Breen v Foremost Industries Ltd, 2023 ABKB 552

Court of King’s Bench of Alberta Citation: Breen v Foremost Industries Ltd, 2023 ABKB 552 Date: 20231004 Docket: 1501 03872 Registry: Calgary Between: PATRICK BREEN Plaintiff - and - FOREMOST INDUSTRIES LTD. and ROY H. ALLEN, BRUCE J. MACLENNAN, BEVAN MAY, and GORDON M. WIEBE IN THEIR CAPACITIES AS TRUSTEES OF FOREMOST COMMERCIAL TRUST Defendants FOREMOST INDUSTRIES LTD. and ROY H. ALLEN, BRUCE J. MACLENNAN, BEVAN MAY, and GORDON M. WIEBE IN THEIR CAPACITIES AS TRUSTEES OF FOREMOST COMMERCIAL TRUST Plaintiffs by Counterclaim PATRICK BREEN Defendant by Counterclaim _______________________________________________________ Reasons for Decision

of the Honourable Justice K.D. Yamauchi _______________________________________________________ I. Introduction and the General Nature of the Case [ 1 ] The Plaintiff/Defendant by Counterclaim Patrick Breen commenced an action against the Defendants/Plaintiffs by Counterclaim Foremost Industries Ltd, Roy H. Allen, Bruce J. Maclennan, Bevan May, and Gordon M. Wiebe in their capacities as trustees of Foremost Commercial Trust. Mr. Breen’s action alleges that the Foremost Industries Ltd (“FIL”) wrongfully dismissed him, and he seeks damages as a result. [ 2 ] In their counterclaim against Mr.

Breen, the Plaintiffs by Counterclaim allege, among other things, that Mr. Breen, while acting in his capacity as President and Chief Executive Officer of the Foremost Income Fund (“FIF”) and the various businesses that operate under FIF (the “Foremost Group”), breached a number of duties that he owed to the Foremost Group, including, his fiduciary duty, a duty of care and skill, a duty to safeguard the Foremost Group’s property, a duty to avoid conflicts of interest, and his duties of loyalty, honesty, and good faith. The Plaintiffs by Counterclaim allege that Mr.

Breen breached all these duties knowingly and wilfully, resulting in losses to the Foremost Group for which he is responsible. They also allege that Mr. Breen converted monies from the Foremost Group for his own benefit. II. General Background Facts from the ASF [ 3 ] On the first day of the trial, the parties presented this Court with an Agreed Statement of Facts, which they entered as an exhibit in these proceedings (“ASF”): Exhibit 1.

Because the substance of the ASF sets the stage and provides some background concerning the matters before this Court, this Court provides the following facts which are taken from the ASF. [ 4 ] FIL, an Alberta corporation, is a wholly owned subsidiary of Foremost Commercial Trust (“FCT”). FCT is a wholly​owned subsidiary of FIF, an open-ended mutual fund. [ 5 ] The Defendants/Plaintiffs by Counterclaim Roy H. Allen, Bruce J. Maclennan, Bevan May, and Gordon M. Wiebe were trustees of FCT at the material times, including during March of 2014, when Mr. Breen’s employment was terminated.

These individuals also made up the board of directors of the FIF (“Fund Board”), which oversaw FIF’s businesses, including FIL and Foremost Group. [ 6 ] The following chart shows the organization of FIF and the Foremost Group, at the material times: [ 7 ] There is a more detailed organizational chart for the Foremost Group’s Russian operations, which this Court will address later in these reasons. [ 8 ] The business of Foremost Industries Limited Partnership (“FILP”) focuses on the design, manufacture, sales, and service of heavy all-terrain vehicles and drilling equipment for use in the mineral exploration, waterwell, construction, transportation, energy, and environmental industries. [ 9 ] The business of Foremost Universal Limited Partnership (“FULP”) focuses on the design, manufacture, sale, and service of shop tanks, vessels, field tanks, gas separation units, and compression equipment used within the energy and environmental industries. [ 10 ] On or about November 1, 2000, Mr.

Breen became the Vice-President of Universal Industries (Foremost) Corp. (“Universal”) [ 11 ] In or around May of 2001, Mr. Breen was appointed Universal’s President and Chief Executive Officer. [ 12 ] On or about July 28, 2003, Mr. Breen was appointed President of FIF responsible for overseeing the operations of FIL and Universal Industries Limited Partnership. [ 13 ] Mr. Breen was a director of FIL, Universal, and other entities within the Foremost Group. FIL’s board of directors consisted of Mr. Breen, JP Grenon (“JP”), and Jackie Schenn. Universal’s board of directors consisted of Mr. Breen and Ms.

Schenn. [ 14 ] On or about October 31, 2011, Mr. Breen and FIL entered into a written employment agreement (the “Employment Agreement”): Tab 21. [1] The term of the Employment Agreement was effective from January 1, 2011, to December 31, 2014, unless terminated earlier, or renewed, in accordance with the terms and conditions set forth in the Employment Agreement. [ 15 ] In addition to receiving an annual base salary, Mr. Breen was eligible to receive “Yearly Bonuses” and a “Potential Additional Bonus,” as set out in the Employment Agreement. Mr.

Breen received a Yearly Bonus of $186,624 for 2011, and a Yearly Bonus of $131,448 for 2012. Mr. Breen did not receive a Yearly Bonus for 2013, or a partial Yearly Bonus for 2014. [ 16 ] Among other things, the Employment Agreement required Mr. Breen to comply with all the Foremost Group’s policies, practices, and procedures as a condition of his employment and to avoid and disclose any and all potential conflicts of interest. [ 17 ] A Senior Management Committee (“SMC”) oversaw operations of FILP and FULP. SMC’s members at the time of Mr.

Breen’s termination were Mr. Breen, Bruce Binsfeld, Ms. Schenn, Mike Strilchuk, Les Unrau, and JP. Mr. Breen was expected to involve the SMC in the decision-making process. The SMC operated as the focal point for all significant decisions, including controls, policies, and procedures. Mr. Binsfeld testified that the SMC focused on policies involving risk avoidance, contract acceptance, better estimating, and better engineering. Overall, the SMC focused on doing a better job on reviewing each project at the front end and deciding whether to go forward.

The SMC always involved the attendance of the “Platform Champion” as the Fund Board’s designate. Jim Grenon, who is FIF’s majority unitholder, clarified as part of his evidence that the Platform Champion’s attendance was a defining characteristic of the SMC meetings. [ 18 ] Mr. Breen’s responsibilities related to all FIF businesses, not just FIL. [ 19 ] TOM Capital Management Inc. (“TOM Capital”) is a corporation that provides investment capital to various businesses, including the Foremost Group. TOM Capital provides management support and resources to those related businesses. Mr.

Grenon controls TOM Capital. [ 20 ] The Platform Champion is a TOM Capital employee who serves as a liaison between TOM Capital and its related businesses. TOM Capital provides different Platform Champions to its different businesses. The Lead Trustee was essentially the chairman of the Fund Board. [ 21 ] Individuals serving as the Foremost Group’s Platform Champion and the Lead Trustee varied over the course of Mr. Breen’s employment: • Platform Champion up to 2010: Glen Swail; • Platform Champion from 2010 through to the end of Mr.

Breen’s employment: JP (the Parties disagree about whether Bevan May was also viewed as a Platform Champion for the Foremost Group at any time); • Lead Trustee up to November 30, 2012: Mr. Grenon; • Lead Trustee from November 30, 2012, through the end of Mr. Breen’s employment: Mr. May. III. Other General Background Facts A. Foremost Employees [ 22 ] This Court will describe some of the individuals to whom this Court will refer throughout these reasons and their positions in the Foremost Group.

There were other witnesses who provided their evidence to this Court, which this Court will describe as it refers to their evidence. [ 23 ] Bruce Lyndon Binsfeld worked his way up from an employee at Universal to the Regional Vice-President of FULP. Mr. Breen called Mr. Binsfeld as one of his witnesses and Mr. Binsfeld provided his oral evidence to this Court. [ 24 ] Jackie Schenn was the Vice​ President Finance and Chief Financial Officer of FIF. As FIF’s Vice-President Finance and Chief Financial Officer, Ms. Schenn was responsible for FIF’s financial oversight and management.

She resided in Lloydminster, Alberta, but she was in frequent contact with Mr. Breen both in person and through telephone calls during Mr. Breen’s tenure. Ms. Schenn was not called as a witness in these proceedings, but her “read-ins” were submitted as evidence. [ 25 ] Shirley Ann Stroud has been with the Foremost Group since 1976. She has held different roles in the finance and administration departments, and, at the time of the trial, she held the position of controller, although she was set to retire. She reported to Ms. Schenn. Ms.

