Matic et al v Waldner et al, 2016 MBCA 60

Citation: Matic et al v Waldner et al, 2016 MBCA 60 Date: 20160606 Docket: AI15-30-08321 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Barbara M. Hamilton Mr. Justice Marc M. Monnin Madam Justice Jennifer A. Pfuetzner BETWEEN : ANTE MATIC and MATIC HOLDINGS INC. ) ) (Plaintiffs) Appellants ) R. I. Good and - and - ) C. C. S. Fergusson ) for the Appellants PAUL WALDNER, WILLIAM WALDNER, ) SPRINGHILL LUMBER WHOLESALE ) LTD., BLACK FOREST HOLDINGS LTD., ) PRAIRIE POST FRAME CONSTRUCTION ) LTD., WALCAN HOLDINGS LTD., ) CANAMATIC VENTURES LTD. and CAN- ) AMERICAN CORRUGATING CO. LTD. ) ) J. A.

Kagan and (Defendants) Respondents ) A. D. F.

Sain ) for the Respondents AND BETWEEN : ) ) SPRINGHILL LUMBER WHOLESALE ) LTD. and BLACK FOREST HOLDINGS ) LTD. ) ) (Plaintiffs by Counterclaim) ) - and - ) ) Appeal heard: ANTE MATIC, MATIC HOLDINGS INC. ) December 2, 2015 and CALLIDUS CONSTRUCTION GROUP ) LTD. ) ) Judgment Delivered: (Defendants by Counterclaim) ) June 6, 2016 On appeal from 2014 MBQB 238 , 312 ManR (2d) 43 PFUETZNER JA [ 1 ] This appeal and cross-appeal arise out of the termination of a business relationship between the plaintiffs and the defendants. [ 2 ] The plaintiffs’ main ground of appeal is that the trial judge erred in finding that there was no agreement between the parties to share ownership on the acquisition of Springhill Lumber Wholesale Ltd. (Springhill).

The plaintiffs argue that the trial judge made palpable and overriding errors in his assessment of the evidence. [ 3 ] The plaintiffs’ other grounds of appeal are that the trial judge erred in failing to find that the defendant Paul Waldner (Waldner) breached his fiduciary duty to Springhill by operating Prairie Post Frame Construction Ltd. (Prairie Post), a competing business; finding that there was just cause for Springhill to dismiss the plaintiff Ante (also known as Tony) Matic (Matic) as general

manager; and failing to find that certain building materials shipped to Matic’s home were a gift or, if not a gift, in finding that the applicable interest rate on the amount owing was 26.82 per cent per annum. [ 4 ] The defendants cross-appealed the dismissal of their counterclaim. Their grounds of appeal are that the trial judge erred in law in failing to find that Matic had a fiduciary duty to Springhill, and in failing to find that he breached that duty by diverting a corporate opportunity to his own benefit. I.

Background [ 5 ] Waldner is the president of the CanAm Hutterian Colony (the Colony) located in Margaret, Manitoba. The Colony operates several businesses related to the construction industry, particularly in respect of the supply and manufacture of building products. Waldner is the president of the corporations that operate these businesses, and he holds the shares of the corporations in trust for the members of the Colony. [ 6 ] Matic and Waldner had a business relationship through McDiarmid Lumber (McDiarmid) for five to six years prior to the spring of 2010.

Matic was the senior operations manager at McDiarmid. One of the Colony’s businesses was a supplier to McDiarmid. [ 7 ] In the spring of 2010, Matic became aware that Springhill, a privately-owned lumber and building material supplier, was for sale. Chris Laengin (Laengin) and Vern Dyck (Dyck) owned Springhill through a holding company, Black Forest Holdings Ltd. (Black Forest). Springhill’s main customers were First Nations, primarily in northern Manitoba.

In addition to supplying construction material, Springhill would sometimes also act as general contractor for construction projects for the First Nations. [ 8 ] Matic advised Waldner of the opportunity to buy Springhill. Various meetings and telephone calls followed, during which Matic and Waldner discussed the possibility of purchasing and operating Springhill together. [ 9 ] At a meeting at the end of April 2010, there were discussions between Matic and Waldner to the effect that, if they were able to purchase Springhill, the Colony would own 70 per cent and Matic would own 30 per cent.

Matic would leave his position at McDiarmid to become the general manager of Springhill. His salary and benefits were discussed. By June 2, 2010, there were discussions between Matic and Waldner to the effect that, if Matic retired or was unable to continue active involvement in Springhill, his children, Suzi and Michael Matic, would receive his ownership interest, but it would be reduced to 25 per cent.

The nature and legal effect of the discussions were central issues at the trial. [ 10 ] Laengin and Dyck agreed to sell the business and real estate of Springhill for a total price of $5.5 million. [ 11 ] Matic incorporated Matic Holdings Inc. (Matic Holdings) on May 27, 2010, in order to hold his interest in Springhill. Matic is the sole shareholder, director and officer of Matic Holdings. [ 12 ] Matic resigned from his employment with McDiarmid on June 11, 2010, and began working as the general manager of Springhill on the first business day after the closing of the purchase of Springhill.

Matic was paid the salary and received the benefits that had been discussed at the April 2010 meeting. [ 13 ] Two new corporations were incorporated prior to the closing, Walcan Holdings Ltd. (Walcan) and Canamatic Ventures Ltd. (Canamatic), to take title to the shares in Black Forest and the realty assets, respectively. [ 14 ] Financing for the entire purchase price for Springhill was obtained through Westoba Credit Union Ltd. (Westoba) on the strength of the Colony’s credit. [ 15 ] On June 18, 2010, Walcan and Canamatic submitted applications to Westoba for financing.

