning (formerlycalled examinations for discovery) have been conducted, which of course Genesis could have done even without an affidavit, althoughthe questioning would have been essentially an examination in chief as opposed to a cross-examination. However, the topics upon whichcounsel says he wanted to question Mr. Scott could have been addressed by open-ended questions. [35] It is in this context that the complaints by each side of a lack of evidence from the other must be considered.

Summary Judgment Evidence [36] As to the absence of an affidavit from Mr. Scott, rule 7.3 does not require that each applicant for

summary judgment swear anaffidavit. It requires “an affidavit swearing positively that one of more of the grounds described in sub rule (10) have been met [in thiscase, that there is no defence] or by other evidence to the effect that the grounds have been met”. This allows “other evidence” as analternative to “an affidavit swearing positively”: Terrigno v Kretschmer, 2012 ABQB 750 at para. 18. [37] For Mr. Scott to apply for

summary judgment, the rule does not require that he swear any affidavit at all. Where there aremultiple applicants for

summary judgment or

summary dismissal (i.e., multiple plaintiffs or multiple defendants), it is common for onedeponent to give the necessary evidence to satisfy the applicants’ collective burden. [38] Here, his former superior Mr. Rudichuk swore an affidavit on behalf of both of them. That satisfied the requirements of rule7.3. Mr. Rudichuk was cross-examined. Genesis chose not to ask him about Mr. Scott’s activities, and if it thought there was someevidence that might have been available to defeat the application, there was nothing stopping Genesis from providing that evidence. Rule 13.18 allows hearsay evidence in reply to an application for

summary judgment. [39] As to the absence of an affidavit from Mr. Griggs, the general rule is that on a

summary judgment application each party is toput their best foot forward (Papaschase Indian Band No 136 v Canada (Attorney General), 2008 SCC 14 at para. 11). Here, thecomplete absence of any evidence from Mr. Griggs is striking. I am entitled to draw an inference that Mr. Griggs would not havecontradicted Mr. Rudichuk’s evidence, and assume that Genesis has “put its best foot forward”. [40] The plaintiffs argue that since Mr. Rudichuk’s evidence as to their interaction with Mr. Griggs was not contradicted, it is notenough for the defendant to argue that Mr. Griggs’ evidence should be heard at trial. There are many cases that make it clear thatrespondents to

summary judgment applications must put forward their best evidence supporting their opposition even though it may behearsay, in order to show that a trial is necessary. For example, in McDonald v Brookfield Asset Management Inc, 2015 ABQB 281,the Court said this: The Plaintiff, who was present in Court at the application, provided no affidavit evidence, despite having been a shareholder of Birch

Mountain and a director thereof from its inception until the receivership in 2009. His counsel represented at the hearing of the application that Mr. McDonald would provide evidence in due course. The prospect of additional evidence being submitted at a later date is of no assistance to the Respondent in opposing the application before the Court, which is to be decided on the basis of the evidence that has been tendered. As the Supreme Court of Canada noted in Lameman at para. 19 : We add this. In the Court of Appeal and here, the case for the plaintiffs was put forward, not only on the basis of evidence actually adduced on the

summary judgment motion, but on suggestions of evidence that might be adduced, or amendments that might be made, if the matter were to go to trial. A

summary judgment motion cannot be defeated by vague references to what may be adduced in the future, if the matter is allowed to proceed. To accept that proposition would be to undermine the rationale of the rule. A motion for

summary judgment must be judged on the basis of the pleadings and materials actually before the judge, not on suppositions about what might be pleaded or proved in the future. ... [ 41 ] The evidence given in reply by Mr. Glover, the lead director, was substantially limited to the steps taken by the board of directors before dismissing the plaintiffs.

Genesis argues that it did an appropriate investigation into the matters before terminating their employment, including giving the plaintiffs an opportunity to respond. [ 42 ] Genesis argues that that investigation discharged its obligation of “good faith” expressly set out in the employment agreements. However, that evidence also discloses an apparent failure to inquire of Mr. Griggs about the assertions made by Mr.