Stroud described her controller role as a gatekeeper of financial transactions within the organization, such as sales, accounts receivable, accounts payable, and inventory. She would also authorize payments, sign cheques, and monitor expenditures to ensure that they were legitimate and recorded correctly. [ 26 ] Ajay Kevin Johnson is currently the President of FIF. During the times material to this decision, Mr. Johnson was FILP’s general manager. [ 27 ] James Fulton had been with the Foremost Group since 1977. He was a parts and service manager and reported to Mr. Johnson in Mr.

Johnson’s capacity as a general manager. B. Mr. Breen’s Position and the Russian Operation [ 28 ] During his questioning, Mr. Breen acknowledged that although the Foremost Group consisted of a number of entities and businesses, there was a common understanding that all the entities within the Foremost Group pursued the same common business on behalf of FIF: Breen Read-ins, Tab 2, at p 33. Further, although the Employment Agreement identified Mr.

Breen’s employer as FIL, there was no confusion in his mind that he acted as President and Chief Executive Officer on behalf of the entirety of FIF, including all its related entities: ibid . Mr. Breen had no understanding of FIL as his employing entity, except as one of the entities under FIF: ASF at para 15; Breen Read-Ins, Tab 2, at pp 32-33; Transcript of Proceedings, May 2, 2022, at pp 45-46. [ 29 ] As Chief Executive Officer, Mr. Breen was accountable to the Fund Board. He reported to the Lead Trustee and was ultimately accountable to the majority unitholder, Mr. Grenon. At all relevant times, Mr.

Breen liaised with the Fund Board through the Platform Champion, who acted on behalf of the Fund Board and TOM Capital. The Platform Champion acted with the authority of the Fund Board, and there is no dispute that Mr. Breen was required to comply with the Platform Champion’s directions: Transcript of

Proceedings, May 2, 2022, at pp 48 and 91. [ 30 ] Mr. Breen had a numbered company, 849183 Alberta Ltd. (“849 Ltd”). Mr. Breen used 849 Ltd to invoice consulting fees to the TOM Capital entities for a portion of his compensation. [ 31 ] In approximately 2003, Mr. Breen learned that the Foremost Group operated a small portion of its business in Russia (the “Russian Operation”). The Russian Operation operated under FILP with entities in Canada, Cyprus, and Russia. 958499 Alberta Ltd. is a wholly owned subsidiary of FILP.

Foremost (Cyprus) Limited and Maloney Industries (Cyprus) Limited are wholly owned subsidiaries of 958499 Alberta Ltd. Foremost Maloney Industries Limited was owned by Foremost (Cyprus) Limited and Maloney Industries (Cyprus) Limited. [ 32 ] Foremost (Cyprus) Limited and Maloney Industries (Cyprus) Limited are incorporated in Cyprus. Foremost Maloney Industries Limited was incorporated in Russia and was liquidated in 2021. Jim Chernyk was responsible for the Russian Operation. [ 33 ] Contracts in Russia often included agency fees.

Agency fees were added to a contract as a fee for facilitating a contract between the parties. IV. The Foremost Group’s Expectations of Mr. Breen [ 34 ] Between 2010 and 2014, Mr. Grenon and Mr. May continually reinforced with Mr. Breen the fundamental requirement for him to consult with and obtain approval from the Fund Board on matters outside his authority. In most cases, this consultation and approval was done through the Lead Trustee or the Platform Champion. There were four overarching constraints on Mr. Breen’s authority.

He was required to consult with and obtain approval from the Fund Board on: • any expenditure that was above his spend authorization limit; • any contract that contained “red flag” terms; • any matter that was material and unusual or out of the ordinary; and • compensation matters. [ 35 ] This Court will discuss each of these requirements later in these reasons. Suffice it to say that Mr. Grenon, Mr. May, and the Fund Board frequently communicated these requirements to Mr. Breen, and Mr. Breen fully understood the Fund Board’s expectations of him with respect to them. [ 36 ] In 2010, Mr.

May began his tenure with the Foremost Group as a TOM Capital consultant. When he arrived, he placed more of an emphasis on controls and reporting than had been the case before his arrival: Transcript of Proceedings, May 2, 2022, at pp 76-77. The Fund Board asked Mr. May to work with JP to complete an audit of the FILP and FULP businesses (the “BOD Review”). FILP’s BOD Review is located at Tab 34. [ 37 ] The BOD Review process began with a 2010 memorandum that Mr. Grenon issued (the “2010 Memorandum”): Tab 17.

The 2010 Memorandum emphasized that a key purpose of the BOD Review was to evaluate the extent to which the Foremost Group businesses were operating in accordance with the principles set out in a Business Practices Binder (the “BPB”) that Mr. Grenon had developed: Tab 5. Mr. Breen acknowledged receiving the 2010 Memorandum and explained his understanding that the BOD Review was to be a “gap analysis,” comparing current practices to those set out in the BPB: Transcript of Proceedings, May 2, 2022, at pp 58-59, 61-62. [ 38 ] Mr. Breen further acknowledged that he had received and was familiar with the BPB.

He described it as a “corporate constitution” and agreed that it contained a set of overarching principles that were intended to guide the Foremost Group’s businesses. He knew these principles were important to Mr. Grenon, JP, and Mr. May and that he was expected to ensure the BPB principles were being followed: Transcript of Proceedings, May 2, 2022, at pp 61, 65, 67-68. [ 39 ] Mr. May and JP completed the BOD Review at the end of March 2011.

They prepared a final report that set out their findings and recommendations on many subjects, including approval processes, contract review processes, the SMC function, and the need for consultative dialogue between the Platform Champion and Mr. Breen. Mr. Breen reviewed a draft of the final report and was supportive of its recommendations: Transcript of Proceedings, May 2, 2022, at pp 78, 91; Tab 32. [ 40 ] The BOD Review process and the final report that it produced reinforced and clarified the Foremost Group’s core operating philosophies and expectations for Mr. Breen, the SMC, and all employees.

It addressed each of the four overarching constraints identified above, which this Court will now discuss. A. Spend Approval Limits [ 41 ] The BPB set out the spend approval limits. Mr. Breen was familiar with these limits from at least 2010 forward, and he acknowledged the Foremost Group’s expectations regarding spend approval limits during his questioning and cross-examination during the trial. Everyone in the Foremost Group’s organization was expected to know the limits of their authority and the relevant approval processes. In his capacity as President and Chief Operating Officer, Mr.

Breen was expected to ensure that expenditure controls and cheque signing authorities were in place and he understood it was important for employees to know the limits of their authority and the relevant approval processes: Transcript of Proceedings, May 2, 2022, at pp 69-70; BPB Tab 5, p 6, item 2(7), p 9, item 7. [ 42 ] One of TOM Capital’s expectations involved cost consciousness. Mr. Breen understood that from 2010 onwards, reporting

and control functions were considered worthwhile, and compliance was important within the Foremost Group, even if others might not agree: Transcript of Proceedings, May 2, 2022, at p 70; BPB Tab 5, p 8, item 6. If there was a matter that would consume excessive time or resources that were out of the ordinary, Mr. Breen was expected to seek pre-approval from the Fund Board or the Platform Champion.

He understood that maintaining and enforcing a list of signing authorities was an important objective in managing the Foremost Group, and the Foremost Group expected employees to err on the side of caution if there was doubt as to the limits of their authority. [ 43 ] The BOD Review raised concerns about how proper approval procedures had not been followed in a couple of specific cases that this Court will address later in these reasons.

It stated that going forward, decisions involving significant spending commitments ought to follow a defined sign-off process that allows projects to be reviewed by the Platform Champion before the Foremost Group made any commitments. [ 44 ] The particulars of Mr. Breen’s spend approval limits were defined in numerous policies. Between 2005 and October 2011, Mr. Breen was subject to a general $25,000 limit on his spending authority pursuant to a memorandum he himself had authored.

A more detailed spending approval policy came into effect on October 27, 2011 (the “October 27 Policy”), following consultation among Mr. May, JP, and Mr. Grenon: Tab 44. The October 27 Policy limited Mr. Breen’s authority to $100,000 for capital and major maintenance items and $10 million for contract approvals, unless the contract contained “red flags,” which this Court will discuss in the next section. Mr. Breen understood that he needed to obtain Fund Board approval for any expenditures exceeding his limits or if they involved “red flags.” [ 45 ] The October 27 Policy also listed several policy items.

During his cross-examination, Mr. Breen acknowledged that he was familiar with the following requirements: • all non-arm’s length arrangements involving the President required Fund Board approval; • any new financing above $25,000 required Fund Board approval; • all changes to compensation programs required Fund Board approval; • the SMC was to review all significant items requiring Vice-President and President-level approval; and • currency hedging was to be considered on all significant contracts with payment in a foreign currency and would require Fund Board approval. [ 46 ] Ms.

Stroud testified that she was familiar with the October 27 Policy, as she had received a copy from Mr. Binsfeld on November 4, 2011. He advised her that the Fund Board had approved the October 27 Policy, so she had to enforce it. She was also familiar with a later policy, which she would use as a “spot check” for items that came to her. [ 47 ] Mr.