Ultimately, Westoba issued credit confirmation letters to Waldner and Matic Holdings in response to these submissions. Both the applications and the credit confirmation letters describe Matic Holdings as a 30 per cent shareholder of Walcan, and Canamatic and the Colony as a 70 per cent shareholder. [ 16 ] The purchase of Springhill closed on June 30, 2010 (the closing).

At the closing, Walcan became the registered shareholder of Black Forest, and Canamatic took title to the realty assets. [ 17 ] At the closing, the sole registered shareholder of both Walcan and Canamatic was Waldner in trust for the Colony. [ 18 ] Matic attended the closing and, on behalf of Matic Holdings, executed guarantees in favour of Westoba for 30 per cent of the borrowings.

These guarantees were later re-executed in February 2011 to correct minor errors. [ 19 ] Matic, Waldner and William Waldner became the directors and officers of Black Forest and of Springhill on July 1, 2010. [ 20 ] Starting in May 2010, drafts of a Unanimous Shareholder Agreement (USA), to govern the ongoing relationship between the new shareholders of Springhill, and a General Manager’s Agreement (GMA), to govern Matic’s employment arrangements as general manager, were prepared and exchanged by the Colony’s counsel and Matic’s counsel. [ 21 ] The USA and GMA were not executed.

The parties could not reach agreement on such issues as how to deal with the allocation of the “small business deduction” for income tax purposes, and whether Matic was an employee or an independent contractor. A disagreement also arose in January 2011 about a non-competition clause in the draft USA. [ 22 ] In November 2010, the relationship between Matic and Waldner began to deteriorate. Waldner became aware that employees of Springhill were unhappy with Matic’s treatment of them. The issues regarding Matic’s treatment of employees will be

discussed later in these reasons. [23] In the winter of 2011, Waldner, on behalf of the Colony, started a post frame construction business, Prairie Post, whichcarried on the same business activities as the post frame construction division of Springhill. Doug Holt was initially hired by Springhillafter the closing to run its post frame division, but he later resigned.

Waldner hired Holt to be the primary sales representative for PrairiePost, and Holt operated Prairie Post out of Moose Jaw, Saskatchewan. [24] On April 21, 2011, Springhill terminated Matic as its general manager, and he was removed as a director and officer ofboth Springhill and Black Forest. [25] After Matic’s termination, Waldner learned that a corporation called Callidus Construction Group Ltd. (Callidus)completed a construction project at Keewaywin First Nation (the Keewaywin project) during Matic’s time as general manager ofSpringhill.

Springhill had a contract with Keewaywin to supply the building material for this project. Matic is a director, officer andshareholder of Callidus. [26] The plaintiffs’ main claim at trial was that there was a binding oral contract between Matic and Waldner that theywould purchase Springhill together, on the basis of 30 per cent beneficial ownership by Matic, and 70 per cent beneficial ownership bythe Colony (the contract claim). The plaintiffs sought damages for breach of contract and oppressive conduct by the defendants.

Thisclaim was dismissed by the trial judge, with the result that the Colony retained 100 per cent beneficial ownership of Springhill throughthe holding corporations, Walcan, Black Forest and Canamatic. [27] The plaintiffs also sought damages for the wrongful dismissal of Matic (the wrongful dismissal claim), and damagesfor breach of fiduciary duty by Waldner operating a competing business through Prairie Post (the Prairie Post claim).

Both of theseclaims were dismissed by the trial judge. [28] Springhill and Black Forest counterclaimed that Matic breached his fiduciary duty as a director and officer of Springhillby diverting the Keewaywin project from Springhill to Callidus. The counterclaim was dismissed by the trial judge. [29] By a separate statement of claim, Can-American Corrugating Co. Ltd. (Can-Am Corrugating) sued Matic for certainbuilding materials delivered by it to Matic’s house in Kelowna, BC.

The issue at trial was whether the materials were a gift, as assertedby Matic, or whether Matic was required to pay for them in accordance with the invoices presented at trial (the materials claim). Thetrial judge found that the materials were not a gift, and ordered payment on the invoices, including interest at the rate of 26.82 per centper annum as stated on the invoices. II.

Standard of Review [30] The standard of review applicable in this case depends upon the nature of the question under review. [31] The standard of review in respect of factual findings and inferences of fact is that of palpable and overriding error. SeeHousen v Nikolaisen, 2002 SCC 33 at paras 22, 24-25, [2002] 2 SCR 235. [32] Deference must be given to a judge’s credibility assessments.

In R v NS, 2012 SCC 72, [2012] 3 SCR 726, McLachlinCJC wrote (at para 25): It is a settled axiom of appellate review that deference should be shown to the trier of fact on issues of credibility because trial judges(and juries) have the “overwhelming advantage” of seeing and hearing the witness — an advantage that a written transcript cannotreplicate: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 24; see also White v. The King, (SCC),[1947] S.C.R. 268, at p. 272; R. v.

W. (R.), (SCC), [1992] 2 S.C.R. 122, at p. 131. [33] The application of a legal standard to facts is a question of mixed fact and law, and in a civil matter will only beinterfered with if the judge has made a palpable and overriding error (see Housen at para 37). [34] On the other hand, an error relating to an extricable principle of law or the mischaracterization of a legal standard willbe reviewed on a standard of correctness.

In Housen, the Court concluded that the initial mischaracterization of the proper legal test (inthat case, the requirements for a directing mind of a company) infected or tainted the lower Court’s factual conclusion. As the erroneousfinding could be traced to an error in law, less deference was required, and the applicable standard was one of correctness. [35] I will determine the applicable standard of review as I deal with each issue. I now turn to the first issue. III.

