Haack v Secure Energy (Drilling Services) Inc, 2021 ABQB 82

Court of Queen’s Bench of Alberta Citation: Haack v Secure Energy (Drilling Services) Inc, 2021 ABQB 82 Date: 20210202 Docket: 1001 18586 Registry: Calgary Between: Robert Bradley Haack Plaintiff - and - Secure Energy (Drilling Services) Inc. (successor by amalgamation to Marquis Alliance Energy Group Inc.), James Anderson, Darryl Deibert, David Rawlyk and George Wadsworth Defendants _______________________________________________________ Reasons for Decision of Honourable Madam Justice A.

Woolley _______________________________________________________ Introduction [ 1 ] In November 2009, the Marquis Fluids group of companies (“Marquis Fluids”) and the Alliance Energy group of companies (“Alliance Energy”) merged to form Marquis Alliance Energy Group Inc. (“Marquis Alliance”). [ 2 ] While creating great potential for these two privately held drilling services groups, and ultimately leading to a highly profitable acquisition by the Defendant Secure Energy (Drilling Services) Inc. (“Secure”), the merger did not start off smoothly.

Marquis Alliance took, for example, months to successfully integrate the Marquis Fluids and Alliance Energy accounting systems, which disrupted internal financial reporting, budgeting and the creation of financial statements. This, along with other problems, led to delays in the completion of its annual audit for the year ending March 31, 2010. [ 3 ] Marquis Alliance’s move to shared premises also ran into difficulties. Rushed by the upcoming end of the Alliance Energy lease, it needed to move into its new premises prior to their completed remodelling.

Unfortunately, part of the Marquis Alliance team spent several weeks working in premises under construction.

[ 4 ] Marquis Alliance’s hope to complete an initial public offering (“IPO”) in the fall of 2010 also did not come to pass. In addition to not having timely audited financial statements for the year ending March 31, 2010, it did not have generally accepted accounting principles (“GAAP”) compliant financial statements for Marquis Fluids for 2008 and 2009. No steps were taken prior to September 2010 to get GAAP compliant financial statements prepared for Marquis Fluids. [ 5 ] The Defendants in this action, and in particular Marquis Alliance’s President, Mr. George Wadsworth, were frustrated by these issues.

They also thought they knew who was responsible for them: the Plaintiff Brad Haack, who was Marquis Alliance’s Vice President Finance and Accounting. Mr. Haack had previously been the Controller at Marquis Fluids, a position he began full time in March 2009. [ 6 ] Based on Mr. Wadsworth’s assessment of Mr. Haack’s role in these challenges, and on other issues he identified with Mr. Haack’s performance, Marquis Alliance fired Mr. Haack for cause on September 3, 2010. The Marquis Alliance directors also determined that Mr.

Haack’s conduct constituted cause under the terms of the Unanimous Shareholder Agreement (“USA”) to which he was a party as the holder of 1.48% of the common shares in Marquis Alliance. They further decided that Mr. Haack’s conduct was sufficient to trigger the penalty clause in the USA, which allowed Marquis Alliance to purchase Mr. Haack’s shares for $1.00 on the approval of 100% of the shareholders. The directors recommended to the other 10 shareholders (except Mr. Haack) that they impose this penalty, and the shareholders unanimously agreed to do so.

Marquis Alliance, also a party to the USA, accordingly cancelled Mr. Haack’s shares and issued him a cheque for $1.00. [ 7 ] Mr. Haack never cashed the cheque. Instead, on December 15, 2010 he commenced an action in this Court claiming that he was wrongfully dismissed by Marquis Alliance. He further claims that Marquis Alliance breached the terms of the USA by cancelling his shares and paying him $1.00. Finally, he claims that the four directors of Marquis Alliance – Mr. Wadsworth, Mr. James Anderson, Mr. Darryl Deibert and Mr.

David Rawlyk – acted oppressively, contrary to s. 242 of the Business Corporations Act , RSA 2000, c B-9 . He seeks compensatory, aggravated and punitive damages. [ 8 ] The Defendants dispute Mr. Haack’s claim. They say Marquis Alliance had cause to fire him, and that the cancellation of the shares fell within the terms of the USA. They deny that the directors acted oppressively towards Mr. Haack and dispute his ability to hold the individual Defendants personally liable for what occurred. [ 9 ] For the reasons that follow, I accept Mr.

Haack’s claim, and find that Marquis Alliance wrongfully terminated his employment, breached its duty of good faith and honest performance, and violated the terms of the USA when purchasing his shares for $1.00. I further find its four directors acted oppressively towards Mr. Haack. I find that Mr. Haack is entitled to compensatory damages from Secure (Marquis Alliance’s successor by amalgamation) and (in part) from the four directors personally. I do not, however, make any award of aggravated or punitive damages. Issues [ 10 ] The issues I must decide are: (

a) Did Marquis Alliance have cause to terminate Mr. Haack’s employment? (

b) Did Marquis Alliance breach its duty of good faith and honest performance? (

c) Did Marquis Alliance breach the USA by cancelling Mr. Haack’s shares and paying him $1.00 for them? (

d) Did the Defendants act in a manner that was oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, Mr. Haack? (

e) Should the individual Defendants be personally liable? (

f) If Mr. Haack establishes any of the foregoing claims, to what remedy is he entitled? Background Facts Marquis Fluids and the Hiring of Mr. Haack [ 11 ] In 1997 Mr. Deibert and Mr. Rawlyk founded what became Marquis Fluids.

Although they had little in the way of higher education, and at the beginning the business was not much more than the two of them, by 2009 Marquis Fluid was a successful drilling services business valued at around $60,000,000. [ 12 ] Marquis Fluids was not a single integrated business entity; rather, it was a number of companies with common or related shareholders, working in complimentary aspects of the drilling services industry, primarily in Canada, but with some international operations.

The primary companies in Marquis Fluids were Marquis Fluids Partnership, which had two wholly owned subsidiaries, Marquis Fluids Inc. and Marquis Fluids LLC. The significant related companies were Solvex Technologies Inc., a company Mr. Deibert and Mr. Rawlyk created to manufacture chemicals, and Marquis Environmental Ltd., an environmental services company. [ 13 ] Marquis Fluids did not have a well-developed approach to its accounting. Its related companies had different year ends, and their financial statements were reviewed on different bases, with some audited and some subject to less exacting review.

In its early years it did not employ a controller or chief financial officer, and it had some difficulty maintaining accurate inventory records. For example, in the 2008 financial statements for Marquis Fluids Partnership, the auditors adjusted its prior year income upwards by $743,924 to reflect

“more accurate information on the cost of inventory value on hand”. The auditor, Mr. Laberge, testified that the $743,924 adjustment was to correct a material error in the prior year’s financial statements. [ 14 ] In its June 9, 2009 report on the March 31, 2009 audited financial statements of Marquis Fluids Partnership, Collins Barrow noted “errors totaling 8.5% of the inventory balance” and recommended that the accounting department review the inventory records “prepared by operations staff for completeness and accuracy”.

It also recommended formalizing the process of “tracking inventory usage and recording accruals”. [ 15 ] In late 2008, Marquis Fluids approached a recruiter about hiring a new controller. One of the people from the recruiting company told Mr. Haack about the opportunity at Marquis Fluids, saying Mr. Haack was well suited for the job. Mr. Haack submitted his resume. [ 16 ] The resume set out Mr. Haack’s experience, including his experience in public finance, accounting, and mergers and acquisitions.

His resume said that he had “designed and led a $10 million corporate takeover”, including through the public reporting process, that he had worked on raising equity and debt, and that he had worked on the preparation of audited financial statements. His resume reflected the fact that Mr. Haack at that time did not have any accounting designations. It also showed that the merger and acquisition activity in which he had been involved in had been relatively modest in scale for the oil and gas industry – a “$10 million corporate takeover” and a “$2 million corporate takeover”.

No evidence was provided to suggest that Mr. Haack’s resume had any inaccuracies or misstatements with respect to his prior experience. [ 17 ] The letters of reference provided for Mr. Haack were generally positive, noting Mr. Haack’s skill in raising money and business development. They also emphasized his more relaxed personality, saying he was a “laid back individual and easy to get along with” and “always calm, cool and collected”. [ 18 ] Mr. Haack met with Mr. Deibert and Mr. Rawlyk about the position. Mr.