Breen questions the enforceability of the October 27 Policy, suggesting it had never been properly approved, it was not a “real policy” because it was never uploaded to the Foremost Group’s intranet portal, and it had been superseded by a subsequent policy in 2013: Tab 189. This Court finds that the October 27 Policy was always in effect during the times material to the case at bar. JP approved the October 27 Policy in his capacity as Platform Champion. JP specifically asked Mr. Breen to make a minor change to the hedging provision, after which JP said, “we will be done”: Tab 44. Mr.

Breen himself represented that the October 27 Policy received SMC approval on two separate occasions. [ 48 ] This Court accepts Mr. May’s evidence that the 2013 version of the spend approval policy was authored by Ms. Schenn as an “employee-facing document” which was never intended fully to define the limits of Mr. Breen’s authority. The October 27 Policy, on the other hand, was the product of discussions among Mr. Breen, JP, Mr. May, and Mr. Grenon. JP’s approval was unconditional, and Mr.

Breen presented no evidence suggesting that policies need not be complied with unless and until the Foremost Group’s administrative team uploads them to the intranet portal. The Foremost Group used the intranet portal to communicate with its rank-and- file employees, not with its President and Chief Executive Officer. [ 49 ] In any event, the 2013 version of the spend approval policy did not alter either of Mr. Breen’s two limits, viz , the $100,000 major capital and maintenance limit and the $10 million contract approval limit.

Nor did it purport to alter or void the policy requirements listed in the October 27 Policy. B. The “Red Flags” Requirements [ 50 ] The Foremost Group adopted a “red flags” policy (“Red Flags Policy”) in response to the BOD Review’s finding that there was a disconnect between “what is deemed ‘acceptable risk’ to [the Foremost Group’s] internal contract review team and what is deemed ‘acceptable risk’ to the [Fund Board].” John Tyrell, a TOM Capital lawyer, created the Red Flags Policy. He introduced the Red Flags Policy to Zeke Purves-Smith, who succeeded Mr.

Tyrell as a TOM Capital lawyer. [ 51 ] The Red Flags Policy identified certain clauses that appear in supplier and client contracts.

If anyone identified Red Flags Policy items during the contract review process, the procedure was to try to negotiate the Red Flags Policy items out of the contract and, if that proved unsuccessful, the “offending contract” would be “elevated” to the Fund Board to determine whether the contract was worth pursuing. [ 52 ] The process for contract review began with a review by administrators, who were not lawyers, but who had the experience to identify items in contracts that came under the Red Flags Policy. On the FILP side, the administrator was Carol Thacker and on the FULP side it was Trina Rutherford.

If they identified a Red Flags Policy issue, they would refer that issue to legal counsel. This would be done as early as possible, especially if it looked as though the Foremost Group would be successful in securing the contract. As well, there was a recognition that if the contract was complex, or involved a large dollar value, negotiating the contract would take more time, and TOM Capital would consider hiring outside counsel, if necessary.

[ 53 ] Red Flags Policy items included, among other things, any requirement to post security; parental guarantees; granting a security interest in work in progress or materials; proper law of the contract being a jurisdiction other than Alberta; liquidated damages; consequential damages; and liability/indemnity provisions: Tab 20. [ 54 ] Mr.

Breen was aware of the Red Flags Policy and does not dispute that it was always in force during the times material to the case at bar and that the Red Flags Policy applied to him: ibid . [ 55 ] The Red Flags Policy illustrated the Foremost Group’s broader approach to contracting that Mr. Grenon described in his direct examination. Mr. Grenon explained that the Foremost Group’s objective was to take a cautious and principled approach to contract negotiations to avoid pitfalls that other businesses had experienced. The Foremost Group was not interested in signing onerous contracts simply to make a sale.

It had a balance sheet and was committed to protecting it. [ 56 ] During his questioning and while giving his trial testimony, Mr. Breen acknowledged that he was familiar with the Red Flags Policy and that it was reflected in the BPB: Tab 5, p 27-28, item 38. He agreed that the purpose of the Red Flags Policy was to identify and reduce risk contained in contracts into which any of the Foremost Group entities entered. It was an important, ongoing part of the contract negotiation process.

The Foremost Group was keen on obtaining concrete assurances from parties opposite, especially when dealing with unknown parties or particularly important matters. The Red Flags Policy ensured that approved forms and legal signoff processes were being followed. [ 57 ] TOM Capital expected the Foremost Group to be cost conscious and reasonably principled. An organized approach avoided mistakes. Mr. Breen understood the importance of contract review processes and acknowledged that the BPB called for contracts to be subjected to legal review so that Red Flags Policy terms could be identified and addressed.

He knew the Foremost Group put a heightened emphasis on legal matters and that its philosophy was that non-standard contracts were only worth pursuing if they were meaningful and only after an appropriate level of legal review was undertaken. He further knew that legal services were readily available to the Foremost Group through TOM Capital. C. The “Out of the Ordinary” Principle [ 58 ] The “out of the ordinary” principle was a fundamental philosophy within the Foremost Group that required all employees, including Mr.

Breen, to elevate any matter that was unusual or outside the ordinary course to the Fund Board for approval. This principle was intended to ensure that the Fund Board was involved in any material matter that carried a potential risk regardless of whether such a matter required elevation under any other written policy. As Mr. Grenon explained, the “out of the ordinary” principle was an extremely important business principle since it is generally not the routine activities that cause businesses to flounder, but the non-routine ones. [ 59 ] Because of its importance, the Foremost Group reinforced and coached Mr.

Breen on the “out of the ordinary” principle more than anything else, such that Mr. Breen became very familiar with what was expected of him. The “out of the ordinary” principle factored prominently in the BPB: Tab 5, p 11, item 11. When discussing the BPB during his cross-examination and questioning, Mr. Breen agreed that the Foremost Group operated according to the philosophy that non-standard transactions are generally much more time-consuming and problematic and so they must be singled out for special handling and enhanced scrutiny.

He understood the expectation both before and after 2010 for him to seek Platform Champion or Fund Board pre-approval before spending time or company resources outside normal routine. [ 60 ] The BOD Review report reinforced that matters that were “out of the ordinary” must be elevated to the Platform Champion for discussion and consideration before making any commitments. D. The Need for Fund Board Involvement in Matters of Compensation [ 61 ] Mr. Breen understood clearly that matters of compensation were particularly important to the Fund Board and that the Fund Board expected Mr.

Breen to keep it apprised of such matters. Mr. Breen knew that the Fund Board’s interest in compensation matters predated Mr. May’s arrival in 2010. The Foremost Group’s information circulars specified that the Fund Board was responsible for overseeing compensation. As a result, the Fund Board had oversight over executive salaries and discretionary and formulaic bonuses and, ultimately, it was overall compensation that was important in developing compensation programs, having regard to the aim of offering competitive pay to attract and retain people. V. Matters that Arose During Mr.

Breen’s Tenure [ 62 ] There were several matters that the Plaintiffs by Counterclaim allege led to Mr. Breen’s downfall, his dismissal, and the damages they are seeking from him. This

section will outline those matters, the allegations against Mr. Breen, and Mr. Breen’s responses. This Court will deal with a Russian transaction in a separate section, as it involves a discussion of the various principles and expectations discussed above, along with other issues. A. Corlac Yard [ 63 ] The Corlac yard is a FULP storage facility in Lloydminster, Alberta that houses tanks and parts. In early 2012, Adair O’Grady became the general manager of the Corlac yard. Mr.

O’Grady sought to perform maintenance on the yard, as the yard was in very poor condition and susceptible to deep ruts and significant mud from snowmelt or rainwater. It was difficult for vehicles to maneuver in the yard. Customers complained that when they arrived to pick up equipment their vehicles would get stuck or damaged. Mr. O’Grady complained to Mr. Binsfeld that FULP equipment was being damaged, and costs increased because of the yard’s poor condition. In 2011, before Mr. O’Grady became general manager, a health and safety report indicated that the condition of the yard was a safety risk to employees.

[ 64 ] Mr. O’Grady developed a three-stage process for fixing the yard. The process treated the three areas of the yard as separate projects, which would be completed in succession. This would allow for the placement of tanks from the worked-on area to one of the other areas until the worked-on area was completed. This process would save the costs of storage of tanks during the repair process. As the three areas were separate, a separate authorization for expenditure (“AFE”) was submitted for each area and approved by Mr. Breen. Mr.

Breen believed that these AFEs were appropriate because each AFE was within his spending authority. However, the combined amount of the AFEs was beyond Mr. Breen’s spending authority. [ 65 ] At some point in 2012, JP and Mr. May were reviewing a management report and they noticed a

section relating to substantial AFEs they had not heard about. They inquired of Mr. Breen. Both Mr. May and JP understood the issues concerning the Corlac yard. The real concern, however, was how the remediation was moving ahead when neither JP nor Mr. May was advised of it. The expenditure on the first phase of the project was over Mr. Breen’s $100,000 spending limit. Mr. May and JP tried to get information on the bid processes that were used and the nature of the AFEs. There was little information, as nothing was approved and there did not appear to be any bidding process.