Claim for Breach of Contract and Oppression Reasons of the Trial Judge [36] In his reasons, the trial judge accepted Waldner’s testimony and rejected Matic’s testimony based upon his findings thatWaldner was a credible witness, and that Matic was not. [37] The trial judge accepted Waldner’s evidence that the discussion that took place at a meeting in April 2010 was “loosetalk” and that “[t]here was certainly no agreement that Tony Matic would become a 30 per cent shareholder” (at para 181). The trialjudge found that it was a casual conversation and at most was an agreement to agree, which is not enforceable.

See PP (Portage)Holdings Inc v 346 Portage Avenue Inc (1999), (MB CA), 138 ManR (2d) 217 (CA) at para 24.

[ 38 ] The trial judge found (at paras 278, 280, 282): Any decisions that might have been made were on the clear and unequivocal understanding that, before there was any enforceable binding agreement: (

a) the purchase of Springhill from Chris Laengin and Vern Dyck had to be completed; and (

b) there had to be signed written agreements which had been prepared, reviewed and approved by the lawyers and/or accountants for both Springhill and Tony Matic. It was understood that the written agreements would define the shareholdings in Springhill and Tony Matic’s participation as a shareholder and as general manager. [I]t was well understood by everyone at the meeting that there was nothing binding about the discussions.

I am satisfied that Tony Matic left the meeting knowing full well that no enforceable agreement had been made. [ 39 ] The trial judge reviewed evidence that he treated as supporting his conclusion that Matic subjectively knew the April 2010 discussions did not result in an enforceable agreement. [ 40 ] First was Matic’s insistence during negotiations between the parties’ counsel that Matic share in the small business deduction.

The trial judge wrote (at para 305): Matic’s continued insistence that he participate in the small business deduction supports my conclusion that he knew that he did not have a binding agreement with Paul Waldner. [ 41 ] Second, the trial judge considered the issue of whether Matic would provide a personal guarantee for the borrowings from Westoba or whether Matic Holdings would provide the guarantee. The trial judge stated (at para 310): Such a significant change refutes, in my view, Tony Matic’s position that he had a binding agreement with Paul Waldner.

Clearly all of the issues that may have been discussed in April 2010 were subject to negotiations before a binding enforceable agreement was made. [ 42 ] Third, the trial judge found that, if Matic “sincerely believed that he already was a shareholder in Springhill,” he would have confronted Waldner on certain issues that arose during negotiations between the parties’ lawyers (at para 314) . [ 43 ] The trial judge did not accept the plaintiffs’ assertions that evidence supported their position that a binding oral contract existed. [ 44 ] First was an email that Waldner sent on June 2, 2010, to the Colony’s legal counsel and copied to Matic, which stated in part: We have agreed as follows 70% for CanAm 30% for Tonyco . . .

In the event Tony retires and the immediate family Susan or Michael Matic would be interested in the shares it would be at 25%

. . . The rest of the agreement as simple and straight forward as sensibly possible, for the protection and interest on either party Hope this works for all [ 45 ] The trial judge wrote (at para 317): I am not prepared to conclude that Paul Waldner’s use of the word “agreed” means that he is confirming an agreement. By his own admission, Paul Waldner is not a sophisticated business man.

He should not be bound by the use of imprecise language and for his failure to use wording such as “agreed to agree.” [ 46 ] He concluded (at para 318): For these reasons, I am placing no weight on the contents of that email as far as the plaintiffs’ position that there was a binding agreement is concerned. [ 47 ] Second, the trial judge reviewed an agenda that Waldner had prepared for a meeting with Matic in January 2011 which is entitled “Minutes for Springhill Shareholders”. The agenda refers to Matic having a 30 per cent ownership interest in Springhill.

The trial judge stated (at para 320): Again, I put trifling weight on that document. It was Paul Waldner’s testimony that, throughout the time that the negotiations were ongoing between the parties and their lawyers, he fully anticipated that the written agreements between the parties would be finalized and signed. He prepared the agenda with that in mind. [ 48 ] Third, the trial judge considered the documents prepared in connection with the financing from Westoba for the purchase of the Springhill business and realty assets.

He wrote (at paras 325-326): Notwithstanding that the two submissions describe that CanAm Colony will own 70% of Springhill and Matic Holdings will own 30%, and the two credit confirmation letters were sent to both Paul Waldner and Tony Matic, this does not, in my view, support a finding that an enforceable agreement had already been consummated between Paul Waldner and Tony Matic. This is in essence what the plaintiffs submitted. The two submissions were prepared to recommend the advancing of funds by Westoba Credit Union for the purchase of Springhill.

The two credit confirmation letters confirmed that funds were available. None of the documents were for any other purpose. [ 49 ] The trial judge also noted that Ross Coombs, the employee of Westoba who was involved in approving the lending, did not testify as to his subjective understanding of the relationship between Matic and Springhill. He wrote (at para 328): Ross Coombs did not testify at the trial to give evidence about what he understood the nature of the relationship was between Tony Matic and Springhill.

For these reasons, I am not prepared to put any weight on the two submissions for credit and the two credit confirmation letters. [ 50 ] After distinguishing several authorities cited by the parties on the basis that the facts in this case differed from the cases cited, the trial judge concluded (at para 339): I reiterate that I am satisfied that it was clearly understood by the parties that written agreements would be negotiated between the

lawyers for the parties. There would be no binding agreement until all of the necessary documents had been prepared and signed. Positions of the Parties [51] The plaintiffs assert that the trial judge erred in failing to find that the parties had reached a consensus as to the essentialterms of an agreement regarding the ownership of Springhill. [52] The plaintiffs submit that the trial judge ignored a substantial amount of evidence, and that his finding that the partieshad at most an agreement to agree is a palpable and overriding error.