Haack recalled that they told him that Marquis Fluids was hiring in part because its prior accountant had made a number of mistakes, and there had been issues with the year-end audit. [ 19 ] Mr. Deibert and Mr. Rawlyk said that they were interested in Mr. Haack because of the nature of his experience and the quality of his references. They felt that Mr. Haack’s experience would ensure that the company’s finances and accounting were properly looked after. [ 20 ] Mr. Haack, Mr. Deibert and Mr. Rawlyk agreed that Mr.

Haack would begin working at Marquis Fluids on a part-time basis in January 2009 and would move to full-time work once he completed consulting contracts on which he was then engaged. Mr. Haack began work at Marquis Fluids on January 16, 2009 and began working there full-time in March 2009. [ 21 ] Mr. Haack did not have an employment contract at Marquis Fluids. The company had prepared one, but Mr. Haack did not sign it because the consulting work he was doing when he started was inconsistent with the terms of the employment contract, and he did not want to sign a contract with which he was not in compliance.

A job description produced at trial, and which Mr. Haack agreed was accurate, indicated that as Controller he had broad general responsibility for financial accounting at all of the Marquis Fluids companies. Mr. Haack further testified that in his role he prepared financial statements, worked on budgeting and was the primary liaison for the company’s banks and auditors. He also spent considerable time converting the accounting system used by the company from Accpac to SAP Business One. [ 22 ] No issues arose with Mr. Haack’s employment at Marquis Fluids. Both Mr. Deibert and Mr.

Rawlyk confirmed at trial that they were satisfied with Mr. Haack’s work. In June 2009 they increased his salary from $135,000 per year to $160,000. Mr. Haack testified that Mr. Deibert and Mr. Rawlyk told him that they were pleased with his work, particularly with respect to converting the company’s accounting system, and ensuring the financial statements were completed. Mr. Deibert and Mr. Rawlyk did not recall this meeting, but Mr. Haack’s account is consistent with the tenor of the letter Mr. Deibert send to him dated June 24, 2009, in which Mr. Deibert thanked Mr.

Haack for his “efforts in the past months” and said he looked “forward to continued success as we move forward”. I accept Mr. Haack’s testimony as accurate. [ 23 ] After he joined Marquis Fluids, Mr. Haack and the company entered into an agreement for the company to support him in the completion of his CMA qualification. They signed an agreement dated August 1, 2009 pursuant to which the company agreed to pay his tuition, up to $25,000. Mr.

Hack was to complete the program in two years, his doing so was not to interfere with his employment, and he was to reimburse any amounts expended on his behalf if he resigned or was terminated with cause or failed to pass the program. [ 24 ] Mr. Haack successfully completed his CMA in 2011, after he left Marquis Alliance; while at Marquis Alliance he encountered some difficulties in the program, and his study group failed an important assignment in August 2010. Alliance Energy and the Merger to Create Marquis Alliance [ 25 ] Not long after Mr.

Haack joined Marquis Fluids, in the late spring and early summer of 2009, the group began discussing a merger with Alliance Energy. [ 26 ] Alliance Energy was founded by Mr. Darryl Anderson. It was an integrated corporate group, of which Mr. Darryl Anderson was President until he passed away in 2007. Mr. Darryl Anderson had implemented a succession plan for Alliance Energy’s shares and management, and under that plan Mr. Wadsworth became President of Alliance Energy. He was one of the significant shareholders in Alliance Energy, along with the Defendant Mr. James Anderson (who I refer to when I say “Mr.

Anderson”). [ 27 ] The accounting and finance at Alliance Energy were primarily within the responsibility and direction of Ms. Karen Hanson- Parsons, who worked on contract in the role of Vice-President Corporate Development, and of Mr. Jim Lew, who was the Controller. [ 28 ] Ms. Hanson-Parsons is a Chartered Accountant who had significant public accounting experience prior to joining Alliance

Energy. She had worked at the company since its inception and had helped Mr. Darryl Anderson to implement his succession plan. [ 29 ] Mr. Lew is (and was in 2009) a Certified Management Accountant with extensive internal accounting expertise but who as of 2009 had no experience in public accounting or finance. [ 30 ] Both Mr. Lew and Ms. Hanson-Parsons had small shareholdings in Alliance Energy which they financed through shareholder loans. [ 31 ] The merger between Marquis Fluids and Alliance Energy concluded on November 27, 2009. The negotiations for the merger took place in the fall of 2009. Mr. Deibert, Mr.

Rawlyk and Mr. Haack negotiated on behalf of Marquis Fluids, along with another shareholder and long-time Marquis Fluids employee, Mr. Jay Brockhoff. Mr. Wadsworth, Mr. Anderson and Ms.

Hanson-Parsons led the negotiations for Alliance Energy. [ 32 ] The merger had two primary objectives, first, to grow the newly merged company and its businesses and, second, to create a company that would be an effective vehicle for another company’s acquisition, a public offering or other profitable exit strategy. [ 33 ] The first objective was what was primarily communicated to the company employees, for example in a presentation dated November 16, 2009. That presentation emphasized the synergy and possibilities for corporate growth and business development, with future plans of expansion.

It made no mention of any “exit strategy” for the company. [ 34 ] The second objective was known and discussed amongst the senior corporate management. Most notably, on October 18, 2009 Mr. Wadsworth sent an e-mail to himself of “Sat breakfast meeting notes”, which he then forwarded to Mr. Anderson, Mr. Deibert, Mr. Rawlyk and Mr. Michael Grimes. The notes said: Ultimate Purpose/Goal of Merger: To position the company for an exit strategy, whether that be direct sale, private Eq or IPO (this goal to remain confidential to the top 3 lines of management only).

Goals to help achieve this ultimate goal need to be determined in the form of financial targets, revenue/ebitda and overall market share). [ 35 ] Mr. Rawlyk forwarded this e-mail to Mr. Haack on October 19, 2009. [ 36 ] The Defendants submitted this e-mail as evidence that the primary purpose of the merger was an exit strategy, and to invite the inference that Mr. Haack knew that this was Marquis Alliance’s exit strategy and should have had a tight focus on accomplishing that objective in his work as Vice President Finance and Accounting. They emphasize that Mr.

Haack agreed in his testimony that he understood that the goal was to sell the business. [ 37 ] While I accept that the corporate leaders of Marquis Alliance aimed to position the new merged entity for sale or public offering, it was not their only goal, and nor was it their primary focus at the outset of the merger.

These were two active operating drilling services businesses, and the goals set out in the employee presentation of November 16, 2009 reflected much of what Marquis Alliance hoped to achieve after the merger: growth as one of the largest private integrated drilling fluids, environmental and solids control companies in Canada, and being an innovative leader in all areas. If the merger led to a lucrative takeover or IPO that was all to the good, but the focus in the first instance was on creating a larger, more profitable and successful drilling services, environmental and solids control business.

The Selection and Structure of Senior Management at Marquis Alliance [ 38 ] As part of the merger, the parties had to choose their executive and management team. They chose Mr. Wadsworth to be President of Marquis Alliance. Mr. Rawlyk was the Executive Vice President Canada. Mr. Deibert was the Executive Vice President International. Mr. Anderson was the Vice President Drilling Fluids. [ 39 ] Mr. Haack was selected to be the Vice President Finance and Accounting. He was chosen for this role for several reasons. First, Mr. Deibert and Mr. Rawlyk wanted Mr. Haack to have the job. Mr.

Rawlyk testified that he lobbied for Mr. Haack to have the position. They wanted Mr. Haack in the role because they thought his past experience made him better suited to it than the other candidate, Mr. Lew, and because they wanted someone from Marquis Fluids in the position. Mr. Deibert said he thought Mr. Haack would look after their interests. [ 40 ] Second, Ms. Hanson-Parsons, who was by far the most qualified finance and accounting person from either entity, was expecting a child in December 2009 and would not be returning to Marquis Alliance immediately following the merger. Ms.

Hanson- Parsons’ departure, with the possibility of her ultimate return, meant that the company had two less qualified persons to choose from, Mr. Haack and Mr. Lew, and no driver to look for an external candidate with qualifications more like those of Ms. Hanson-Parsons. Indeed, there is no evidence that anyone at either Marquis Fluids or Alliance Energy considered hiring an external candidate. Rather, they chose between Mr. Lew, who had a CMA but no experience with obtaining financing and activities associated with a public company, and Mr.

Haack who did not have any accounting designation but did have experience with financing and public company activities, albeit on a much smaller scale. [ 41 ] Third, Mr. Haack’s financing and public company experience made him the more attractive candidate relative to Mr. Lew. Mr. Deibert, Mr. Rawlyk and Mr. Wadsworth all noted that they viewed this as important for distinguishing Mr. Haack from Mr. Lew and making him more suitable for the Vice President Finance and Accounting role. [ 42 ] Mr. Wadsworth and Mr. Haack gave divergent evidence on whether Mr. Haack approached Mr. Wadsworth for the position, or Mr.