As well, there was no engineering of the project to determine what had to be done. [ 66 ] Mr. Breen tried to explain to JP what had (and had not) been done in relation to the Corlac yard and ended with “It won’t happen again”: Tab 79. About one-week later, Mr. Breen sent JP an email with a request that he approve a further $341,754 expenditure to complete a further phase of the Corlac yard project. Because JP was away, Mr. May responded to Mr. Breen’s request by asking for more information on the project, what had been done to date, and how the decisions were made. He asked Mr.

Breen to provide him with the bid documents for the first phase. Mr. Breen advised Mr. May that they did not keep these, which surprised Mr. May. There was too much vagueness in Mr. Breen’s response and Mr. May was beginning to wonder whether information he was receiving from Mr. Breen was reliable. Mr. May was also seeking detailed information on the $341,754 bid. [ 67 ] Mr. Breen sent Mr. May a bid from an entity known as Precision Contractors, but this appeared to be only for a part of the first phase of the Corlac yard project. Mr. May referred Mr. Breen to a different contractor called Valley C, since Mr.

Breen told Mr. May that no one else could do the work. Mr. May was skeptical. In his email to Mr. May, Mr. Breen admitted that the processes he employed in the Corlac project were “embarrassing.” He also confirmed that he was committed to meeting the expectations that the “new regime” expected of him: Tab 98. Mr. May was skeptical about Mr. Breen’s commitment to this. [ 68 ] The information that Mr. O’Grady received from Valley C indicated that what had been done to that point was not the proper way to approach the Corlac yard project. Another person with whom Mr.

O’Grady had spoken had a different view on how to approach the problem but was of the same view that the initial job was not done correctly. It appeared that Mr. Breen got himself into a problem that was growing. Mr. May reported all this to Mr. Grenon, with the opening “This is brutal.” In the end, the Corlac yard project was never completed. [ 69 ] The biggest problem, from Mr. May’s perspective, was that Mr. Breen failed to seek approval from the Fund Board, which he should have obtained given that the total first phase was beyond Mr. Breen’s spending limit, and that Mr. May and JP discovered it inadvertently.

This, to Mr. May’s view, was Mr. Breen showing a lack of commitment to process and authority. [ 70 ] Mr. May was concerned that Mr. Breen was “playing the system.” The AFEs were broken into smaller chunks, none of which was greater than Mr. Breen’s $100,000 spending limit. Mr. May’s view was that Mr. Breen did this deliberately. Mr. Breen argues that when he approved the Corlac yard three-stage process, he was acting in the Foremost Group’s best interests. Completion of each phase would allow the project costs to be evaluated before proceeding with the next phase.

As well, the Corlac yard could continue to operate during the completion of each phase. [ 71 ] Mr. Breen’s major maintenance expenditure limit during the time of the Corlac yard project was $100,000. He knew this. Any spending beyond that amount required Mr. Breen to obtain Fund Board approval through the Platform Champion, JP, or the Fund Board itself: Breen Read-Ins, Tab 13, p 347; Transcript of Proceedings, May 2, 2022, at pp 92-93, 103-105; Transcript of Proceedings, May 3, 2022, at p 9; Transcript of Proceedings, May 4, 2022, at pp 87, 97. In the case of the Corlac yard project, Mr.

Breen approved a series of AFEs, which were each under his $100,000 limit individually, but together totalled over $500,000. Mr. Breen did not obtain approval Fund Board approval in respect of these AFEs, which prevented the Fund Board from having a “sightline” into the nature and extent of the Corlac yard project. [ 72 ] Mr. May sent an email to Mr. Breen, and copied it to Mr. Binsfeld, Ms. Schenn and Mr. O’Grady that repeated the word “brutal.” He explained all the problems he saw with the Corlac yard project from the outset, and a failure on the part of senior management to abide by processes and authority.

He sent this email to these individuals, as, in his mind, they had differing levels of culpability: Tab 101. In response to his email, Ms. Schenn expressed that she was embarrassed that she did not identify the issues. Mr. May acknowledged that when he sent out the email, he should have reprimanded only Mr. Breen, and not Mr. Breen in the presence of those who reported to Mr. Breen. Mr. May apologized to Mr. Breen for this oversight: ibid . He was not apologizing for the reprimand of Mr. Breen, but only that he had sent the email to those who reported to Mr. Breen. It was Mr. May’s view that by this time Mr.

Breen was dismissive of TOM Capital, Mr. May, and Mr. Grenon. [ 73 ] Mr. Breen argues that he was informed that this was an area where expectations were not met, but he was not formally reprimanded or disciplined for the AFE issue relating to Corlac yard project. Mr. May takes a different view. When asked, Mr. May stated that the email was “unambiguously a reprimand.” [ 74 ] Mr. May was of the view that the Corlac yard project was “out of the ordinary” and Mr. Breen should have brought it to the Fund Board. As well, no one had the engineering expertise, which made the Corlac yard project “unusual,” as well.

Even had the spend limit been within Mr. Breen’s approval limit, which it was not, Mr. Breen should have brought this to the Fund Board to discuss it. [ 75 ] Mr. May made the comment that “capital planning and execution processes at Foremost are really weak at best.” He testified that Corlac yard project was another manifestation of this, along with Nokamic and MAC25, which this Court will discuss in a moment. [ 76 ] During questioning, Mr. Breen acknowledged that he had learned several lessons from the fallout surrounding the Corlac yard

project: Q All right, and in closing off that issue, that the expectations on how to deal with AFEs going forward was clear to you? A Much clearer. Q The need for greater controls was clear? A Define “greater controls.” Q The greater emphasis on controls within the organization compared to what you were used to in the past. A Financial controls in general, yes. Q The fact that the hundred thousand dollar threshold should not have been exceeded without going past you to JP or the board. That was clear? A Yes. Breen Read-Ins, Tab 21, p 558. B.

Nokamic and MAC25 [ 77 ] Nokamic Inc. (“Nokamic”) was a Quebec-based mulcher manufacturer. Around 2010 FILP began working with Nokamic. Mr. Johnson understood that Mr. Chernyk had introduced Nokamic’s products to his Russian clients. [ 78 ] The idea was that Nokamic would manufacture mulchers and FILP would market them for a profit. FILP sold the first few mulchers, but FILP had issues with Nokamic itself.

Nokamic was not well financed and struggled to meet its manufacturing and delivery obligations because it lacked working capital. [ 79 ] Around 2011, FILP agreed to purchase two Nokamic units on a speculative basis for a total cost to FILP of $800,000. Mr. May testified that this was “unusual” on several bases. The Nokamic mulchers were not stocked FILP inventory, and they were purchased on a speculative basis. As well, Mr. Breen’s spending authority was $25,000 and he had authorized a spend of $800,000. Mr.

Breen did not follow the appropriate approval procedures by taking this proposal to the SMC, which included the Platform Champion. [ 80 ] Nokamic was having cash flow problems, and it needed money to buy the parts it used in the construction of its mulchers. Mr. Fulton testified that FILP took on the role of purchasing parts and shipping those parts to Quebec. On February 7, 2013, Mr. Johnson expressed his concern to Mr. Breen that Nokamic could not live up to its obligations involving potential sales of mulchers to Russia. In a follow-up conversation with Mr. Breen, Mr. Breen told Mr.

Johnson that they would work with Nokamic by making sure that the Foremost Group would advance cash to Nokamic when it needed it. Mr. Johnson had no knowledge whether this information was communicated to the Fund Board or the Platform Champion. [ 81 ] On September 6, 2013, Mr. Fulton sent an email to Mr. Breen, Mr. Johnson, and Ms. Stroud, advising that Nokamic needed about $175,000 to continue building the mulchers. Mr. Johnson had a meeting with Mr. Breen to discuss this issue. Mr. Johnson expressed a concern about giving Nokamic any more money. Mr.

Breen was concerned that the Foremost Group might break its contract with Russia and felt that they had to find a way to complete the contract. Mr. Breen asked Mr. Johnson to prepare a loan agreement in exchange for Nokamic’s intellectual property related to the mulchers. Mr. Breen, within 7 minutes of the initial email, sent an email to Mr. Fulton approving the loan. Mr. Fulton was surprised with this approval, as “You don’t want to buy something twice.” [ 82 ] FILP committed to and loaned Nokamic $275,000. Even though Mr.