The plaintiffs also point to a number of specific errors made by thetrial judge, all of which, in their view, are palpable and overriding. These include the failure to place any or sufficient weight onWaldner’s June 2, 2010 email, the “Minutes for Springhill Shareholders” and the Westoba documents. [53] In response, the defendants argue that there was no consensus with respect to a number of terms, including theallocation of the small business deduction and the provisions of the USA and the GMA.

The defendants also submit that the trial judgedid not make any palpable and overriding factual errors, and that his credibility assessments and the weight he gave to the evidence areboth entitled to deference. [54] To address these positions, it is important to understand the law governing the formation of contracts. The Law [55] The standard for determining whether an agreement, written or oral, has been reached, is whether an “objectivereasonable bystander”, looking at all the material facts, would say so.

GHL Fridman, The Law of Contract in Canada, 6th ed (Toronto: Carswell, 2011) describes the test as follows (at p 15): Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether parties have indicated to theoutside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract. The law isconcerned not with the parties’ intentions but with their manifested intentions.

It is not what an individual party believed or understoodwas the meaning of what the other party said or did that is the criterion of agreement; it is whether a reasonable man in the situation ofthat party would have believed and understood that the other party was consenting to the identical terms. As Fraser C.J.A. said in RonGhitter Property Consultants Ltd. v.

Beaver Lumber Co. [2003 ABCA 221 at para 9, 330 AR 353]: the parties will be found to have reached a meeting of the minds, in other words be ad idem, where it is clear to the objective reasonablebystander, in light of all the material facts, that the parties intended to contract and the essential terms of that contract can be determined with a reasonable degree of certainty. [emphasis added] [56] The requirements for the formation of a contract were described in Bawitko Investments Ltd v Kernels Popcorn Ltd(1991), (ON CA), 53 OAC 314, a leading decision on oral contracts.

Robins JA wrote (at para 21): However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have notbeen settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formalcontract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that theirlegal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannotconstitute an enforceable contract.

In other words, in such circumstances the “contract to make a contract” is not a contract at all.

Theexecution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and bindingcontract but is essential to the formation of the contract itself. [57] The principle that can be distilled from Bawitko and Ghitter (Ron) Property Consultants Ltd v Beaver Lumber Co, 2003ABCA 221, 330 AR 353 (quoted by Fridman), is that there are three requirements for a binding contract—the intention to contract; theessential terms of the contract have been settled; and the terms are sufficiently certain.

Whether the three requirements are met in anycase is to be determined from the perspective of the objective reasonable bystander. [58] Therefore, the first requirement is that the parties must have the intention to contract. The parties would not have such

an intention if, for example, they intended to defer a binding relationship until “a formal contract has been approved and executed”(Bawitko at para 21). [59] Second, the essential terms of the contract must be discernible. In United Gulf Developments Ltd et al v Iskandar et al,2008 NSCA 71, 267 NSR (2d) 318, Cromwell JA (as he then was) wrote (at para 14): To have an enforceable contract, there must be agreement between the parties as to all essential terms.

To use the language of a leadingcase, a contract “... settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties”: May and Butcher v. R., [1934] 2 K.B. 17 (H.L.), at p. 21. Determining what terms are “essential” in a particular case is, however,more difficult than stating the principle. The sort of terms that are considered essential varies with the nature of the transaction and thecontext in which the agreement is made: Mitsui & Co. (Point Aconi) Ltd. v.

Jones Power Co. et al, (2000), 2000 NSCA 95 ,189 N.S.R. (2d) 1; 590 A.P.R. 1 (C.A.), at para. 64. [60] Identification of the “parties, property and price” are terms that are frequently cited as being essential to the formationof a contract involving the purchase and sale of shares or real estate. The closing date has been considered an essential term by somecourts but not others.

See UBS Securities Canada Inc v Sands Brothers Canada Ltd, 2009 ONCA 328 at paras 79, 89, 248 OAC 146;Hoban Construction Ltd et al v Alexander, 2012 BCCA 75 at para 51, 317 BCAC 116; Mountain v Mountain Estate, 2012 ONCA 806 atpara 66, 299 OAC 66; Simcoe Vacant Land Condominium Corp No 272 et al v Blue Shores Developments Ltd et al, 2015 ONCA 378,335 OAC 45; and Suen v Suen, 2013 BCCA 313, 340 BCAC 176. [61] The issue of identifying essential terms may also be relevant to determining whether the parties have reached a bindingagreement, despite an intention that the terms of the agreement will subsequently be formalized.

This was described in Ward v Ward,2011 ONCA 178, 277 OAC 72, when Lang JA wrote (at para 53): At common law, an agreement is binding if the parties consider that it contains all essential terms, even if the parties also agree thatthose terms will subsequently be recorded in a more formal document together with the usual terms ancillary to that type of agreement.

However, an agreement is not final or binding if it is merely an agreement to later agree on essential provisions, or to defer the bindingnature of the agreement until the execution of the proposed subsequent formal contract. [62] Third, the terms agreed to must be sufficiently certain.

In Mitsui & Co (Point Aconi) Ltd v Jones Power Co et al, 2000NSCA 95, 189 NSR (2d) 1, leave to appeal to SCC refused, [2000] SCCA No 526 (QL), Cromwell JA (as he then was) wrote, “Thequestion of whether terms are certain asks whether the court can give reasonably definite meaning to what the parties have said” (atpara 74). [63] The determination of whether the requirements for an enforceable contract have been met involves a contextualanalysis, taking into account all the material facts. Such facts can include the subsequent conduct of the parties, including subsequentnegotiations.