Rudichuk that the plaintiffs had been working with his knowledge about the corporate reorganization, and that he had offered some suggestion or suggestions and encouragement. [ 43 ] Given that the burden at trial in wrongful dismissal cases is on the defendant employer, I see no reason why the approach would be different at the

summary judgment application. The basic question is whether there is a case to send to trial. If the party with the burden of proof cannot show that there is, the directions from the Court of Appeal in Windsor v Canadian Pacific Railway , 2014 ABCA 108 , 2014 CarswellAlta 395 and the many cases that follow militate in favour of granting judgment. The Facts [ 44 ] The plaintiffs assert that

section 6.2(

e) was put in place at a time when no entity had a controlling interest in Genesis. Genesis argues that this assertion is essentially argument and there is no evidence to back it up. Reporting Arrangements [ 45 ] In August 2015 Smoothwater Capital Corporation acquired a controlling interest and, the plaintiffs argue, “[a]t that point it became impossible for any transaction to occur without the approval of both Smoothwater and the Board of Genesis.” This is part of the plaintiffs’ explanation for communicating with Mr. Griggs. [ 46 ] Mr.

Griggs is the CEO of Smoothwater Capital Corporation which is the single largest shareholder of Genesis, and Smoothwater has control over Genesis, as admitted by Mr. Glover (page 18, lines 7 to 18 of his cross-examination transcript). Smoothwater became an effective controlling shareholder only in August 2015 (page 31 lines 11 to 13). [ 47 ] Accordingly, the conclusion I draw is that by mid-2015 Mr.

Griggs effectively controlled Genesis, and at least it was reasonable for the plaintiffs to work on that understanding. [ 48 ] The plaintiffs argue that they were directed to lead Genesis from two strategic plans that were approved by the board of directors in 2013 and 2015. These strategic plans set forth financing and shareholder liquidity options for Genesis, from which a financing concept was developed. Those strategic plans were in writing. The plaintiffs rely on them as authorization to do what they did. [ 49 ] As required by Mr. Rudichuk’s employment agreement, the plaintiffs reported regularly to Mr.

Griggs (Mr. Scott to Mr. Rudichuk, and Mr. Rudichuk to Mr. Griggs.) [ 50 ] Genesis argues that Mr. Rudichuk has a “preoccupation with the formal reporting provision in his employment agreement” and that it is a red herring, because Mr. Rudichuk provided monthly reports to the entire Genesis board, that he was instructed to communicate directly with the board to ensure that all board members were kept informed on material updates, and that the plaintiffs frequently attended board meetings.

As will become clear, implicit in this argument is that the plaintiffs were somehow keeping secret from the board the matters that they were actually discussing with the board chairman, to whom they were expressly required to report. Project Collins [ 51 ] The plaintiffs worked on a financing concept, referred to as “Project Collins”, starting in June 2015 with meetings between the plaintiffs, Mr. Griggs, and Garfield Mitchell, who was the sole shareholder of Smoothwater. From June to October 2015, Mr. Rudichuk updated Mr.

Griggs regularly. [ 52 ] On October 15, 2015 the plaintiffs gave a presentation on Project Collins to Mr. Griggs and Mr. Mitchell, and provided them with presentation materials. [ 53 ] The presentation materials had been prepared with the assistance of Fort Capital, an investment banker, and McCarthy Tetrault, a law firm. There was apparently no retainer agreement with either of those organizations, but they were clearly functioning in the capacity of consultants with the hope of obtaining work if the project went ahead. They did not charge anything.

They were providing services to Genesis, as requested by the plaintiffs. [ 54 ] Mr. Griggs did not provide to the board of directors either the presentation materials or any other information about Project Collins until January 12, 2016, about three months after he received the presentation materials.

The Dismissal [ 55 ] On January 11, 2016 Mr. Griggs and two other directors of Genesis met with Mr. Rudichuk. The topic was a possible change of direction in Genesis’ business plan, a topic which had been presented by Smoothwater to the Board of Directors of Genesis a few days earlier, on January 7, 2016. However, the plaintiffs had been excluded from that meeting by the board. [ 56 ] In that January 11 meeting, Mr. Rudichuk disagreed with Smoothwater’s strategy. The next day, on January 12, Mr.

Griggs gave to the board of directors, for the first time, the presentation materials that he had been provided with three months earlier by Mr. Rudichuk and Mr. Scott. [ 57 ] On January 28, 2016, the board of directors questioned Mr. Rudichuk and Mr. Scott about Project Collins. On February 17, 2016, the plaintiffs received termination letters from Genesis, signed by Mr. Griggs. Mr. Griggs immediately replaced Mr. Rudichuk as the interim CEO of Genesis. The Lack of Communication between Mr. Griggs and the Board of Directors [ 58 ] During Mr.