Johnson is not a lawyer and he had never drafted a loan agreement, he prepared a loan agreement in accordance with Mr. Breen’s direction. When Mr. Johnson asked Mr. Breen whether the legal department should review it, Mr. Breen responded that it was not necessary to involve the legal department as it is a simple document, they could do themselves. Mr. Johnson provided Mr. Breen with the basic parameters of the loan agreement, which Mr. Breen approved. There was then a revision. Ultimately, the loan agreement was for $400,000, as it included a $125,000 cost overrun amount from a previous project.

It also provided for a payment plan, which was a longer period than that to which they had already agreed. [ 83 ] Nokamic signed the loan agreement on September 9, 2013, and as security for that loan, Nokamic pledged its mulcher design drawings. There was no legal review of the loan agreement, and neither Mr. May nor the Fund Board was aware of the transaction. Mr. Purves-Smith testified that he was not involved with the Nokamic transaction. Not only was this a highly unusual transaction, but it was also “out of the ordinary” and material, as all debt instruments had to be reviewed by the Fund Board.

The Foremost Group had never made a loan to one of its vendors and it had never created loan documents to facilitate such a transaction. In fact, there was another corporation in the “TOM universe” that was dedicated to these types of transactions. Mr. May did not learn about this Nokamic transaction until after Mr. Breen was terminated. Mr. Purves-Smith did not learn about it until Nokamic defaulted under the loan agreement. The fact that Nokamic provided security for the loan made no difference. The loan itself was beyond Mr. Breen’s authority. [ 84 ] Mr.

Breen was not subject to any reprimand or discipline at the time of the Nokamic project, as neither Mr. May, the Platform Champion, nor the Fund Board knew about it. [ 85 ] The MAC25 was a prototype that FIL had developed in 2009, with no evidence of customer demand. FIL’s commitment was based on marketing materials. The construction cost exceeded $600,000. Apparently, Mr. Breen discussed this potential product with Mr. Swail, the previous Platform Champion, but did not receive Mr. Swail’s permission to spend the money in its development. Mr. Breen had no written evidence that Mr.

Swail had approved the MAC25 project. The concern, as contained in the FILP BOD Review Report,

was the SMC and Platform Champion did not have an opportunity fully to review the MAC25 project before a commitment was made to develop it. [ 86 ] On March 29, 2011, Mr. May sent a lengthy email to Mr. Breen critiquing what was done with respect to the Nokamic and MAC25 projects. In particular, he was critical of the approach that Mr. Breen took in making decisions on these projects without having a “cold-eyes” review by the Platform Champion. Mr. Breen sent this email to some of his senior management team, including Mr. Binsfeld, with a hypothetical draft response in which he called Mr.

May “pompous, self-important and condescending”: ibid . He did not send that email to Mr. May, but his views were shared with those individuals. C. Steelhead [ 87 ] In November of 2011, Mr. Breen presented an acquisition opportunity to the Fund Board. The opportunity was to acquire Steelhead Welding Ltd. (“Steelhead”). Steelhead manufactured hydrovac vehicles. At the time, FULP had a successful hydrovac business. However, the FULP vehicles were not appropriate for use with customers outside of the oil and gas industry. The Steelhead hydrovac vehicles could be used outside that industry. [ 88 ] Mr.

May and JP were involved in discussions about the Steelhead acquisition from the outset. One element of the acquisition was whether it should be an asset or share acquisition. As a group, Mr. May, Mr. Breen, JP, and Doug Rae (the Foremost Group’s former Chief Financial Officer and Vice-President Finance) determined that they should explore a share acquisition. Mr. Breen sent a draft share acquisition agreement to Steelhead. The draft agreement was non-binding and derived from previously used share acquisition agreements. Mr.

Breen testified that it was a common practice for the Foremost Group to send draft, non-binding, agreements in the early acquisition process. [ 89 ] Mr. Breen argues that he had sent the draft share acquisition agreement as decided in the meeting among Mr. May, JP, Mr. Rae, and Mr. Breen. Mr. May and JP then spoke with Mr. Grenon who said he wanted the Steelhead acquisition to be an asset acquisition. Mr. May told Mr. Grenon that Mr. Breen had sent the share acquisition draft agreement against the wishes of Mr. May, JP, and Mr. Rae. Mr. Breen argues that that was incorrect and untrue. [ 90 ] Mr.

May described the issue concerning this matter as being, “reasonable people can disagree.” He did not consider Mr. Breen’s actions to be nefarious. Mr. Breen simply took steps in a potential transaction without proper authority. Mr. May thought this might have been a miscommunication. He was not angry. Nevertheless, an asset acquisition agreement was eventually sent to Steelhead and the acquisition was completed as an asset purchase transaction. [ 91 ] Mr. Breen was not reprimanded or disciplined regarding the Steelhead acquisition at the time. D.

Colt [ 92 ] An issue arose in relation to a licensing agreement with a company called “Colt” which resulted in a settlement. The issue involved when the Foremost Group should book certain revenue, which would determine when a fee would be payable to Colt under the settlement agreement. Mr. Breen was frustrated after it became clear that JP had looped Mr. Grenon into the discussion. Mr. Breen felt this was done prematurely. Mr. Grenon replied directly to Mr. Breen, clarifying that the situation fell within the “out of the ordinary principle” and ought to have been brought forward.

He said: Hi Pat, Some constructive advice from the chairman (and your friend). You are way too sensitive about this kind of stuff and it doesn’t serve you. …I think you would agree we know more about legal things than you do. If you were not proposing to bring this forward for discussion, you should have as it is out of the ordinary course and warrants another set of eyes before paying out nearly a million dollars …. In any event, FMO’s…approach to these sorts of things is to try to determine our obligations with certainty before paying them. Tab 87 [emphasis added]. [ 93 ] Mr.

Breen maintained during his cross-examination that he disagreed with Mr. Grenon that this was something that ought to have required Fund Board involvement. Nonetheless, the message was received. [ 94 ] Mr. May’s view was that Mr. Breen’s response was a “typical emotional response” from Mr. Breen, that blew a minor issue into a major one. Mr. Grenon had to intervene to calm the matter down. Mr. May viewed this whole issue as “unproductive and not helpful.” E. Re-Branding [ 95 ] From May of 2012, through to the end of 2012, Mr.

Breen, along with several other individuals, worked on a re-branding project for the Foremost Group. FULP acquired several companies during Mr. Breen’s tenure with the Foremost Group. Each acquired company kept its own name when it became a part of FULP, which caused some confusion for FULP’s customers. The purpose of the re-branding exercise was to align all the companies to show that they were part of the Foremost Group. [ 96 ] The re-branding project was discussed within the SMC. JP was present in the SMC meetings when it discussed the re- branding. [ 97 ] Mr.

May explained that the goal of the re-branding project was to unify the Foremost Group of companies after a period of

sustained growth involving a series of acquisitions. The Fund Board discussed the re-branding project in its August 2012 meeting where the Fund Board asked Mr. Breen to prepare and present a final recommendation for its approval: Tab 68. [ 98 ] In the Fall of 2012, Mr. May and JP discovered that the re-branding project had moved along to the point of conclusion, without the Fund Board having an opportunity to review and comment on it. Mr.

Grenon had some concerns about the use of the “Foremost” name, and the effect that such use could have on future plans, such as selling certain parts of the Foremost Group: Transcript of Proceedings, May 3, 2022, at pp 22-23; Tab 112. Although most of the re-branding project was put on hold, some aspects had already been launched. [ 99 ] Mr. Breen met with the Fund Board in November of 2012. Mr. Breen was resistant to concerns about use of the “Foremost” name across the board since it would involve modifying plans he had already started to implement. In the end, Mr. May and Mr.

Grenon decided it was not worth undoing work that had already been done, in part because it would have left Mr. Breen with “significant egg on his face.” Mr. May informed Mr. Breen, “I actually love the branding around the Foremost name across the board,” noting that his concern was a “minor point.” Mr. May did, however, highlight the need for Fund Board involvement and approval with respect to unusual activities going forward, writing to Mr.

Breen: Again, the general lesson here should be for us to recognize the types of things that should be discussed at a board level before proceeding too far. … I respect the amount of work you and everyone have put into this and it is valuable work. I also believe however that defining “brand”, “identity”, and naming generally at the highest level really is a board decision (unless they abdicate) so your work should be viewed as input to a board decision as opposed to a management decision to be rubberstamped by the board. Tab 112 [emphasis added]. [ 100 ] Mr. Breen acknowledged Mr.

May’s concerns during his cross-examination and confirmed that he understood the expectations that Mr. May had communicated to him were the expectations of the Fund Board in general: Transcript of Proceedings, May 3, 2022, at pp 21-22. [ 101 ] Mr. May felt that the re-branding project fell within the category of “significant and unusual,” as the re-branding of an organization is a rare occurrence. In an email that Mr. Breen sent to Mr. May on November 9, 2012, he was essentially providing his arguments on why the re-branding was a good idea. The Fund Board was already convinced that the idea was a good one.