Geoff R Hall, Canadian Contractual

Interpretation Law, 2nd ed (Markham: LexisNexis, 2012) states (at p 164): Whether the parties acted as if they had a binding agreement after entering into an understanding is given great weight by the courts indetermining whether there is an unenforceable agreement or a binding contract.

The parties’ subsequent conduct transcends all three ofthe categories of unenforceable agreements to agree, such that conduct indicating a belief that one is bound will reinforce a conclusionthat essential terms have been agreed or that the agreed terms are sufficiently certain or that there was no intention to delay the creationof binding obligations until execution of a formal contract document. [emphasis added] [64] The facts and circumstances that should be considered will depend upon the context of each case but could includewritten or oral communications between the parties; communications to third parties; the conduct of the parties; the nature of subsequentnegotiations, including when and how they came to an end.

The subjective intention of the parties is not relevant in this analysis. SMWaddams, The Law of Contracts, 6th ed (Toronto: Canada Law Book, 2010) states (at para 145): The phrase “consensus ad idem” though frequently appearing in the cases, must be used with caution, lest it should imply that the courtshould concern itself with the actual subjective state of mind of the parties. The objective principle of contract formation is not amysterious or arbitrary rule but an inevitable result of the law’s attempt to protect reasonable expectations. [emphasis added]

See also Olivieri v Sherman et al , 2007 ONCA 491 at para 44 , 225 OAC 227 . Analysis [ 65 ] The key witnesses who gave evidence regarding whether a contract had been reached were Matic and Waldner. The trial judge made detailed and clear credibility findings to the effect that he did not believe Matic, and that he did believe Waldner.

These credibility findings are entitled to deference, and there is no basis to interfere with them. [ 66 ] This appeal raises the issue of whether the trial judge made palpable and overriding errors in the context of the applicable legal test in finding that the parties did not enter into a binding contract. [ 67 ] Although the trial judge did not refer to the objective reasonable bystander test, judges are presumed to know the law, and there is no requirement for a judge to specifically avert in his or her reasons to the legal test, if it is apparent that the correct test has been applied.

The objective reasonable bystander test was discussed during submissions at trial. However, for the reasons that follow, in my view, the trial judge made palpable and overriding errors in his application of the objective reasonable bystander test.

As I will explain, he considered irrelevant evidence, failed to consider relevant evidence and made findings without basis in the evidence. [ 68 ] The essence of the trial judge’s decision was that there was no enforceable agreement because binding relations between the parties were conditional on “signed written agreements which had been prepared, reviewed and approved by the lawyers and/or accountants” (at para 278).

Central to his approach was his finding that it was “ Waldner’s consistent position that no binding agreement would be made without advice from his and Springhill’s lawyers and accountants” (at para 318). [ 69 ] In other words, Waldner’s subjective intention was fundamental to his findings. The following comments by the trial judge during submissions illustrate this: [T]he key evidence that I have to consider is the evidence of the two players-- . . .

There are, there are documents, both ways, that point to -- can be interpreted either way, depending upon which -- . . . -- slant you want to put on them. . . . -- I’ve reviewed the documents somewhat, but it’s the transcript that I have paid the most attention to, simply because -- . . . -- as you said, the bottom line is whose evidence do I accept. . . . But the . . . documents can really be, I think . . . unless I’m missing something . . . they can [be] interpreted either way, depending upon whose

interpretation -- . . . I will accept. [ 70 ] There is no basis to interfere with the trial judge’s factual finding regarding Waldner’s subjective intention. His finding was amply supported by the evidence. However, as previously described, subjective intention is not relevant to the analysis required under the objective reasonable bystander test.

[ 71 ] The test required that the trial judge consider all of the facts and circumstances, other than the subjective intention of the parties, through the lens of an objective reasonable bystander, to determine if an unconditional agreement had been reached, the essential terms of which can be determined with reasonable certainty.

The purpose of the objective reasonable bystander test is to determine the manifested intentions of the parties, rather than their subjective intentions. [ 72 ] With respect, the trial judge allowed his findings regarding Waldner’s subjective intention to overwhelm his analysis of the other evidence that was relevant to determining the manifested intentions of the parties. The trial judge decided the issue solely based upon the subjective intention of Waldner. As a result, he ignored evidence that should have been part of the contextual analysis in applying the objective reasonable bystander test.

Instead, his analysis of that evidence consisted solely of testing whether it was consistent or inconsistent with his findings on subjective intention, and it was given weight accordingly. [ 73 ] The trial judge put no weight on evidence supporting the plaintiffs’ position simply because the evidence was contrary to Waldner’s intention that the agreement was conditional upon the execution of formal documentation.

Instead, all of the evidence should have been considered as part of the contextual analysis of whether an objective reasonable bystander would consider that a contract had been formed. [ 74 ] For example, the trial judge ignored the following evidence: • The June 2, 2010 email, which was interpreted to be consistent with Waldner’s subjective intention, was given “no weight” (at para 318); • The document called “Minutes for Springhill Shareholders” was given “trifling weight” due to Waldner’s subjective intention (at para 320); and • The Westoba documents were not given “any weight” because the banker did not testify “about what he understood the nature of the relationship was between Tony Matic and Springhill” (at para 328). [ 75 ] On the other hand, the trial judge accepted and relied upon evidence that he characterized as supporting Waldner’s subjective view that there was no agreement, such as: • Matic’s insistence on sharing in the small business deduction (at paras 303-5); • The ongoing discussions about whether Matic’s guarantees were to be personal or corporate (at paras 306-10); and • Matic’s failure to directly confront Waldner on certain issues (at para 314). [ 76 ] If the trial judge had proceeded in his contextual analysis by considering all of the evidence in light of the proper test, that is, whether “it is clear to the objective reasonable bystander, in light of all the material facts, that the parties intended to contract” and whether the essential terms of that contract can be determined with a reasonable degree of certainty, he could not have ignored the evidence that he did ( Ghitter at para 9). [ 77 ] I agree with the plaintiffs that the trial judge committed palpable and overriding errors of fact, and of mixed fact and law.