Glover’s cross-examination, counsel for the plaintiffs attempted to ask questions about Mr. Glover’s understanding of the approval required for business changes in Genesis, referenced in

section 6.2 (

e) of the employment agreements. His questions were met with objections by counsel for Genesis, although the questions were about Mr. Glover’s understanding of how decisions are made at Genesis, not about a legal

interpretation of the meaning of the constating or other governing documents. [ 59 ] The result here is that we are left with the relevant documents and what steps were taken by the board, with no explanation by Mr. Glover as to his understanding of how decisions were made. We must assume that there was an alignment between his understanding and what was actually done. In particular, we are left with clear evidence that Smoothwater (effectively, Mr. Griggs) controlled Genesis. [ 60 ] This is especially important because of Mr.

Rudichuk’s evidence about his understanding of the consequence of having the meetings with Mr. Griggs. His employment agreement required him to report to Mr. Griggs. Mr. Griggs effectively controlled Genesis. Although the plaintiffs had had these discussions with Mr. Griggs, he did not reprimand them for what they did to implement the strategic plan or the updated strategic plan, or even suggest that they were out of line. [ 61 ] Mr.

Glover was aware, in January 2016 when Project Collins was discussed at the board (before the plaintiffs’ employment was terminated), that the plaintiffs held the view that Project Collins was part of carrying out the strategic plan (page 53 line 20 to 2 page 54 line 9). When he was asked why Mr. Griggs did not bring the Project Collins presentation to the board until January 12, 2016, Mr. Glover said he did not know (page 44 lines 2 to 5). [ 62 ] When Mr. Glover asked Mr. Griggs why he did not bring the Project Collins document forward to the board between October and January, Mr.

Griggs told him that he thought it was something that was initiated by Mr. Rudichuk and Mr. Scott and that any dealings with that were their responsibility. He did not express whether he thought that he (Mr. Griggs) had a responsibility to bring it forward to the board (page 58 line 13 to page 59 Line 7). [ 63 ] Mr. Glover acknowledged that Mr. Griggs was aware that Mr. Rudichuk and Mr. Scott had engaged in discussions with Fort Capital, and that Mr. Griggs did not inform the board of that until January 12, 2016. [ 64 ] As to what Mr.

Griggs’ explanation was as to why he had not passed along the information that he had been receiving from Mr. Rudichuk, Mr. Glover said, “I’m not sure he ever offered a full explanation of that.” Discussions with Mr. Griggs and Mr. Glover [ 65 ] Mr. Glover himself expressed to the plaintiffs that he was in favour of a “management buyout” and it is clear that he had discussed that with Mr.

Griggs and that the board was going to discuss it and “revert” (page 48 line 17 to page 49 line 23) - although in re-examination he testified that he was expressing that opinion only in connection with Genesis’ homebuilding division. [ 66 ] This distinction is lost on me. The topic of this discussion relates directly to the defence of Just Cause – that the plaintiffs should not have been pursuing this kind of possibility. However, Mr. Glover, personally as lead director, as well as Mr.

Griggs, the chairman, had discussed a “management buyout” of a part of the operations with the plaintiffs and indicated that the Board of Directors was going to discuss it. They did not tell Mr. Rudichuk to stop, and that what he had already done was wrong. [ 67 ] Mr. Glover goes to lengths to explain that Mr.

Griggs did not have authorization to have the discussions with the plaintiffs on behalf of the Board of Directors, and that therefore Genesis as a corporation is not estopped from making the arguments about just cause for dismissal based on those communications. [ 68 ] This argument is difficult to grasp for several reasons. [ 69 ] Firstly,

section 2.1 of Mr. Rudichuk’s employment agreement expressly provided that he was to be employed as president and chief executive officer, “reporting to the Chairman of the Board of Directors or any other director designated by the Board of Directors in writing from time to time.” No other director was designated, and consequently Mr. Rudichuk was expressly required to report to Mr. Griggs. That reporting direction must have meant something. [ 70 ] However, it is central to the arguments put forward on behalf of Genesis that this reporting arrangement had no functional meaning, and that it is a “red herring”.

If I accept this, there was apparently no purpose in Mr. Rudichuk telling Mr. Griggs what steps he and Mr. Scott were taking about anything – not merely things that might have contravened

section 6.2 - because Mr. Griggs was not the Board of Directors and had no authority to do anything with information communicated to him.