Wadsworth approached Mr. Haack. The evidence of Mr. Deibert and Mr. Rawlyk suggests, however, that both these perspectives are truthful if incomplete: the evidence shows that Mr. Deibert and Mr. Rawlyk approached Mr. Wadsworth to advocate for Mr. Haack, and that they asked Mr. Haack to take on the position. They were the people who drove the selection.

[ 43 ] Once this was agreed upon, the parties decided that Mr. Lew would be the Controller, and would report to Mr. Haack. At the same time, however, Mr. Lew also had numerous direct reports beneath him. Mr. Haack testified that he understood the reporting relationship as more formal than real; he understood Mr. Lew to in effect report directly to Mr. Wadsworth. Both Mr. Lew and Mr. Wadsworth maintained that that was not the case, and they and other witnesses emphasized the formal reporting relationship between Mr. Haack and Mr. Lew. [ 44 ] I find that while Mr. Lew was functionally under Mr.

Haack’s supervision within the Marquis Alliance organization, the relationship between them was more one of equals than of supervisor/subordinate. The evidence as a whole does not suggest to me that Mr. Haack had meaningful power over Mr. Lew. Mr. Lew and Mr. Haack were on the same reporting level (both senior management team 3). They had the same shareholdings in the company. They had similar qualifications. Mr. Lew did not go to Mr. Haack when he had issues with his work. Mr. Haack seems never to have been directive or critical of Mr. Lew, even when problems arose with the accounting integration and reporting.

Mr. Lew exercised sole power over the front-line accounting functions at Marquis Alliance, having staff reporting directly to him and declining to allow Mr. Haack to have access to the accounting system, even though Mr. Haack asked for that access. Mr. Lew says that Mr. Haack could have insisted on it. I assess this claim below; however, regardless of whether Mr. Haack could have insisted on access, I think it significant for the characterization of their relationship that Mr. Lew saw fit to refuse it in the first instance. That is not the action of a person who views himself as a subordinate.

Based on the evidence, I think it highly unlikely that, for example, Mr. Haack could have sanctioned Mr. Lew or terminated his employment, unless Mr. Wadsworth approved him doing so. [ 45 ] Having characterized the working relationship between Mr. Haack and Mr. Lew as one of equals, I nonetheless accept that the division of responsibility for work at Marquis Alliance reflected the different roles they had been given and gave Mr. Haack a supervisory role in relation to the financial and accounting work. When the company completed auditing and financial reporting, for example, Mr. Haack’s job was supervisory. Mr.

Lew’s job was to complete the front-line accounting, either by doing the work himself or supervising it being done by others. That hierarchical division of labour was, though, a method for getting the work done, rather than reflecting a hierarchical relationship between Mr. Haack and Mr. Lew. [ 46 ] In viewing the relationship in this way, I have not accepted in its entirety either the characterization offered by Mr. Haack, or by Mr. Lew and Mr. Wadsworth. Mr. Haack characterized the relationship as one of equals with distinct roles and responsibilities, while Mr. Lew and Mr.

Wadsworth characterized it as entirely hierarchical. I have found instead that from a personnel perspective the relationship was one of equals, but from a functional perspective it was hierarchical. My view reflects the substance of what the witnesses, and in particular Mr. Haack and Mr. Lew, said about their work and working relationship, rather than how they characterized it. [ 47 ] I note in this respect that Mr. Haack never received a job description with respect to his work at Marquis Alliance. He did not have an employment contract.

At no time did he receive a formal performance review, and no written documentation was provided with respect to reports regarding his performance. Mr. Wadsworth testified as to his expectations of Mr. Haack, as did Mr. Anderson and Mr. Deibert, but those expectations were not communicated to Mr. Haack in any written form produced in this litigation or recalled by witnesses. Marquis Alliance Shareholders and the Unanimous Shareholders Agreement [ 48 ] The newly merged entity, Marquis Alliance, had 15 shareholders, one of whom was Mr. Haack. Mr.

Haack had not held shares in Marquis Fluids; however, to reflect their appreciation of his work during the prior year, Mr. Deibert and Mr. Rawlyk gifted him 14,800 common shares in Marquis Alliance. They did not make him pay for the shares. Instead, they gave them to him in return for the work he had already done, with Mr. Deibert saying in an e-mail “Obviously we have recognized your contribution to Marquis and believe it requires a reward doing forward. Looking fwd to new opportunities for sure”, and Mr. Rawlyk adding “Ditto.

Giddyup”. [ 49 ] The other shareholders, who held their shares either personally or through a holding company, were Mr. Anderson, Mr. Brockhoff, Mr. Corbin Coyes, Mr. Mike Curran, Mr. Deibert, Mr. Randy Foss, Mr. Grimes, Ms. Hanson-Parsons, Mr. Lew, Mr. Rick Manhas, Mr. Dan Mellersh, Mr. Rawlyk, Mr. Wadsworth and Mr. Brad Woods. [ 50 ] All of the shareholders at the time of the merger worked at Marquis Alliance. [ 51 ] At the time of the merger, the shareholders and Marquis Alliance entered into the USA, with an effective date of November 26, 2009.

The USA was agreed to by each shareholder personally, a second time by those shareholders who were representatives of a holding company, and by Mr. Wadsworth on behalf of Marquis Alliance. [ 52 ] The specifics of the USA, and the circumstances surrounding its creation, will be discussed below, but six features of it are noted here for context. [ 53 ] First, the USA set out the proportion of the shares held by each shareholder. Mr. Anderson and Mr. Wadsworth each held 9.2466% of the common shares, and 13.1848% of the Class B Series 2 preferred Shares. Mr. Deibert and Mr.

Rawlyk (directly and through holding companies), each held 15.19% of the common shares, and 21.97% of the Class B Series 1 preferred shares. Mr. Haack, Mr. Lew and Ms. Hanson-Parsons each held 1.48% of the common shares, and no preferred shares. [ 54 ] Second, the USA said that the shareholders acknowledged the provisions of the Business Corporations Act (Alberta) requiring “directors to make certain disclosures and to abstain from voting on certain transactions in which they have an interest” (Clause 4.2). [ 55 ] Third, the USA set out the membership of the board of directors for Marquis Alliance.

It required that the board should have at least one and no more than nine members. It required that for the first two years the board would be limited to four people, two of whom would be former Marquis Fluids shareholders and two of whom would be former Alliance Energy shareholders. It said that after two years, the number of directors and the nominees would be “determined by ordinary resolution of the holders of common shares”

(Clause 4.3). [56] Fourth, it placed restrictions on the transfer and sale of shares (Clause 6.12 and 6.13) and gave the company a right of firstrefusal (Clause 7.1). It provided a mechanism for the determination of the purchase price in those circumstances, either throughagreement with the board or valuation (Clause 7.1; Clause 10.3). [57] Fifth, it created a category of “Withdrawing Shareholder” which included an employee who quit, or an employee who wasfired for cause, but did not include an employee who was terminated on notice.

This clause specified termination for cause as “aShareholder…who ceases to be an employee…due to dismissal for cause, as determined by those directors who are independent”(Clause 9.1(a)(ix)). [58] Sixth, it provided that when a shareholder became a “Withdrawing Shareholder” that would be viewed as a “WithdrawingEvent” which would trigger a process for the acquisition of the Withdrawing Shareholder’s shares, and further explained what thatprocess would require (Clauses 9.2 and 10.1-10.3).

In so doing it imposed discounts to the purchase price if an employee quit within thefirst three years, a 30% discount to the purchase price where the Withdrawing Shareholder was terminated for cause, and a furtherpunitive discount: In the event of dismissal for cause involving or relating in any way to any alleged illegal, fraudulent or criminal act of a serious naturethat occurs in connection with the employment of the Shareholder or the Principal Shareholder of a Corporate Shareholder or otherwisecauses or is reasonably likely to cause significant damage to the Company, AND one hundred percent (100%) of the Shareholders (otherthan the Withdrawing Shareholder) shall have unanimously agreed, the aggregate purchase price of the Shares shall be discounted to$1.00 (Clause 10.3(h)(ii)).

Termination of Mr. Haack’s Employment [59] The key events following the merger in relation to Mr. Haack’s employment, including those leading up to its termination, arediscussed below; here I jump ahead to how the decision to terminate was communicated to Mr. Haack, and key events that occurred atthat time. [60] On August 26, 2010 Mr. Haack was told that Mr. Wadsworth wanted to meet with him the next day to discuss MarquisAlliance’s problems obtaining financial and accounting records from its Syria joint venture. [61] When Mr. Haack got to the meeting, Mr. Wadsworth was there, along with Mr. Anderson and Mr.