When I apply the test to the facts, I am of the view that the trial judge erred in concluding that there was no agreement between the parties. [ 78 ] If Waldner had communicated to Matic his intention that binding relations were conditional upon the execution of formal documents, there would be no basis for this Court to interfere with the trial judge’s finding that, “it was well understood by everyone at the meeting that there was nothing binding about the discussions” (at para 280).

However, the trial judge did not find that Waldner’s intention was communicated to Matic. [ 79 ] Indeed, Waldner in cross-examination confirmed that he never told Matic that the transaction was subject to the execution of formal documents: Q Now, would you agree with me that at no time prior to May 15th, 2010 did you say to [Matic] there’s no deal between us until the paper is finalized and signed? A I think that was always just simply understood as it is in any business deal, even at Walmart, in my mind. Q It’s not my question. Did you ever say to him, no deal between us until the paper is finalized and signed?

A No, not -- I wouldn’t have audioed that, no.

Q You would have -- A Said it. Q -- verbalized it? A No. [ 80 ] Nor did Waldner’s corporate counsel advise Matic or Matic’s counsel that there was no binding contract until documents were executed.

In a response to an undertaking, Waldner’s corporate counsel confirmed that, at no time prior to June 30, 2010, did he say to Matic directly or to his professional advisors, “[U]ntil the paper is signed and finalized there’s no deal”. [ 81 ] If Waldner had communicated to Matic his subjective understanding that the agreement was conditional upon the execution of formal documentation, the fact of that communication would be considered under the objective reasonable bystander test.

However, the absence of such communication means that Waldner’s subjective understanding was a factor not properly considered by the trial judge. [ 82 ] Furthermore, considered objectively, the June 2, 2010 email, the “ Minutes for Springhill Shareholders ” and the Westoba documents all strongly point to the existence of a binding contract that is conditional only upon the purchase of Springhill from Laengin and Dyck. [ 83 ] The conduct of the parties is also relevant. Matic resigned from McDiarmid and commenced his role as general manager of Springhill immediately after the closing.

Matic was present at the closing where he signed the guarantees for his 30 per cent of the Westoba financing. These actions are consistent with a binding contract. [ 84 ] Matic was appointed one of three directors and officers of both Black Forest and Springhill. This suggests Matic was a shareholder. It would seem unusual for an employee to be appointed as a director and officer of a private company with a single shareholder. [ 85 ] On June 15, 2010, Canamatic was incorporated to take title to Springhill’s real estate. The name Canamatic is an amalgam of CanAm and Matic.

This is also indicative of Matic having an ownership interest. [ 86 ] There were ongoing negotiations throughout the relevant time period on the terms of the USA and GMA. These negotiations eventually broke down. In some circumstances, this can indicate that consensus ad idem was never reached. However, here the negotiations involved matters that were objectively ancillary to what are considered essential terms of an agreement for a sale of shares.

Although the small business deduction, Matic’s employment status and the non-competition clause were important to the parties, they are not matters that are in any way essential to the basic transaction, which was to take ownership of Springhill on a 70/30 basis. [ 87 ] In

summary, the trial judge’s conclusion that the agreement was conditional upon formal documentation being executed is not supported by the evidence admissible in the contextual analysis required by the objective reasonable bystander test.

On a proper application of the objective reasonable bystander test, taking into account all of the evidence, other than evidence of the subjective intention of the parties, the parties had manifested their intention to contract and not merely to continue negotiations. [ 88 ] As previously explained, the essential terms required for a sale of shares are parties, property, price and in some instances, closing date.

The June 2, 2010 email from Waldner, the Westoba documents and other evidence accepted by the trial judge establishes the essential terms, that: the parties were the Colony and Matic (both through holding corporations incorporated in May and June 2010); the property to be purchased by Matic was 30 per cent of the shares in each of Black Forest and Canamatic (the holding companies owning Springhill and the real estate); the price was the assumption of liability for repayment of 30 per cent of the financing obtained in order to pay Laengin and Dyck for Springhill; and the closing date was to be the closing of the purchase of Springhill (June 30, 2010). [ 89 ] Agreement had also been reached on other matters.

Matic was to be the general manager of Springhill, and his salary and benefits had been determined when he took over the role on July 1, 2010. As previously noted, agreement was not reached on certain non-essential terms. [ 90 ] In this case, the instructions given by the parties to their counsel to prepare the USA and GMA, the subsequent negotiations regarding the small business deduction, the form of Matic’s guarantees, the non-competition clause and other ancillary matters do not detract from the fact that the essential terms had been agreed to.

The words of Bryson JA in Jeffrie v Hendriksen et al , 2015 NSCA 49 , 360 NSR (2d) 65 , are equally applicable to this case (at para 35): It is unremarkable that parties in a business relationship would want to have a legally prepared document to evidence that relationship. There would be corporate and tax reasons for doing so, unrelated to the parties’ intentions to contract. A binding agreement does not become enforceable simply because lawyers are asked to “paper” it.

The application judge does not indicate what the lawyers were to do other than to type up the agreement that had already been reached between the parties.