However, Mr. May felt that it was the Fund Board that has the right to approve whether it goes ahead, and on what basis. As Mr. May said in response, “your work should be viewed as input to a board decision as opposed to a management decision to be rubber-stamped by the board.” [ 102 ] All along, Mr. May supported the re-branding, as did the Fund Board and Mr. Grenon. It was the way in which Mr. Breen approached the project that made them uncomfortable. Mr. May was exasperated with Mr. Breen by this point. Mr.

Breen showed no interest in complying with the control systems that were put in place, and he did not seem to understand the notion of “out of the ordinary” or “unusual.” If he did, he was resisting their use. Mr. May brought this up with Mr. Breen in January of 2013, but, to Mr. Breen, he was not reprimanded or disciplined when this occurred. F. Field Tank Projects [ 103 ] Part of FULP’s business was building large field tanks, which began sometime during 2013. Field tanks are large, so they cannot be transported. As a result, they are constructed on the customer’s site. Mr. May expressed a concern to Mr.

Breen about the low profit margins in these projects and the economics of them. They were having a material impact on FULP’s performance, and these issues were being raised at Fund Board meetings. [ 104 ] Mr. May had lost confidence in Mr. Breen’s ability to identify the issues necessary to solve the problems. As a result, Mr. May thought he should thoroughly investigate the issues with another TOM Capital individual, Tom Pointer, who was a financial specialist. [ 105 ] Mr. May provided Mr. Breen with a lengthy preliminary report on July 26, 2013. Among other things, Mr.

May reported that the estimating, bidding, and project management of the field tank projects was ad hoc . The ad hoc nature of the process was exacerbated as the projects became larger, and FULP began undertaking several such projects at the same time. This resulted in a lack of reporting, which reduced the ability to analyze and respond to the problems. [ 106 ] Mr. May recommended, among other things, the implementation of project financial controls and having the finance team monitor each project as it progressed.

This would give the finance team a more active voice in the field tank projects, which might solve the reporting errors that were not caught until FULP was well into the project. [ 107 ] Mr. Breen responded to this preliminary report by agreeing with Mr. May’s recommendations. Mr. May did not consider this report to be a reprimand of Mr. Breen. [ 108 ] In the preliminary report, Mr. May asked specifically whether there were other projects that used the same ad hoc processes and systems. Mr. Breen responded that the Lamella project was one such project. Mr.

May recognized the financial reporting problem of accounting for profit margins before completion of the project, which resulted in a net loss at the end of the project, rather than an accurate reporting of the project as it progressed. As well, Mr. May wanted to add Fund Board oversight to larger projects as part of the authority/approval matrix. Such oversight would occur not just at the bidding stage, but also at various stages throughout the project. There was no pushback from Mr. Breen. [ 109 ] Despite all this, the “Lamella project” turned out to be yet another failure, even after Mr.

Breen had given assurances

concerning the preceding field tank fiascos. Mr. Binsfeld described this failure as an overstatement of the projected profit margin by 9.5%. There was a formula error in the project manager’s spreadsheet and no one caught it. This was discovered when the project manager’s monthly reports were submitted. Mr. May sent an email on January 30, 2014, detailing the problems. Apparently, throughout the Lamella project, staff was telling management that they had problems with operations, but Mr. Breen was telling the Fund Board everything was fine. He ignored the problems, and this was troubling for Mr. May. Mr.

Breen responded to Mr. May’s email by saying, “I have read the email and completely concur. I hop [ sic ] you realize how much I take this to heart and feel my team has let us down”: Tab 229. G. Peter Ho [ 110 ] Peter Ho was a long-term employee, who had become redundant during the Foremost Group’s acquisition stage. As a result, he was given a notice of termination without cause. It was a working notice in the sense that he would continue to work at his current pay until his notice period expired.

This was in keeping with the BPB, which said, “Should the circumstance arise when someone is being let go, the company strongly prefers to provide working notice, not severance”: BPB Tab 5 at 18. [ 111 ] Mr. Binsfeld gave Mr. Ho his notice. Mr. Ho was not happy, so Mr. Binsfeld, along with Mr. Breen met with Mr. Ho. Mr. Ho threatened them and became emotional and disruptive in the workplace. It eventually elevated to Fund Board level, where the full range of what was happening was discussed. There was discussion of whether the police should be involved, given Mr. Ho’s threat.

Management did not think it was serious enough to reach that level. [ 112 ] Mr. Ho had significant holidays planned. The Fund Board decided that this would allow the situation to diffuse and settle down, and it would allow Mr. Ho to continue working until his notice expired. Apparently, when Mr. Ho returned from his holidays, he was told to stay home (with full pay). Mr. Breen authorized this. Mr. May discovered this after Mr. Breen’s employment was terminated. The Fund Board had not authorized Mr. Breen to do this. H. The January 7, 2013 Meeting [ 113 ] Mr.

May sent himself an email on December 9, 2012, outlining the various issues he had had with Mr. Breen up to that point, which was about two and a half years after he first met Mr. Breen: Tab 123. Many of the issues are those that this Court has already discussed. Although Mr. Grenon was aware of these issues, Mr. May sent this list to Mr. Grenon in early January of 2013. These issues included Nokamic, MAC25, the Corlac project, Steelhead, the re-branding, compensation paid to other management, Mr. Breen’s inappropriate emotional reactions to TOM Capital’s recommendations, Mr.

Breen’s resistance to recommendations set out in the BOD Review Reports, and others. Mr. May also began expressing concerns that Mr. Breen was providing JP and him with “incomplete or inaccurate” information. He also had concerns with Mr. Breen’s integrity and his honesty. Mr. Breen continued to take the approach that he had “messed up” and he would fix it. This, to Mr. May, affected Mr. Breen’s credibility. [ 114 ] Mr. Grenon suggested that Mr. May meet with Mr. Breen before the Fund Board meeting to let him know what was coming. Mr. May thought this would be helpful. Mr. May and Mr.

Breen met on January 7, 2013. Mr. May went through each item in his list and explained Mr. Breen’s breach or failure. He then asked Mr. Breen whether he agreed or disagreed. Mr. Breen agreed with all of them. At the end of the meeting, Mr. Breen summarized his commitment to follow the various controls and principles, and his shortcomings would not be repeated. [ 115 ] A no time during the meeting did Mr. Breen ask for clarification. Nor did he say that the control systems were confusing. Mr. May described Mr. Breen as being introspective and penitent during the meeting.

There was some discussion of relationship issues during the penitence portion of the meeting. Mr. Breen acknowledged his lack of respect or attitude towards Mr. May. Mr. May testified that he did not really care if Mr. Breen was disrespectful towards him. He thought it was silly for Mr. Breen to be disrespectful, but he did not take it personally. Mr. May was more concerned about Mr. Breen’s resistance to embracing the organization’s core principles, and his dismissiveness of Mr. Grenon or TOM Capital. Mr. May’s view was that if Mr. Breen had a problem with his “boss” he should quit his job.

He should not live in the middle ground of not complying with directions and maintaining his job. [ 116 ] This meeting, to Mr. May’s mind, was exceptionally rare. He saw nothing like it in any of the other TOM Capital companies or the Foremost Group. He saw this as a reprimand and was shocked to hear Mr. Breen testify that he did not see this as a reprimand. Mr. May did not think a formal letter or a note on Mr. Breen’s file was necessary to have this meeting qualify as a reprimand.

A meeting with the head trustee and the Fund Board is a formal meeting. [ 117 ] On the evening of January 7, 2013, there was a meeting between the Fund Board and Mr. Breen. The meeting was divided into two parts, the first of which Mr. Grenon and JP were present. The second involved the Fund Board with Mr. Breen. Mr. Grenon did not attend the second part. The process of the meeting was for the Fund Board to hear about the experiences that Mr. May and Mr. Grenon were having with Mr. Breen and give Mr. Breen a chance to articulate his problems with Mr. May and his views on the other issues. I.

Jackie Schenn’s Compensation [ 118 ] The Foremost Group created a discretionary bonus pool each year. The bonuses themselves were presented to JP (the Platform Champion) at the SMC level, who presented them to the lead trustee (Mr. May). The bonuses are then discussed and approved. Compensation above the manager level had to be approved at the Fund Board level. [ 119 ] On February 20, 2013, Mr. Breen sent an email to JP seeking approval of the 2012 bonuses. As JP did not respond timely, Mr. Breen sent a follow-up email to Mr. May. Mr. May reviewed Mr. Breen’s suggestions and expressed concern about Ms.

Schenn’s bonus. He felt the bonus was too high for her in her new role as Vice-President Finance, and he had a substantive concern. He did not want to “set the bar too high.” Mr. Breen had suggested she receive a bonus of $50,000. Mr. May suggested it be reduced to $35,000. Mr. Breen responded with his argument that she deserved the higher bonus. Mr. May still felt that the initial recommendation was too high. Mr.