[ 71 ] Secondly, the arguments put forward by Genesis lead to the conclusion that Mr. Griggs had no obligation to disclose to any of the other members of the Board of Directors what he had learned from Mr. Rudichuk about the activities of Mr. Rudichuk and Mr. Scott. But as a director Mr. Griggs had a fiduciary obligation to the corporation. How is it that it was permissible for him to keep secret from the rest of the board what the corporation now says he knew was a breach of management’s employment agreements that was serious enough to justify their termination for just cause? [ 72 ] Thirdly, in the context of this case, the evidence from the plaintiffs is that (

a) they believed that they were carrying out their duties, particularly in connection with the strategic plan; (

b) they discussed it with the chairman of the board and the CEO of their major shareholder that controlled the corporation; (

c) by his participation in discussions, or at least acquiescence, he allowed them to believe they were not in breach of their employment agreements; and (

d) there was at least some communication with the lead director about a management buyout, at least of part of the business operations. They were entitled to rely on the responses from Mr. Griggs and Mr. Glover. That is where the estoppel comes in. For Their Benefit [ 73 ] As I touched on earlier, it is clear from

section 6.2 that not every discussion with a “third party” about a re-organization amounts to Just Cause.

Section 6.2 closes with these words: whether for or on his behalf or for any entity in which he shall have a direct or indirect interest (or any affiliate or associate of any such entity) whether as a proprietor, partner, co-venture, financier, investor or stockholder, director, officer, employer, employee, servant, agent, representative or otherwise. [ 74 ] Reading the

section as a whole the prohibition is, expressed in simple terms, that the executive shall not engage in merger discussions with third parties for his benefit . [ 75 ] But here Mr. Glover acknowledges that, firstly, he did not consider or understand “exactly” what the differences were in the context of Project Collins between a management buyout (which was not proposed by the plaintiffs) and a management-led buyout (which was proposed) (page 36, lines 2 to 12), so he may not understand what the plaintiffs were proposing with Project Collins. [ 76 ] However, he did know that Mr.

Rudichuk did not have “the personal financial resources to finance the acquisition or takeover, whatever, of the building division” and his understanding was that Mr. Scott did not either. He knew that Project Collins merely identified generic investors, not any specific buyers.

Accordingly, he knew that the current proposal was not for their benefit. [ 77 ] Accordingly, there does not appear to have been a contravention of paragraph 6.2(e). “Third Parties” [ 78 ] The “third parties” that Genesis says the plaintiff spoke to were Fort Capital and McCarthy Tetrault, a banker and a law firm respectively, functioning as consultants advising the plaintiffs in the preparation of a presentation regarding Project Collins. Much is made of the fact that neither Fort Capital nor McCarthy Tetrault signed retainer agreements.

The plaintiffs said they worked for free, with the expectation, perhaps, of obtaining work if the matter proceeded. [ 79 ] Genesis complains of breach of confidentiality, as if that on its own constituted a violation of

section 6.2, but issues relating to confidentiality are addressed in

section 6.4 of the employment agreements, headed “confidentiality”. Both Fort Capital and McCarthy Tetrault were asked by the plaintiffs to provide services for the benefit of Genesis. There is no evidence that information disclosed to those consultants was misused by either of them. The absence of a clear, written confidentiality agreement is not evidence that confidences were in danger of being breached. Bankers and law firms are expected to maintain their clients’ information in confidence. [ 80 ] In the context of

section 6.2, it is difficult to grasp that management could not, in any circumstance, seek legal advice on behalf of their employer and, by doing so, be found to have had discussions with a “third party”. Use of the words “third party” in

section 6.2 (

e) must be interpreted strictly as meaning a “third party” who might participate in a “takeover bid, amalgamation, merger, arrangement or other business combination with respect to” Genesis. [ 81 ] Accordingly, on this ground there does not appear to have been a violation of paragraph 6.2(e). The “Oxford Comma” [ 82 ] An “Oxford comma” is a comma placed just before the last of listed items, before the conjoining “and” or “or”, the absence of which sometimes changes the meaning. Counsel for the plaintiffs argues that the absence of an “Oxford comma” in subparagraph 6.2 (