[ 91 ] In conclusion, Matic and Waldner, on behalf of the Colony, had a binding agreement, which was breached by Waldner’s failure to cause 30 per cent of the shares in Black Forest and Canamatic to be issued to Matic Holdings in exchange for Matic Holdings’ guarantee and agreement to be responsible for 30 per cent of the borrowings from Westoba. [ 92 ] The plaintiffs are entitled to damages for breach of contract. I would return the matter to the trial court to determine damages.

Oppression Remedy [ 93 ] Before turning to the other issues in this appeal, I will briefly comment on the plaintiffs’ claim for damages for oppressive conduct. As I have directed that the plaintiffs are entitled to damages for breach of contract, the question is whether I need to consider if the plaintiffs are also entitled to a remedy under the oppression sections of The Corporations Act , CCSM c C225. [ 94 ] As noted by the trial judge in his reasons (at para 350):

Section 234 of the Corporations Act , C.C.S.M., c. C-225, defines the oppression remedy. It provides: Application to court re oppression 234(1) A complainant may apply to a court for an order under this section. Grounds 234(2) If, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates (

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

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

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner; that is oppressive or unfairly prejudicial or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. [emphasis added] [ 95 ] Broad remedial powers are given to the court under section 234(3) to address the conduct set out in section 234(2). [ 96 ] The oppression remedy was considered in BCE Inc v 1976 Debentureholders , 2008 SCC 69 , [2008] 3 SCR 560 .

There are two important principles from BCE relevant to the issue in this appeal. [ 97 ] First, as the Court wrote (at para 58): [O]ppression is an equitable remedy. It seeks to ensure fairness — what is “just and equitable”.

It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair. [ 98 ] Second, the principle underlying the remedy of oppression is the protection of the reasonable expectations of stakeholders in a corporation, rather than their strict legal rights which may be enforceable by other means (at para 61): “Rights” and “obligations” connote interests enforceable at law without recourse to special remedies, for example, through a contractual

suit or a derivative action under s. 239 of the [

Canada Business Corporations Act ]. It is left for the oppression remedy to deal with the “expectations” of affected stakeholders. [ 99 ] It is trite law that, when a contract has been breached, the remedy at common law is an action for damages for breach of contract. Although equitable remedies, such as, for example, specific performance, are also available for breach of contract, equitable remedies are discretionary, and generally will not be granted where an award of damages will adequately compensate the plaintiff. See Fridman at pp 664, 737-39. [ 100 ] In this case, common law damages for breach of contract will adequately compensate the plaintiffs. Any equitable remedy under

section 234 of The Corporations Act would be duplicative even if it were available in the circumstances of this case. See Rummery et al v Matthews et al , 2001 MBCA 32 at paras 20-21 , 153 ManR (2d) 229 ; and Jeffrie at paras 64-65 . IV.

Wrongful Dismissal Claim [ 101 ] In dismissing the wrongful dismissal claim, the trial judge determined that Matic was an employee, rather than an independent contractor, and concluded that Springhill had just cause to terminate his employment. [ 102 ] The trial judge made the following factual findings: Matic bullied and treated an employee in a manner that was insulting and demeaning, resulting in the resignation of the employee; Matic openly insulted and humiliated Laengin in front of other employees; Waldner was advised by many long-time Springhill employees that they were prepared to leave Springhill because of Matic’s conduct; and Matic attempted to entice senior employees to leave Springhill and join him in starting a competing business.

The trial judge concluded that Matic’s actions amounted to just cause for his dismissal. [ 103 ] The plaintiffs do not dispute that the trial judge applied the correct legal test for determining whether there is just cause for termination. The plaintiffs take issue with the trial judge’s credibility and factual findings. [ 104 ] The plaintiffs have not demonstrated that the trial judge made any palpable and overriding errors in this respect. All of the factual findings made by the trial judge were amply supported by the evidence. I would dismiss this ground of appeal. V.

Materials Claim [ 105 ] The trial judge found that, when the building materials were shipped to Matic’s home in Kelowna by Can-Am Corrugating, they were accompanied by invoices which stated an interest rate of 26.82 per cent, per annum. The trial judge found that Matic received the invoices, that he knew the materials were not a gift and that he was aware of the interest rate applicable in the case of late payment.

The trial judge awarded payment of the principal amount owing under the invoices plus interest at 26.82 per cent, per annum from the date of formal demand for payment. [ 106 ] The plaintiffs argue that the trial judge made palpable and overriding errors in finding that the materials were not a gift. Alternatively, the plaintiffs argue that there was no evidence that Matic agreed to an interest rate.

The plaintiffs submit that the applicable interest rate should be the rate for pre-judgment and post-judgment interest under The Court of Queen’s Bench Act , CCSM c C280. [ 107 ] All of the factual findings of the trial judge were open to him on the evidence. No palpable and overriding error has been shown. There is no reason to interfere with any of the trial judge’s findings. [ 108 ] The issue of whether Matic agreed to an interest rate is, at best, a question of mixed fact and law. The plaintiffs have not identified an extricable question of law.

Again, the findings of the trial judge are entitled to deference. I would dismiss this ground of appeal. VI.

Prairie Post [ 109 ] The trial judge dismissed the Prairie Post claim, stating that, “ Since I have found that Tony Matic was not a shareholder in Springhill and its related companies, he did not have a right to share in any income or profits that might have been available for shareholders” (at para 359). [ 110 ] The trial judge concluded that, “[ I]t is unnecessary for me to find whether Paul Waldner breached any fiduciary duty or duty of care by operating Prairie Post because the plaintiffs did not suffer any damage as a result” (at para 362). [ 111 ] The plaintiffs appeal the trial judge’s dismissal of the Prairie Post claim. [ 112 ] The plaintiffs’ position is that Waldner breached his duty to Springhill by operating Prairie Post in direct competition to Springhill’s post frame division, and that they suffered damage as a result of their ownership interest in Springhill. [ 113 ] The defendants acknowledge that Waldner owes a fiduciary duty to Springhill, but submit that Matic is not entitled to relief for any breach of that duty, as the duty is not personally owed to Matic.