Rawlyk. They told himthat they were not happy with his performance and wanted him to quit. They offered him a package he could receive in the event he quit,and told him that, if he did not accept the proposal, they would be firing him for cause. [62] The proposal was set out in a letter. Ms. Morgan and Mr. Tosto for the Defendants argued that the letter fell within settlementprivilege and ought not to be considered by me. Ms. Osaka countered on behalf of Mr.

Haack that the letter did not contain a bona fideoffer of settlement but was rather, in combination with the threat to fire him for cause, an attempt to pressure Mr. Haack into quitting andgiving up his shares. I allowed the letter to be used to question witnesses at trial but reserved my decision as to its admissibility. [63] In my view, the letter is admissible as relevant evidence, and does not fall within settlement privilege. It was not part of a bonafide attempt to effect a settlement: Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para 24. [64] Mr.

Haack was given a choice between two options, one of which was set out in the letter, but giving him that choice does notmake the letter “communications exchanged by parties as they try to settle a dispute”: Union Carbide Inc v Bombardier Inc, 2014 SCC35 at para 31. The letter was given to Mr. Haack with a direction – accept this or be fired for cause; it did not begin, and was notintended to begin, a discussion about how to settle the parties’ dispute.

It was a take it or leave it proposition: Tracey v Grant, (NLSC) at para 40; Toronto Transit Commission v Amalgamated Transit Union, Local 113, (ONLA) at 16. [65] Both Mr. Haack and Mr. Wadsworth suggested that one adjustment was made to the proposal in the letter after August 27,that small adjustment (the details of which they recalled differently) did not change the character of the letter or what it was intended todo. Further, that Marquis Alliance put the words “without prejudice” on the document does not change my analysis.

The question ofsettlement privilege must be assessed in light of the contents of the document and the parties’ intentions in relation to it. While addingthe words “without prejudice” is relevant to understanding those intentions, it cannot change a document’s fundamental character:Bellatrix Exploration Ltd v Penn West Petroleum Ltd., 2013 ABCA 10 at para 25. [66] Alberta case law that predates Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, but which providesguidance consistent with that decision, directs the Court to consider “(

a) the existence, or contemplation, of a litigious dispute; (

b) anexpress or implied intent that the communication would not be disclosed to the court in the event negotiations failed; and (

c) the purposeof the communication must be to attempt to effect a settlement.”: Bellatrix Exploration Ltd v Penn West Petroleum Ltd., 2013 ABCA10 at para 15. [67] While I had a vigorous exchange with Ms. Morgan on this point, I accept her submission that, when this letter was provided toMr. Haack, a litigious dispute was contemplated. For the reasons noted, however, I am not satisfied that this was an attempt to effect asettlement, or an effort to negotiate that either party would have anticipated being kept private and out of proceedings. The point of theletter was to push Mr.

Haack to leave on terms acceptable to Marquis Alliance; it was not to negotiate with him about those terms. [68] I note in respect that the offer contained in the letter was not wholly unreasonable with respect to the amount Mr. Haack couldhave expected to have been paid in notice. As will be discussed in relation to the share valuation, however, the offer made for the sharesrepresented only a fraction of their value.

[ 69 ] There are circumstances in which a “take it or leave it” offer could be understood as part of a bona fide settlement process; here, however, both the context in which the offer was made, and its content, support the conclusion that it was not. [ 70 ] Having concluded that the letter was admissible, however, I add that the contents of the letter have relevance primarily for providing a full picture of the events surrounding Mr. Haack’ termination. Ultimately none of my findings of liability against the Defendants depend on the contents of this letter, or the manner of its delivery to Mr. Haack.

In particular, as explained below, I do not accept Mr.

Haack’s argument that this letter forms part of the oppressive conduct by the directors of Marquis Alliance. [ 71 ] The letter began: Further to our recent discussions and our meeting today, wherein we discussed your employment with Marquis Alliance Energy Group Inc. (“the Company”), we confirm our advice to you that the Company is prepared to accept your resignation tendered on or before 4:00 p.m. on September 1, 2010, in exchange for the settlement offer set out below, including completion of all required action items by you and the return of an original executed copy of the enclosed release.

The settlement offer is intended to bring your employment relationship to a fair and respectful conclusion for both you and the Company. We further confirm that in the event you do not accept the Company’s settlement offer your employment will be terminated for just cause on September 2, 2010. [ 72 ] The letter offered Mr. Haack $50,000 as a retiring allowance and another $50,000 for the purchase of his shares. It also offered him forgiveness of the reimbursement amount in the Tuition Agreement. It said that he would be given a record of employment and a letter of reference. It required Mr.

Haack to submit a letter of resignation, return all company property, return all company information and sign a release and acknowledgement of his duty of confidentiality and of his non-compete obligations provided for in the USA. [ 73 ] The letter was prepared by Mr. Wadsworth. Mr. Wadsworth said that in giving Mr. Haack this letter he was trying to give Mr. Haack an opportunity to leave the company with grace. It was better for Mr. Haack, and better for the rest of the employees, then telling people he had been fired with cause. Mr. Wadsworth acknowledged that he knew that if he did not terminate Mr.

Haack for cause then there was no mechanism through which the company could purchase his shares. He maintained, however, that he believed as of August 27 th that Marquis Alliance both had cause to terminate Mr. Haack and the ability to exercise the power under Clause 10.3(h)(ii) of the USA to take Mr. Haack’s shares for $1.00. [ 74 ] Mr. Haack was surprised and upset by the meeting. He did not know that Mr. Wadsworth or others at Marquis Alliance had issues with his employment. [ 75 ] After the meeting Mr. Haack continued working on matters for Marquis Alliance.

He was not asked to leave the premises, and none of his executive authority – for example, his signing authority – was removed. [ 76 ] Mr. Wadsworth thought that Mr. Haack would accept the offer. He said in an e-mail to Mr. Perera dated August 28, 2010, “he was shocked, he was sure he was going to be our cfo. Anyways, I think its over unless he had a bad weekend and shows up monday with a gun, so I decided to leave, in london on route to Syria”. [ 77 ] Mr. Wadsworth said that the reference to a gun was facetious, and Mr. Perera said the e-mail reflected Mr. Wadsworth’s sense of humour. [ 78 ] Mr.

Haack considered whether to accept the proposal set out in the August 27, 2010 letter. As part of his process for deciding whether to do so, he e-mailed confidential information and documents about Marquis Alliance to the personal e-mail account he shared with his wife. His e-mailing of those confidential documents to a personal shared account, and whether it supports Marquis Alliance’s termination of his employment, is discussed further below. [ 79 ] Mr. Haack decided not to accept the proposal. [ 80 ] By way of a letter dated September 3, 2010, Marquis Alliance officially terminated Mr. Haack’s employment.

The letter listed the following performance issues: 1. lack of proper management of financial reporting and audits, costing additional fees and delays in the process to complete an IPO; 2. loss of trust and confidence in your ability to perform the duties required of the position; 3. absences from the office which caused delays in financial reporting; 4. loss of trust and confidence in your handling of confidential and personal information; 5. use of company time to perform non-company work; and 6. poor leadership skills and judgment in working with subordinates. [ 81 ] Between August 27 and September 3, 2010, the Board initiated the process under the USA for taking Mr.

Haack’s shares. [ 82 ] First, Mr. Wadsworth prepared a memorandum to the “Independent Directors” of Marquis Alliance which explained Marquis Alliance’s reasons for dismissal as follows: During Brad Haack’s short tenure with the company, he has engaged in the following conduct:

1. he has discussed his personal financial issues such as compensation with his direct reports while conducting their performance appraisals, telling his direct reports that they shouldn't be concerned about their own issues, as his are more important; 2. he has disclosed and discussed confidential partner compensation and personal financial information (net worth information) without consent, with employees; 3. he did not disclose to the company that he was engaged to perform consulting work for third parties and he has used company time to perform his consulting work; 4. while in the process for filling for an IPO, he did not discuss the process with the company's audit partners after repeated requests from George Wadsworth to do so, resulting in the audit having to be reconfigured and delayed.

Arising from this issue is the concern that Brad does not have full knowledge or understanding of the IPO process and does not have the skill and ability required to properly perform in the role. The work Brad directed to be performed by the auditors was not appropriate for an IPO, which resulted in additional costs to the company.