May also had a concern with Ms. Schenn’s overall base pay at that time, so he was considering all compensation factors in this discussion. Bonuses were never considered in a vacuum. Ultimately, Ms. Schenn’s bonus was reduced to $40,000. [ 120 ] Mr. May had no issues concerning Ms. Schenn’s capabilities, qualifications, or competence. He was simply reluctant to give her such a large bonus at that stage in her career. As well, he did not have enough exposure to her to determine whether she was qualified to serve as a Vice-President Finance. [ 121 ] Approximately one-hour after the email exchange between Mr.

Breen and Mr. May, Mr. Breen sent Ms. Schenn an email telling her that she will get more from the “Pool C” commission pool, which, to Mr. Breen’s mind, was within his discretion. Ultimately, Ms. Schenn received an additional $20,000. Mr. May was not given this information. He learned about this after Mr. Breen was terminated. He was shocked. He was of the view that all bonuses required approval. And the “Pool C” commissions were bonuses, not commissions. Commissions were for salespeople and “Pool C” commissions were not necessarily paid to salespeople.

Again, they were bonuses, which required Fund Board approval, through the Platform Champion. It was Mr. May’s view that Mr. Breen structured Ms. Schenn’s bonus this way to alleviate the necessity for Fund Board approval. Ms. Schenn’s $20,000 bonus payment through Pool “C” commissions was not authorized. VI. Russia: The Transneft Transaction A. Introduction and Background [ 122 ] Although this matter could be discussed under the previous heading, there are many aspects of the Transneft transaction that require it to be discussed under its own heading. [ 123 ] Transneft is a Russian corporation.

The key personnel involved in the Transneft transaction were Mr. Chernyk, Vladimir Kostylev, Chris Varianos (Foremost Cyprus’s accountant), Mr. Johnson, Mr. Fulton, and Mr. Breen. Mr. May had very little involvement in any of the Russian transactions. Mr. Chernyk was the individual in Russia who managed the Foremost Group’s Russian operation, and Mr. Breen was the key contact person in the Foremost Group who dealt with Mr. Chernyk. [ 124 ] To secure a contract in Russia is not as simple as securing a contract in, say, Canada. In Russia, the end user would seek tenders.

The supplier, through an agent, would submit a “tech tender.” This would be reviewed, and if satisfactory, the supplier, through the agent, would submit a commercial tender. All end users were aligned with an agent. There was an agent fee associated with every Russian contract. Ms. Stroud testified that agent fees “were the norm in Russia.” Her understanding was that agent fees were built into the contract. She also thought that the agents’ fees would be 10% or less. She had little to do with the agent fees, other than to pay them once FILP received an invoice and Mr. Breen approved the invoice. Mr.

Fulton was also aware of agent fees, although Mr. Chernyk would not provide Mr. Fulton with the details of the agent fees. They would simply “pop up” at the end of the deal. [ 125 ] Vladimir Kostylev was a Russian-based salesperson for the Foremost Group. Mr. Kostylev’s father had a relationship with someone in Transneft. The Foremost Group recruited Mr. Kostylev because of this connection. [ 126 ] Ms. Stroud provided some background on how the Russian operation’s finances flowed. FILP funded the Russian operating expenses, such as salaries, marketing, freight, and taxes.

Rather than dealing with things monthly, FILP would receive a three-month budget from Russia and send sufficient funds to cover its expenditures during that period. If it needed more for a specific expense, the Foremost Group’s Russian operation would send a message for approval, and, if approved, FILP would get it authorized and wire the funds to Russia. All monies flowing from FILP to Russia would be approved by Mr. Breen or his designate. B. The Whistleblower [ 127 ] On February 13, 2013, an individual who was employed with the Foremost Group’s Russian operation (the “Whistleblower”) sent an email to Mr.

Breen, making very serious allegations against Mr. Chernyk. The allegations involved Mr. Chernyk’s drinking problems, his business ethics, and his personal behaviour, all of which were damaging to the Foremost Group’s relationship with its Russian customers. In fact, the Whistleblower provided Mr. Breen with emails from Mr. Chernyk to customers in which Mr. Chernyk was extremely rude to the customers, using abusive and foul language. Mr. Breen took this very seriously and advised the Whistleblower that he would investigate the allegations. [ 128 ] Mr. Breen immediately tried to contact Mr. Kostylev. Mr.

Breen was unable to reach Mr. Kostylev. Mr. Breen conducted his investigation by discussing the issues with Mr. Chernyk, Mr. Kostylev, Mr. Varianos, who was a friend of Mr. Chernyk’s, and two other contacts in Russia. Mr. Breen acknowledged that contacting Mr. Varianos was perhaps not going to get him an objective assessment, but “it was a good place to start.” [ 129 ] Mr. Breen found Mr. Chernyk’s behaviour to be unprofessional. He addressed the issues with Mr. Chernyk, who promised to discontinue such behaviour, or he would be facing disciplinary action. Mr.

Breen prepared an email addressed to the Whistleblower. Mr. Chernyk reviewed this email before Mr. Breen sent it to the Whistleblower. Mr. Breen sent the email to the Whistleblower on March 14, 2013. He confirmed that Mr. Chernyks’ behaviour was unprofessional, and that Mr. Chernyk had agreed to cease such behaviour, failing which, he would be disciplined. Mr. Breen also told the Whistleblower that he had sent a letter to Mr. Chernyk’s personnel file reporting this. [ 130 ] Apparently, Mr. Chernyk advised Mr.

Breen that the Whistleblower’s report about him was simply a situation involving a disgruntled employee, so the employee was dismissed, on Mr. Chernyk’s recommendation. Mr. Breen accepted Mr. Chernyk’s explanation. [ 131 ] The Whistleblower was not happy with Mr. Breen’s response. He sent Mr. Breen a follow-up email on May 21, 2013, in which

he threatened to reveal Mr. Chernyk’s situation to the “board” and “your investors.” Mr. Breen believed that he had dealt with the situation and took this email “with a grain of salt.” As a result, he did not report any of this to the Fund Board. [ 132 ] The Whistleblower sent a further email to Mr. Breen saying “Chernyk and I have reached mutual understanding.” Mr. Breen never learned how this matter was resolved between Mr. Chernyk and the Whistleblower. Again, Mr. Breen saw no need to report this to the Fund Board. C. The Transneft Transaction [ 133 ] Transneft was a major Russian pipeline company.

In or about March of 2013, Transneft requested a technical tender for six vehicles from Foremost Maloney Industries Limited. Transneft recently had an oil spill and the equipment it was using failed to remediate the spill. The incident received international negative media attention causing Transneft to seek new equipment from multiple sources including Foremost Maloney Industries Limited. This was an opportunity for Foremost Maloney Industries Limited to become a regular supplier of vehicles to Transneft, which had the potential to generate significant revenue.

Following the successful technical tender, in August of 2013, Foremost Maloney Industries Limited was asked to supply a commercial tender. [ 134 ] On August 28, 2013, Mr. Breen asked Mr. Kostylev about the Foremost Group’s chances of securing the Transneft contract. Because Mr. Chernyk spent only part of his time in Russia, and the other part at his home in British Columbia, Mr. Breen assigned Mr. Fulton and Mr. Johnson to work on the Transneft transaction. Mr. Breen’s expectation was that Mr. Johnson would manage the Transneft transaction going forward. Mr.

Chernyk was also expected to work on the project. [ 135 ] Mr. Kostylev’s email of September 6, 2013, indicated that the Transneft transaction was moving ahead positively. It was possible that the Foremost Group could secure further sales to Transneft, depending on the success of this transaction. In or about October of 2013, Mr. Breen was informed, following a meeting with Transneft, that Transneft offered only two options for payment terms in respect of the Transneft transaction: (1) 100% payment on delivery; or (2) 30% down payment and 70% paid on delivery.

The latter option also required the Foremost Group to provide a 10% guarantee or deposit bond. Transneft’s concern was whether the Foremost Group was a going concern, such that it might lose its downpayment. Mr. Breen’s understanding was that the Foremost Group would not have to post the deposit bond if it could prove that it was a going concern. Mr. Breen also wanted to know what it would cost if they could not negotiate this provision out. [ 136 ] While considering the alternatives, Mr. Breen was conversing with Mr. Purves-Smith. Mr. Breen was seeking Mr.

Purves- Smith’s input on how to define the Foremost Group’s legal structure to comply with the “going concern option.” During this e- conversation, Mr. Breen advised Mr. Purves-Smith that the Russian contract did not “break any of the red flags.” This was inaccurate, but Mr. Breen explained that he did not want Mr. Purves-Smith to go off on any tangents. He simply wanted a response to his specific inquiry. [ 137 ] In a meeting among Mr. Chernyk, Mr. Fulton, and Mr. Breen on September 17, 2013, Mr. Breen directed Mr. Chernyk and Mr. Fulton to prepare “quote previews” and submit them for approval.