e) has an impact on the construction of the prohibition. Accordingly, he argues that, “takeover bid, amalgamation, merger, arrangement or other business combination” must be interpreted differently than, “… takeover bid, amalgamation, merger, arrangement , or other business combination”. That is, the word “arrangement” should be read together with “or other business combination”, not as a stand- alone form of reorganization. Therefore, he argues that the prohibition does not apply to a “plan of arrangement”, which is a specific kind of business reorganization. In my view, it is not necessary to delve into this analysis. Good Faith [ 83 ] As mentioned, not every breach of

section 6.2 automatically leads to a dismissal of the executive for Just Cause. The corporation must “[act] in good faith in determining that such a breach constitutes Just Cause”. That suggests the need for a proper investigation and, perhaps (although this is not expressed), that Just Cause must be a breach that goes to the root of the contract – that is, a repudiation by the executive. Just cause at law (which is incorporated in the definition of Just Cause here) involves a breach of that magnitude, not simply any breach of the employee’s obligations. [ 84 ] In light of the evidence from the plaintiffs that most of their discussions that allowed or caused them to believe that they were

discharging their obligations as senior management to carry out the strategic plan were with Mr. Griggs, it would seem basic to require the corporation to ask Mr. Griggs if he was aware of their activities, and whether he had, as their superior in the reporting obligations, told them that they were offside, or at least whether he had remained silent. There appears to have been virtually no serious enquiries made of Mr. Griggs. Furthermore, when the issue is brought up squarely in these court proceedings, Mr.

Griggs’ perspective is remarkably absent. [ 85 ] It may be that the individual board members were properly of the view that dismissal was appropriate. After all, they had given the plaintiffs an opportunity to speak to them about the actions, although too late, it seems. But the question is not whether they, as individuals, were acting in good faith. An obvious failure by the corporation to investigate the facts properly is a failure by the corporation to discharge its express obligation to act in good faith.

Estoppel [ 86 ] In my view, the corporation is estopped from raising in January 2016 the activities that its most senior members of the board of directors, the chairman to whom Mr. Rudichuk was required to report, had allowed the plaintiffs to believe was appropriate. [ 87 ] Genesis argues that the plaintiffs did not plead estoppel and that somehow Genesis was taken by surprise. But the plaintiffs did plead estoppel, and they did so when it was appropriate to do so – in the reply to the statement of defence in which “cause” was pled by Genesis.

It is not necessary to plead estoppel in anticipation of a plea by the opposing party. A plea of estoppel is by its nature a reply, “You can’t argue that point because of your statements or conduct.” That is why it is often referred to as a “shield not a sword.” [ 88 ] Stevenson & Côté, Alberta Civil Procedure Handbook 2016 specifically addresses this in the annotations to rule 13.6, citing L. Erie & Detroit R.

Ry v Sales & Halliday , 1896 CanLII 24 (SCC) , 26 SCR 663 at 667 (1896): “Nor should a statement of claim say what the plaintiff would reply if the defendant were to aver such and such in the later statement of defence.” Since the reason for requiring estoppel to be pled is to avoid surprise (rule 13.6(3)), the defendant cannot complain of surprise when the issue is raised in the pleadings. Conclusion [ 89 ] The burden is on the employer to show that it acted as set out in its agreement with each of the plaintiffs.

I must assume that Genesis has put its best foot forward and that there would be no better evidence at trial of proper enquiries having been made of Mr. Griggs, and that Mr. Griggs’ evidence would not contradict Mr. Rudichuk’s. In light of the absence of meaningful enquiry of Mr. Griggs, in my view the employer has not satisfied its burden. [ 90 ] In any event, the evidence does not demonstrate that the plaintiffs were guilty of “Just Cause” as defined in the agreements. Their dealings with Fort Capital and McCarthy Tetrault do not appear to have violated their covenants.

Furthermore, the creation of the Fort Collins strategy was not for their benefit, and it was known by Mr. Glover not to be for their benefit. It was therefore not in violation of their covenants. [ 91 ] Finally, in light of their dealings with Mr. Griggs over Fort Collins, Genesis is estopped from arguing that their activities were in violation of their covenants. [ 92 ]

Summary judgment is granted. If counsel cannot agree on the amounts to be awarded, or on costs, they may make arrangements with the masters’ chambers clerk for submissions. Heard on the 13 th day of March, 2017. Dated at the City of Calgary, Alberta this 24 th day of April, 2017. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Robert Hawkes, Q.C. and Ryan Phillips for the Applicants (Plaintiffs) Steven H. Leitl and Emily McCartney

for the Respondent (Defendant) Genesis Land Development Corp.