This also resulted in a different mandate to the auditors and a delay of 2-3 months for the IPO; 5. in the past 6 months, he has spent over 30 business days away from the office on holidays, without discussing his absence in advance with the President or confirming that it would be acceptable for him to be absent at the times he was requesting; 6. the company has been without financial reports for nearly 10 months; 7. as project manager of the office move, he failed to communicate appropriate instructions to the contractors which resulted in our employees being required to work in a demolition zone for over 5 weeks; 8. he often has not put in full 40 hr work weeks but passes down his work to his employees causing some of them to work extremely long hours; 9. he is unable to create a legible budget; his first attempts were inadequate and it was requested that his Controller perform the task; 10. employees have complained about his conduct and performance, indicating that they have a lack of respect and zero trust towards him.

The HR Coordinator requested that she report to someone else or she would resign; 11. he held up the RRSP process by leaving the required documents on his desk, and when asked about it, he lied and said the document did not exist and he had signed nothing; yet it was confirmed by our Benefits provider and Sterling Brad had the documents and approved the change in funds. This approval was done without the knowledge of any EVPs or the President. This delay and action delayed the RRSP rollout process to the company by 2 months. 12.

Discussions from our audit partner revealed serious concerns with the inability of Brad to conduct the appropriate actions in getting the required reporting complete. 13. Back in February of 2010 it was revealed that Brad was providing outside consulting services without approval. Brad was asked to stop providing these additional services as he was an employee and shareholder of MA. As a result of the above conduct and issues, which have resulted in costs, delay, loss of trust and confidence and loss of respect, it is recommended that Brad Haack be dismissed for just cause. [ 83 ] Mr.

Wadsworth said he investigated the allegations in the memorandum. On being asked “what steps were taken, what investigations were conducted prior to that meeting”, Mr. Wadsworth said: First of all, I consulted with our human resource consultant, Mr. Perera, we went through, you know the issues that we were having. I then consulted with legal counsel, Mr. Bruce Lawrence and he referred me to their human resource legal counsel, which was Laurie Robson.

And we discussed a bit of a plan in terms of, you know, what -- you know what I thought was best for the corporation, whether or not, just remove Brad from his position and he continues on with Marquis Alliance. We went through the conversation process and determined that, you know, myself and other individuals in the organization had lost complete trust in him and that he had caused probably some significant damage to the organization that we needed to -- we needed to fix and we needed to remove him from the organization. [ 84 ] No contemporaneous documentation supports Mr.

Wadsworth’s claim to have investigated Mr. Haack’s conduct. He does not suggest here that he spoke to Mr. Haack about the issues identified in the memorandum. None of the people he said that he did speak with – Mr. Perera, Mr. Lawrence or Ms. Robson – would have had any knowledge of the events giving rise to the allegations against Mr. Haack. Only Mr. Perera had worked with Mr. Haack, and he had done so only in a limited capacity. Speaking to these advisors would have given Mr.

Wadsworth guidance with respect to whether the allegations constituted cause in law but would not have helped him discover whether the allegations were true. [ 85 ] As will be discussed below, had an investigation occurred it would have revealed the inaccuracy of a number of the allegations in Mr. Wadsworth’s memorandum. For example, contemporaneous documentation shows that to the extent Mr. Haack had any responsibility for the delay in the RSP roll out, his contribution to the delay was one to two weeks, not two months.

He did not receive the “required documents” noted at paragraph 11 from the RSP provider until more than two weeks after the planned roll out date had passed, and five weeks after Marquis Alliance had requested them. [ 86 ] Based on the evidence as a whole – other aspects of which I discuss later in assessing the specific allegations against Mr. Haack – I find that Mr. Wadsworth did not investigate prior to preparing the memorandum to the Board. He did not take steps to verify and confirm the accuracy of the allegations it contained.

[ 87 ] This memorandum was discussed at a Board meeting on or about September 2, 2010. Mr. Wadsworth presented the memorandum and he and the other directors initialled it. They signed a directors’ resolution stating that Clause 10.3(h)(ii) gives Marquis Alliance the power to pay $1.00 for the shares if 100% of the Shareholders agree and “the directors have determined that the actions of the VP have caused or are reasonably likely to cause significant damage to the Corporation”. The resolution further stated that the actions of Mr. Haack described in Mr.

Wadsworth’s memorandum had “caused or are reasonably likely to cause significant damages to the Corporation”. The resolution said that the directors agreed to recommend to the shareholders that Mr. Haack’s shares be purchased for $1.00 and that they empowered Mr. Wadsworth to take the steps necessary to pursue this course of action. [ 88 ] It is not clear whether all of the directors attended the meeting and signed the documents at the meeting. They all claimed to have done so at trial but during questioning in 2014 Mr. Deibert said he was not at the meeting. I prefer Mr.

Deibert’s earlier evidence on this point as closer in time, unambiguous and more likely to be accurate; however, whether or not he was at the meeting, he saw the memorandum and signed it, and also signed the resolution. [ 89 ] In general, Mr. Anderson, Mr. Deibert and Mr. Rawlyk did not claim to have personal knowledge with respect to the allegations against Mr. Haack set out in Mr. Wadsworth’s memorandum. They had some knowledge of the problems it referenced – for example, Mr. Anderson and Mr. Deibert knew that financial reports had not been prepared, and Mr. Anderson mentioned that often when he looked for Mr.

Haack in the office Mr. Haack was not there – but for the most part they relied on the information contained in Mr. Wadsworth’s memorandum and provided by him at the meeting. [ 90 ] Mr. Anderson, Mr. Deibert and Mr. Rawlyk also did not conduct any independent investigation of the allegations. Mr. Rawlyk said he did not conduct any investigation; Mr. Deibert referenced having done an informal investigation, but that seemed to consist only of talking to the other directors. Mr.

Anderson referenced his own limited information about the various allegations but did not describe any further or broader investigation. [ 91 ] Mr. Wadsworth suggested that the other directors would have had the opportunity to investigate; however, he acknowledged that that opportunity existed prior to them receiving this memorandum, not after. [ 92 ] Based on the evidence, I am satisfied that the directors did not investigate before or after receiving the memorandum. [ 93 ] All four directors suggested that the allegations against Mr. Haack, and how to respond, were discussed at the meeting.

None of them could recall the specifics of that discussion, and no notes, minutes or contemporaneous documentation other than the memorandum and directors’ resolution, were provided to the Court to confirm what was said. All of the directors acknowledged that they relied on Mr. Wadsworth’s memorandum and the information it provided with respect to Mr. Haack’s performance. I am satisfied that Mr. Anderson, Mr. Deibert and Mr. Rawlyk made their decision based on Mr. Wadsworth’s memorandum and information, or relying on their own limited knowledge. They did not challenge Mr.

Wadsworth or meaningfully discuss the accuracy of the allegations made in the memorandum. They did not talk about whether they were sufficient to give Marquis Alliance cause, or to justify appropriating Mr. Haack’s shares under Clause 10.3(h)(ii). [ 94 ] After the directors’ meeting, a shareholders’ meeting was scheduled for September 13, 2020. Most of the shareholders attended; those who did not were approached later to obtain their agreement to the proposed shareholders’ resolution.

As was the case with the directors’ meeting, those who recalled attending the meetings said that there was a discussion of the decision to terminate Mr. Haack’s employment. [ 95 ] Ms. Hanson-Parsons said the discussion focused on the provision in the USA and the rationale for a nominal buyback provision. She also recalled the points in Mr. Wadsworth’s memorandum being reviewed with the shareholders. Mr. Lew recalled them being told the reasons for dismissing Mr. Haack but did not recall there being a lot of questions or discussion with the shareholders. Mr.

Wadsworth said that the shareholders would have received the memorandum and that they discussed it along with the terms of the USA; he also said he had one-on-one discussions with shareholders who were not at the meeting. Mr. Anderson said that they discussed the topics set out in Mr. Wadsworth’s memorandum, and that he shared with the group his grievances with respect to Mr. Haack. Mr.

Deibert said there was a discussion, but he could not recall what was said. [ 96 ] No notes, minutes or contemporaneous record with respect to the shareholders’ meeting, except the memorandum and resolution, were presented as evidence. [ 97 ] Based on the evidence, I find that, as was the case with the directors’ meeting, the shareholders relied on the information they were provided with respect to the basis for Mr. Haack’s termination, and did not investigate or question that information. I also find that while it is more likely than not that the shareholders were not provided a copy of Mr.