With this information, the products that Transneft was seeking could be costed and priced. These terms would be built into an eventual contract. Mr. Johnson was a part of this email as Mr. Breen had appointed him as the FILP general manager. Mr. Johnson would be managing the Transneft transaction going forward. [ 138 ] On October 7, 2013, Mr. Kostylev sent an email to Mr. Breen and Mr. Chernyk outlining the “key ideas” involving the Transneft transaction.

This email outlined the products that Transneft was seeking to purchase, the terms of payment and, importantly, he advised that Transneft uses its agreement that other major suppliers have used. Mr. Breen responded that he was not “crazy about” the payment terms. He said nothing about the form of contract, as he thought they were still in the negotiation stage. He testified that there might be Red Flags Policy terms, such as the 10% performance guarantee, but, again, he still thought they were negotiating. Mr. Breen sent this email to Mr.

Johnson, saying that he was not happy about the various options, but was leaning towards the option that required a performance bond. Although Mr. Breen did not like that option, it was the most beneficial from the Foremost Group’s perspective. From then on, Mr. Johnson felt that the performance bond was going to be included in the Transneft transaction. He did not go above Mr. Breen’s head to report his concerns to Mr. May or Mr. Grenon. [ 139 ] On October 15, 2013, Mr. Breen sent an email to Mr.

Chernyk saying, “We have a serious commitment to make on the Transneft order and I am not comfortable making it on spec.” Because it was a big contract, Mr. Breen was not comfortable signing off on it until all terms were detailed. [ 140 ] Sometime in October of 2013, FILP received a template version of the proposed agreement from Transneft (the “Template Contract”). The Foremost Group’s contract review people had concerns with the Template Contract. Apparently, the Template Contract was in Russian, so someone translated it for the Foremost Group’s contract review people. Mr.

Breen wanted a copy of the Template Contract. When he received it, he had concerns with many of the provisions. The Foremost Group’s typical process was to negotiate these terms out. Mr. Breen thought Mr. Chernyk was working on this. In particular, the Template Contract included many terms and conditions that fell within the Red Flags Policy. Mr. Breen believed that the Foremost Group’s contract team would attempt to negotiate these out of the eventual contract. Mr. Breen also tasked members of that team, including Ms. Stroud, Mr. Fulton and Mr. Johnson, with looking into alternatives for Mr.

Breen to take to the Fund Board in the event that they were unable to remove Red Flags Policy terms. [ 141 ] Mr. Johnson advised Mr. Breen on October 21, 2013, that one of the contract review people, Ms. Thacker, had “a lot of concerns regarding some of the requirements” in the “Transneft contract,” although it appears that this might have been the Template Contract and not an actual draft of the contract. Mr. Johnson asked Mr. Breen whether he should send it to the lawyer, to which Mr. Breen replied, “Have her send it to me.” [ 142 ] On October 22, 2013, Mr.

Breen was still looking for a copy of the document that Ms. Thacker was reviewing. Mr. Breen also asked Mr. Johnson to ask Ms. Stroud to talk to “the bank about the cost of the Deposit Bond,” which was essentially the performance guarantee. For her part, Ms. Stroud gathered some of the information concerning the performance guarantee and forwarded that information to Mr. Breen concerning certain options, but she was not involved in the mechanics of putting the performance guarantee

into place. She was operating under Mr. Breen’s instructions to do all this. [ 143 ] On October 24, 2013, Mr. Johnson sent Mr. Breen a copy of the Template Contract that Ms. Thacker had been reviewing, along with her concerns. Ms. Thacker’s concerns were extensive. Mr. Johnson felt that there were three major concerns with the Template Contract. First, there was an unlimited two-year warranty clause, such that Foremost would be liable for anything that went wrong with the vehicles within that period.

This was outside the Foremost Group’s norm. [ 144 ] The second was that the Foremost Group would not receive payment from Transneft until vehicles landed in Russia. The Foremost Group’s normal arrangement was that it would receive payment before the product even left the plant in Calgary. As well, there was a concern that because the Foremost Group was dealing with Russia, it did not have recourse to personal property security legislation, so it had no security for payment. [ 145 ] Finally, there was the issue of the performance guarantee.

This was outside the Foremost Group’s norm as it had had a bad experience with a performance guarantee in another contract. The performance guarantee in the Template Contract was very broad, and covered any breach, large or small. Transneft could penalize the Foremost Group under the performance guarantee for any such breach. Mr. Johnson was hoping, at this stage of the discussions with Transneft, that the Foremost Group could have the requirement for performance guarantee removed. [ 146 ] In any event, Mr. Johnson had no authority over the Transneft transaction.

He was not the project director, he was not the negotiator, he was not a signatory, and he was not the client contact. Mr. Breen shared Mr. Johnson’s concerns, but he told Mr. Johnson that he would deal with Mr. Chernyk to resolve these concerns. [ 147 ] Mr. Johnson inquired of Mr. Breen whether he should send the Template Contract to the legal department. Mr. Breen responded that he would take care of it. [ 148 ] As far as negotiations with the Russians, Mr. Breen and Mr. Chernyk advised Mr. Johnson that these types of contracts were “take it or leave it” arrangements and there was no room for negotiation.

The only thing they might be able to negotiate was price. Mr. Johnson was unaware of any negotiations that were undertaken with respect to the Transneft transaction. [ 149 ] On October 29, 2013, Mr. Chernyk advised Mr. Breen that Ms. Stroud was still working with the bank concerning the performance guarantee. Part of this, Mr. Breen thought, was to get Transneft to accept the fact that the Foremost Group was a going concern entity, which would alleviate the necessity for the performance guarantee. Mr. Breen testified that he still wanted Ms.

Stroud to investigate the performance guarantee, should Transneft did not accept the “going concern” argument. However, in the middle of November, all individuals involved in the Transneft transaction were continuing to proceed on the basis that a performance guarantee would be provided. In fact, on November 12, 2013, Mr. Breen emailed Ms. Stroud and Mr. Fulton and asked, “Are we set up to provide the bank guarantee?” Part of this was to provide $1,200,000, or a letter of guarantee. Everyone involved in the Transneft transaction preferred the latter, so Mr. Breen instructed, “Let’s make it happen.” Mr.

Breen testified that he said this so he would know all the options he had available to him so that he could present them to the Fund Board. In other words, if the Fund Board approved of this manner of proceeding, it would be available to the Foremost Group. When one looks at the email chain that resulted in his direction, it is difficult to believe that this is what he intended. He wanted to make the performance guarantee happen. [ 150 ] In fairness, Mr. Breen was still of the view that the “going concern option” was available, so Ms. Stroud asked Mr. Purves- Smith a question about it. Mr.

Purves-Smith expressed concern that there might be a Red Flags Policy issue with a parental guarantee. Mr. Breen testified that he did not want Mr. Purves-Smith to answer anything except the narrow question that Ms. Stroud had posed to Mr. Purves-Smith, so he told Mr. Purves-Smith that the Transneft contract “does not break any of the red flags.” This was not true. Strangely, Mr. Breen had not even seen the actual Transneft contract by this time. He had only seen the Template Contract. He also admitted that Transneft was an important deal, and he wanted the deal to consummate. He did not want Mr.

Purves-Smith to waste time and money by looking into this issue, when Mr. Breen “simply wanted a simple answer to a simple request.” He acknowledged, however, that Mr. Purves-Smith was a TOM Capital consultant, and TOM Capital provided legal services to the Foremost Group. [ 151 ] On October 24, 2013, Mr. Johnson sent Mr. Breen an email that provided a list of “objectionable clauses” in the Template Contract. These provisions violated the Red Flags Policy list. They had to be removed or taken to the Fund Board. [ 152 ] On November 15, 2013, the Whistleblower reappeared. He sent an email to Mr. May, Mr.

Grenon, JP, and Mr. Pointer, which enclosed the email exchange he had had with Mr. Breen. Mr. May forwarded the email to Mr. Breen and told him that he needed to understand what was going on. Mr. May’s initial reaction on receiving the Whistleblower’s email was that there were some startling elements, and he had never heard about the Whistleblower. He thought this was an email from a disgruntled past employee. Mr. May had no knowledge of what Mr. Breen had done to investigate the Whistleblower’s allegations. [ 153 ] Mr. Breen sent the email chain, including Mr. May’s email to Mr.

Chernyk saying, “I guess you didn’t handle this well enough. Damage control time.” Mr. May was shown the email that Mr. Breen had sent to Mr. Chernyk seeking Mr. Chernyk’s comments on Mr. Breen’s response to the Whistleblower. Mr. May did not feel it was appropriate to seek comments from the person who is the subject of the allegations. Mr. May knew nothing about the “deal” that Mr. Chernyk had made with the Whistleblower that caused the Whistleblower to back off in the first place. [ 154 ] Mr. Breen provided a report to Mr. May and JP dated November

[…]