Wadsworth’s memorandum, they were told the allegations against Mr. Haack based on the contents of that memorandum and were advised of the directors’ recommendation as set out in the directors’ resolution. [ 98 ] Fundamentally, the shareholders accepted and relied on the directors’ decisions in deciding how to proceed, rather than making their own determination. As the shareholders’ resolution explicitly sets out, the shareholders had been informed that the directors had decided they had cause to fire Mr.

Haack and the directors had determined that “the actions of the VP have caused or are reasonably likely to cause significant damage to the Corporation”. The recitals to the shareholders’ resolution indicate that the shareholders knew of and relied on those decisions in resolving that Marquis Alliance ought to purchase Mr. Haack’s shares for $1.00.

Those recitals are, in my view, an accurate reflection of how the decision by the shareholders was made. [ 99 ] I also find that the shareholders had only a limited understanding of Clause 10.3(h)(ii) and were relying on information provided to them about that clause by the directors and by Ms. Hanson-Parsons. Ms.

Hanson-Parsons said she answered questions about Clause 10.3(h)(ii) because, she said, she was one of the more knowledgeable people with respect to the USA. [ 100 ] In testimony the shareholders (including the directors) did not explain their decision in reference to the words in Clause 10.3(h) (ii); they gave varying explanations as to why they cancelled Mr. Haack’s shares and none of them demonstrated any real engagement with the language in that clause. Ms. Hanson-Parsons said she signed the resolution because she believed it was in the interests of

shareholders, and because Mr. Haack’s actions and decisions risked a loss of value for the shareholders. Mr. Rawlyk said he signed the resolution because they needed unanimous agreement to take Mr. Haack’s shares. He said that since Mr. Haack had not accepted the original offer for severance, they were going to exercise their right to take the shares for $1.00. Mr. Deibert said he agreed with what was proposed and understood the concern to be with Mr. Haack harming the corporation. He said that he agreed that the grounds identified by Mr. Wadsworth were sufficient to push Mr. Haack out of the business. Mr.

Lew said that he signed the resolution because he felt it was in the best interests of the company and he agreed with the dismissal. On being presented with the terms of the resolution, which explicitly refers to the issue of damage to the company, Mr. Lew agreed that damage was a concern; I do not, however, put much weight on that aspect of his testimony. [ 101 ] Unaware of the steps that were being taken to appropriate his shares, on or about September 14, 2010 Mr. Haack wrote to the Board of Marquis Alliance.

He said that since no withdrawing event was triggered, he had the option of continuing to hold his shares. He said, “Alternatively a mutually agreeable negotiation could be done to arrange a voluntary sale of my shares”. Mr. Haack suggested in his testimony that he was hoping to keep the shares to sell them as part of any IPO. [ 102 ] Mr. Haack had also written to Marquis Alliance on September 7, 2010, noting that he had earned 17 days of holiday in 2010, had taken 14 days, and was entitled to pay for his unused vacation time.

He also asked for an accounting of balances within his corporate RSP account. [ 103 ] Mr. Haack was ultimately paid $1903.86 in owed vacation pay. [ 104 ] On September 23, 2010 Mr. Haack received a letter from Mr. Lawrence at Borden Ladner Gervais (“BLG”) advising him that Marquis Alliance was purchasing his shares in the company for $1.00. The letter enclosed a cheque for $1.00, which Mr. Haack never cashed. [ 105 ] On December 15, 2010 Mr.

Haack commenced this action. [ 106 ] After he did so, in early 2011, Marquis Alliance issued him a revised T4 adding to his employment income a taxable benefit related to the shares he received in Marquis Alliance in the amount of $144,457. Mr. Haack contested the accuracy of this T4 in a letter to the CRA dated March 20, 2011. [ 107 ] During the course of Mr. Haack’s efforts to resolve this problem with the CRA, Marquis Alliance sent out a second amended T4, which included the share amount but categorized it differently. [ 108 ] Revenue Canada ultimately reversed the addition of any share amount to Mr.

Haack’s T4, by way of a letter dated August 27, 2014. [ 109 ] Secure provided no explanation as to why the adjusted T4 was issued to Mr. Haack. The share value of $144,457 was the same as the amount of Ms. Hanson-Parsons’ shareholder loan related to her shares in Marquis Alliance. Ms. Hanson-Parsons held the same number of shares as Mr. Haack. This source of the number suggests that someone at the company specifically decided to make this adjustment to Mr. Haack’s T4, and identified the basis on which the adjustment ought to be made.

There was, however, no evidence with respect to who that was, or why the adjustment was made. Analysis Burden and Standard of Proof [ 110 ] As a general matter, the burden of proof to prove a civil claim lies with the plaintiff: Jacobs v PHAT Training Inc. , 2014 ABQB 100 at para 47 . The allocation of the burden is, however, more complicated in wrongful dismissal cases. In wrongful dismissal cases the plaintiff must show that they worked for the employer and were terminated; if the defendant employer alleges cause, the burden of proof for establishing cause lies with the defendant employer.

If the plaintiff employee alleges that misconduct occurred but that the employer condoned that misconduct, then the burden of proof lies with the plaintiff employee: Foerderer v Nova Chemicals Corporation , 2007 ABQB 349 at para 63 . [ 111 ] The standard of proof, as in all civil cases, is one of proof on the balance of probabilities, which requires determining whether it is “more likely than not that the event occurred”: FH v McDougall , 2008 SCC 53 at para 49 .

In every case, the evidence must be “scrutinized with care” and must be “sufficiently clear, convincing and cogent to satisfy the balance of probabilities”: McDougall at para 46 . [ 112 ] Evidence supporting a claim may be direct or circumstantial; it may on its own support the conclusion that the event occurred (re whether it was raining: “I saw it raining”), or it may do so only because it supports the inference that the event occurred (re whether it was raining: “I saw a person wearing a wet raincoat”): R v Villaroman , 2016 SCC 33 at para 23 .

Inferences must be reasonable, and they must be based on proven facts, and in considering whether to draw the invited inference the trier of fact must also consider other reasonable or plausible theories “based on logic and experience”.

The trier of fact must not use speculation either to support or reject the suggested inference: Villaroman at paras 32-37 . [ 113 ] In criminal law, the issue is “whether the circumstantial evidence, viewed logically and in light of human experience, is reasonably capable of supporting an inference other than that the accused is guilty”: R v Villaroman , 2016 SCC 33 at para 38 . [ 114 ] In civil cases, where there is no presumption of innocence, the issue is less singular and can be articulated as: whether the circumstantial evidence, viewed logically and in light of human experience, is reasonably capable of supporting the inference that it is more likely than not that the event occurred.

In assessing the circumstantial evidence, the judge ought to take into account reasonable and plausible theories that support the invited inference, and those that contradict it, but must not use mere speculation to either reject or

accept the invited inference. Cases that discuss or mention the use of R v Villaroman in civil cases include R v Precision Drilling Ltd. , 2016 ABQB 518 at paras 50-51 ; Hutchinson v R L Macdonald Investments Limited , 2018 NSSC 248 at para 39 ; E. Weyman Construction

(1989) Limited v Tutty , 2018 NSSC 328 at para 203 . [ 115 ] The parties did not disagree on the question of burden of proof and did not discuss the issue of standard of proof or the use of circumstantial evidence. I have, however, directed myself to consider these matters because of the nature of the Secure’s claim that Marquis Alliance had cause to fire Mr. Haack and, in particular, the nature of the evidence it offers in support of that claim. [ 116 ] Secure says that Marquis Alliance had cause because Mr.

Haack was incompetent, that he did not act with diligence in his employment, and that he was responsible for poor or disadvantageous outcomes suffered by Marquis Alliance during his time as Vice- President Finance and Accounting. To support this argument, Secure identifies numerous instances of allegedly poor outcomes suffered by Marquis Alliance during this time period which, it says, are sufficient to show it had cause to fire Mr. Haack. They also identify several instances of Mr.

Haack’s alleged lack of diligence and effort. [ 117 ] For the most part, however, Secure’s evidence does not directly show a connection between Mr. Haack’s work and the poor outcome. Also, in general it does not provide direct evidence of Mr. Haack’s lack of diligence or effort. Rather, Secure’s evidence is largely circumstantial. Secure asks me to infer from the evidence that Mr. Haack was responsible for the poor outcome, and that Mr. Haack did not work hard or diligently. To illustrate by example, Secure asks me to conclude that Mr.

Haack took 30 days of vacation over six months, and did not work forty hours a week, based on Mr. Anderson and Mr. Wadsworth’s testimony that they went to Mr. Haack’s desk and did not find him there. [ 118 ] The questions thus are: at what point, if any, is this circumstantial evidence sufficient to establish that Marquis Alliance suffered a poor outcome for which Mr. Haack ought to be held responsible? At what point, if any, does it show that Mr. Haack lacked diligence and effort in his work? Because it is only once Mr.

Haack has been shown to have been responsible for a poor outcome, and to have shown a lack of diligence and effort, that I can assess whether his conduct in this respect was sufficient to give Marquis Alliance cause to have fired him. Again, to illustrate by example, it is only if I conclude that the evidence establishes that Mr.

Haack took 30 days of vacation over six months that I can assess whether taking that vacation (along with anything else proven) was sufficient to constitute cause. [ 119 ] The case law on standard of proof and circumstantial evidence directs me to decide whether the evidence, either directly or through reasonably supporting an inference, shows that it is more likely than not that the events occurred, and that Mr. Haack was responsible for them. I may consider reasonably supported contrary inferences in making this assessment, but I must not speculate about what happened during the time of Mr.

Haack’s employment at Marquis Alliance. Credibility [ 120 ] For reasons I discuss further below, I have reservations about the truthfulness and credibility of two Defendant witnesses, Mr. Lew and Mr. Wadsworth. [ 121 ] Mr. Lew made serious allegations about Mr. Haack, and in particular, with respect to Mr. Haack’s accounting work at Marquis Fluids. He blamed Mr. Haack for the inventory issues at Marquis Fluids that created problems with the accounting integration. [ 122 ] Yet, the contemporaneous record, with which Mr. Lew would be familiar now, and was likely familiar with then, contradicts those allegations.

Further, Mr. Lew’s own basis for making the allegations was weak. He had not worked with Mr. Haack at Marquis Fluids; he was inferring what Mr. Haack had done without any direct knowledge about what had occurred. [ 123 ] In essence, Mr. Lew had no personal knowledge of Mr. Haack’s work at Marquis Fluids, but nonetheless drew an adverse inference that Mr. Haack was responsible for material accounting problems there. Further, he drew the adverse inference despite the contemporaneous records which show that that adverse inference was unfounded. Mr.

Lew’s willingness to make thinly justified allegations that the contemporaneous record contradicts, along with his barely disguised disdain for Mr. Haack in his testimony, make me doubt the credibility of his evidence as a whole. Where the evidence of Mr. Lew and Mr. Haack conflicts, I prefer the evidence of Mr. Haack. [ 124 ] In 2010, Mr. Wadsworth made several allegations against Mr. Haack which either he had no evidence for, or which were contradicted by the contemporaneous evidence. The clearest examples of this are with respect to the external consulting, the RSP roll out and Mr. Haack’s vacation days.

Then, in his testimony before me, Mr. Wadsworth did not resile from, and even reiterated, these allegations. I found Mr. Wadsworth’s evidence in general to be self-serving. As a result, where the evidence of Mr. Wadsworth and Mr. Haack conflicts, I prefer the evidence of Mr. Haack. [ 125 ] I note in this respect that I generally found Mr. Haack to be a credible witness. His evidence aligned with the documentary record. While some of my findings of fact do not match entirely with his evidence, in those instances the differences are ones of emphasis, not because his evidence was shown to be unreliable.

Wrongful Dismissal [ 126 ] In assessing an employer’s claim that it had cause to fire an employee, the Court must consider three things: (

i) The nature and extent of the employee’s conduct; (ii) The surrounding circumstances of the employee (e.g., seniority, job description, obligations and responsibilities) and of the employer (e.g., the nature of the business, its policies and practices);

(iii) Whether the employer’s response was proportionate and, in particular, “whether the alleged misconduct is so incompatible with the fundamental terms of the employment relationship that it warrants dismissal” See: Molloy v Epcor Utilities Inc. , 2015 ABQB 356 at para 142 ; Smith v Vauxhall Co-op Petroleum Limited , 2017 ABQB 525 at para 15 ; Cicalese v Saipem Canada Inc. , 2018 ABQB 835 at para 20 ; Motta v Davis Wire Industries Ltd. , 2019 ABQB 899 at para 15 . [ 127 ] This

section begins by assessing Marquis Alliance’s claims about Mr. Haack’s performance, including both those made at the time of his dismissal, and those raised subsequently. It then turns to the issue of how Marquis Alliance responded to Mr. Haack’s performance during the time of his employment. Finally, it considers whether, in the totality of the circumstances, and in light of the law governing dismissal of employees, Marquis Alliance had cause to fire Mr. Haack. The subsequent

section will consider whether Marquis Alliance’s manner of terminating Mr. Haack’s performance additionally violated its duty of good faith and honest performance. The Claims of Deficient Performance Breach of Confidentiality [ 128 ] At the time of dismissal, Marquis Alliance claimed that Mr. Haack improperly shared confidential information with employees. [ 129 ] Secure offered in support of these claims the contemporaneous memorandum to the directors from Mr.

Wadsworth which said: 1. he has discussed his personal financial issues such as compensation with his direct reports while conducting their performance appraisals, telling his direct reports that they shouldn't be concerned about their own issues, as his are more important; 2. he has disclosed and discussed confidential partner compensation and personal financial information (net worth information) without consent, with employees. [ 130 ] Secure also provided the letter Marquis Alliance gave to Mr.

Haack at his termination which said Marquis Alliance had a “loss of trust and confidence in your handling of confidential and personal information.” [ 131 ] In addition, Ms. Donna Mitchel was called as a witness by Secure. Ms. Mitchel had worked with Mr. Haack at Marquis Fluids and initially reported to him at Marquis Alliance. She recalled being upset because Mr. Haack did not respect confidentiality. She recalled reporting her concerns to Mr. Wadsworth and asking that she no longer report to Mr. Haack in part for this reason. [ 132 ] Ms. Mitchel could not, however, recall any specifics about what Mr.

Haack had done. She could not recall the information he had shared, or to whom. [ 133 ] Mr. Wadsworth confirmed in his testimony that the allegations in the memorandum came from Ms. Mitchel and “other employees”, and also that he had moved Ms. Mitchel’s reporting from Mr. Haack based on those concerns and allegations. He was uncertain as to when this occurred, but agreed it may have been between February and June, 2010. [ 134 ] In addition, Mr. Wadsworth said that he had investigated the allegations on confidentiality and had spoken to Mr. Haack about them. Mr.

Wadsworth could not, however, recall the specifics or results of that investigation or conversation, and did not have any documentation in relation to either. [ 135 ] Mr. Perera testified that he had heard about the issue with respect to Mr. Haack sharing confidential information from other employees, including Ms. Mitchel, but that he did not have any personal knowledge of it nor did he speak to Mr. Haack about it, and he had no documents with respect to those conversations. [ 136 ] Mr.

Haack testified that when he received the termination letter from Marquis Alliance stating that it had a “loss of trust and confidence in your handling of confidential and personal information” he did not know what they meant. Mr. Haack said that he had understood Ms. Mitchel to have been removed from reporting to him in about March 2010 in order to assist with his workload. [ 137 ] Based on this evidence, I cannot safely conclude that Mr. Haack improperly shared confidential information. I accept that Ms. Mitchel believed (and believes) that he did so, and that she shared her concerns with Mr. Wadsworth and Mr.

Perera. But absent any evidence about the information Mr. Haack allegedly shared, and with whom he shared it, I am not prepared to say that Mr. Haack improperly shared confidential information. [ 138 ] I observe in this respect that the allegations in Mr. Wadsworth’s memorandum, which contain the only specifics I have regarding Mr. Haack’s alleged improper disclosure, are unsubstantiated hearsay. They are what Mr. Wadsworth says he wrote based on what he says Ms. Mitchel and employees told him at the time but, in her testimony, Ms.

Mitchel did not provide evidence sufficient to show the truth of the allegations, and no other employee with direct knowledge of this issue testified. [ 139 ] While these deficiencies in the evidence are sufficient to justify rejecting these allegations against Mr. Haack, additional issues with how Marquis Alliance addressed them at the time reinforce that assessment. While Mr. Wadsworth maintains that he investigated the breaches of confidentiality, and that he spoke with Mr. Haack about them, his evidence in this respect is not credible.

His testimony was vague and conditional – saying, he has heard of incidents from “other people” but not who they were; describing his investigation as “I went and talked to people” but again without specifying who they were; saying “I do believe” in relation to what he thinks he did; responding that him talking to Mr. Haack about it “sounds familiar”. Mr. Wadsworth acknowledged that he did not provide Mr. Haack with any information about what Mr. Haack was alleged to have said and to whom. Mr.

Wadsworth also seemed unclear on the timing, referring to events “occurring over the summertime”, but when asked if it was in springtime saying, “Sounds about right”. [ 140 ] In addition, there are no documents or contemporaneous records with respect to any such investigation or conversation. This is troubling both because it means that Mr. Wadsworth’s claim to have investigated cannot be gauged against any contemporaneous record

and because it seems doubtful that an investigation would have occurred, but that no records – not even an e-mail setting up a meeting – would exist with respect to it. I note that Ms. Mitchel said that she did not investigate these matters, and Mr. Perera said that any investigation of his did not involve conversations with Mr. Haack and was not documented. I am not satisfied based on Mr. Perera’s evidence that he in fact did investigate, although I accept that he, like Mr. Wadsworth, had spoken to Ms. Mitchel about her concerns. [ 141 ] I prefer Mr. Haack’s evidence that Mr. Wadsworth told him that Ms.

Mitchel was being moved for workload reasons, and that he was not aware of concerns about confidentiality prior to receiving his termination letter. To the extent any investigation occurred – which I do not think the evidence establishes – it did not involve obtaining Mr. Haack’s response to the allegations against him. Leaving aside the unfairness of not allowing Mr. Haack to respond, asking him about what happened would have allowed Marquis Alliance to test the validity of the claim that he had improperly shared confidential information, and to discover if Mr.

Haack plausibly denied it or had an exculpatory explanation. It may be that what Ms. Mitchel or another employee perceived as a breach was in fact authorized or appropriate. [ 142 ] Fundamentally, that Ms. Mitchel subjectively believes (and believed) that Mr. Haack improperly shared confidential information does not demonstrate the objective validity of that belief, particularly when Mr. Haack never had an opportunity to know the specifics of her claim or to respond to it. [ 143 ] In sum, Secure has not shown that it is more likely than not that Mr.

Haack disclosed and discussed confidential information with other employees. [ 144 ] Secure also alleges that Mr. Haack breached confidentiality by e-mailing information to his personal e-mail account, to which his wife also had access to, between August 27, 2010 and his termination on September 3, 2010. [ 145 ] Secure has proven this allegation. Mr. Haack admitted that he had e-mailed this information, and the documentary record clearly establishes that he did so. It shows that he used the e-mail address to correspond with his wife, which is sufficient for me to infer that she had access to the account.

The information Mr. Haack e-mailed included sensitive and confidential information with respect to the proposal to go public, a bid for a contract and other business opportunities, salary information and information about the calculation of bonuses. [ 146 ] In a letter to BLG dated September 24, 2010, Mr. Haack wrote that he took the documents to evaluate the worth of his common shares. He stated that Mr. Wadsworth had encouraged him to do his own valuation, and that he could not do so without internal information. He said that he had disclosed his possession of the documents to Ms.

Mitchel, and that he had “previously destroyed all of the MA documents and no longer have any MA confidential documents in my possession”. [ 147 ] In his testimony Mr. Haack reiterated this account of his actions, also stating that he had not shared the documents or information with anyone. [ 148 ] Secure noted that one document that Mr. Haack e-mailed to his home was produced in the litigation; they did not otherwise contradict Mr. Haack’s claims that he destroyed the information and did not share it. While counsel for Secure suggested that I infer, from the fact that Mr.

Haack disclosed a document in this litigation he had e-mailed to himself that he did not destroy the documents. I am inclined to the opposite conclusion: to infer from his disclosure of the one document that he did not have any others and had destroyed them. In any event, the production of one document is not sufficient to show that Mr. Haack breached confidentiality more generally. [ 149 ] I thus find that Secure has proven that Mr. Haack improperly shared confidential information by e-mailing it to his personal e- mail account, and that his wife could have seen the information there.

Secure has not, however proven that he shared the information more broadly or that he retained it after September 2010. Accounting System Integration Issues [ 150 ] After the merger, Marquis Fluids and Alliance Energy ran into significant difficulties with the integration of the accounting systems of the two companies. Originally Mr. Haack suggested that they not integrate the accounting systems prior to year-end. Mr. Wadsworth disagreed, and directed that the integration occur immediately. In an e-mail dated October 23, 2009, Mr. Wadsworth said, “the quicker we can integrate the accounting systems the better”.

He further said, “you and Jim can figure [it] out. I think sooner than later you and Jim need to get together and start hashing this out. He will be on board with you and work his ass off for you to get this done as smooth and efficient as possible, he is very useful and talented and will be your key guy for your team.” [ 151 ] While Mr. Wadsworth’s decision was understandable, and I do not think he could have anticipated what happened next, his hope that it would be “smooth and efficient” did not come to pass. In particular, when Mr.

Lew moved the Marquis Fluids information onto the Solomon accounting system used by Alliance Energy, he ran into major problems accounting for Marquis Fluids’ inventory. The problems arose from how Marquis Fluids had recorded its inventory and with deficiencies in its records. [ 152 ] The result of these integration problems was to delay for months the newly merged entity’s production of financial reports and statements.

The delay arose both because the accounting system was not functioning in a way that gave accurate and sufficient information to allow reports to be prepared, and because the accounting team, and particularly Mr. Lew, had to spend so many hours trying to correct and fix the problems with the accounting integration. [ 153 ] The witnesses for Secure, and in particular Mr. Lew, blamed Mr. Haack for the accounting integration problems and resulting delays. They did so based on two propositions. First, because Mr.

Haack had been Controller at Marquis Fluids, they said that it was due to his deficient work that the inventory issues – and hence the integration problems – arose. Second, they blamed Mr. Haack for not helping Mr. Lew to fix and address the problems by working directly on the integration. [ 154 ] To support his position that the problems at Marquis Fluids were caused by Mr. Haack’s poor work, Mr. Lew suggested that the

issues with Marquis Fluids’ records dated only back one year prior to the integration. He explicitly claimed that it was in the time period after Mr. Haack started at Marquis Fluids that the issues arose. He said that he could see accounting records that were in line, with inventory and records that matched, but that, after Mr. Haack started working there, Marquis Fluids no longer had tidy schedules. Further, Mr. Lew said that when he asked Mr. Haack about what happened, Mr. Haack’s response would be along the lines of “oops my bad, my mistake”. [ 155 ] The problem, however, is that Mr.

Lew’s claims in this respect are contradicted by contemporaneous records with respect to Marquis Fluids’ accounting records. As earlier noted, in 2008 the auditors adjusted Marquis Fluids’ 2007 net income upwards by $734,924 to reflect “more accurate information on the cost of inventory value on hand”. Further, in its June 9, 2009 report on its audit of Marquis Fluids Partnership, Collins Barrow noted “errors totaling 8.5% of the inventory balance”.

It noted errors; related to inventory costing, quantities related to delivery tickets and usage, or cost information including errors in per unit missing or not calculating correctly. We recommend that accounting staff review year-end inventory listings and spreadsheets prepared by operations staff for completeness and accuracy, agreeing them to the supporting documents and general ledger. [ 156 ] While Mr.

Haack was at Marquis Fluids as of the financial year end of March 31, 2009, he only started full time work that month, and the audit would have been based on accounting records and documentation that largely predated his arrival in mid-January 2009. That is, he worked part-time at Marquis Fluids for one and a half months, and full time for one month, prior to the March 31, 2009 year-end. It defies credulity to suggest that in that short period, where he mostly worked part-time, Mr.

Haack nonetheless managed to ruin a functional inventory accounting system – particularly given that we know that inventory issues arose in 2007 as well. [ 157 ] In addition, the issues identified by Collins Barrow in its June 9, 2009 report were with respect to how operations staff were recording inventory information; the suggestion by the auditor was for accounting staff to review and check “inventory listings and spreadsheets prepared by operations staff ” [emphasis added]. The report did not suggest that the accounting staff itself caused the errors.

Its recommendation was for the accounting staff to fix the work of other people, not to do better work itself. [ 158 ] I note that in the fall of 2010 Mr. Lew worked with Collins Barrow to create consolidated audited financial statements for the Marquis Fluids companies for the years 2008 and 2009. As such, he would have seen and reviewed these financial statements, and in doing so, would have known that the inventory issues at Marquis Fluids predated Mr. Haack’s arrival. Given his role as Controller of the merged entities, he may also have seen those audited financial statements prior to fall 2010. [ 159 ] Mr.

Haack did convert the accounting system used by Marquis Fluids from Accpac to SNP Business One after he joined Marquis Fluids. Perhaps Mr. Lew meant to suggest that that is where the problems arose. But it seems most improbable that in doing an accounting system conversion, Mr. Haack could create inventory issues where none had exis

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