The defendants argue that any cause of action lies with Springhill, and that the plaintiffs could only bring a claim on behalf of Springhill as a derivative action under

section 232 of The Corporations Act . [ 114 ]

Section 232 of The Corporations Act creates a procedure to allow an action to be brought on behalf of a corporation and provides:

Commencing derivative action 232(1) Subject to subsection (2), a complainant may apply to a court for leave to bring an action in the name and on behalf of acorporation or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose ofprosecuting, defending or discontinuing the action on behalf of the body corporate. Conditions precedent 232(2) No action may be brought and no intervention in an action may be made under subsection (1) unless the court is satisfied that (

a) the complainant has given reasonable notice to the directors of the corporation or its subsidiary of his intention to apply to the courtunder subsection (1) if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue theaction; (

b) the complainant is acting in good faith; and (

c) it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued. [115] The plaintiffs did not apply to the Court for leave to bring their claim as a derivative action on behalf of Springhill. Theprovisions of The Corporations Act set out a procedural code to be followed with respect to an application for leave to commence aderivative action, and it was not followed in this case. This Court has previously held that compliance with the statutory procedures ismandatory.

See Churchill Pulpmill Ltd v Government of Man et al, (MB CA), [1977] 6 WWR 109 (Man CA). Accordingly, I would dismiss this ground of appeal. VII.

Cross-Appeal [116] The defendants cross-appeal the trial judge’s dismissal of the counterclaim and his conclusion that, “Matic did not breachhis fiduciary duty and duty of care to Springhill and its related companies by operating Callidus” (at para 355). [117] The trial judge wrote (at paras 364, 366, 371): Notwithstanding that Springhill had participated in construction projects for First Nations bands prior to its purchase, there is insufficientevidence to satisfy me that Springhill intended to continue to do construction for First Nations bands that were its customers.

A fiduciary duty might have existed for Tony Matic if Springhill had embarked upon a program of performing construction projects orhad established a construction division after its purchase. It did create a post-frame division and a contractors sales division, but there isno evidence, at the time that Callidus was performing the Keewaywin project, that Springhill was pursuing construction projects.

My conclusion that Springhill had no intention to open and operate a construction division, while Tony Matic was general manager, issupported by the fact that I heard no evidence that Springhill is operating a construction division or doing construction projects at thepresent time. [118] The defendants make two arguments.

First, they assert that the trial judge erred in law by failing to find that Matic oweda fiduciary duty to Springhill by virtue of his position as a director and officer. [119] Second, they argue that the trial judge erred in failing to properly instruct himself on the content of the fiduciary dutyowed by an officer and director in the context of the diversion of a corporate opportunity, and in failing to find that Matic usurped acorporate opportunity to his personal benefit. [120] The plaintiffs’ position is that the trial judge correctly stated the law with respect to the fiduciary duty owed to acorporation by a director or officer, and that the trial judge’s conclusion that Matic did not owe Springhill a fiduciary duty in respect ofconstruction projects is entitled to deference.

The Law [121] A director or officer is a fiduciary to his or her corporation. This common law duty has been codified in section117(1)(

a) of The Corporations Act, which reads as follows:

Duty of care of directors and officers 117(1) Every director and officer of a corporation in exercising his powers and discharging his duties shall (

a) act honestly and in good faith with a view to the best interests of the corporation. [122] The content of the statutory fiduciary duty of directors and officers was described in Peoples Department Stores Inc(Trustee of) v Wise, 2004 SCC 68, [2004] 3 SCR 461, where Major and Deschamps JJ wrote (at para 35): The statutory fiduciary duty requires directors and officers to act honestly and in good faith vis-à-vis the corporation. They must respectthe trust and confidence that have been reposed in them to manage the assets of the corporation in pursuit of the realization of the objectsof the corporation.

They must avoid conflicts of interest with the corporation. They must avoid abusing their position to gain personalbenefit. They must maintain the confidentiality of information they acquire by virtue of their position. Directors and officers must servethe corporation selflessly, honestly and loyally. [emphasis added] [123] The duty to avoid conflicts of interest with the corporation includes not only the director’s personal interests, but those ofany other corporation in which the director is interested.

See Canadian Aero Service Ltd v O’Malley, (SCC), [1974]SCR 592 at 607; and Jordan Inc et al v Jordan Engineering Inc et al, [2004] OTC 687 (Sup Ct

J) at para 34. [124] The obligations required by the fiduciary duty of a director or officer will vary with the factual context. In BCE, theCourt wrote (at para 38): The fiduciary duty of the directors to the corporation is a broad, contextual concept. It is not confined to short-term profit or share value. Where the corporation is an ongoing concern, it looks to the long-term interests of the corporation. The content of this duty varies withthe situation at hand. At a minimum, it requires the directors to ensure that the corporation meets its statutory obligations.

But,depending on the context, there may also be other requirements. In any event, the fiduciary duty owed by directors is mandatory;directors must look to what is in the best interests of the corporation. [125] The “corporate opportunity doctrine” arises out of the fundamental obligation of a fiduciary not to allow a conflict of hisor her duty with his or her own interests. [126] In the leading decision in Canadian Aero, Laskin J, as he then was, repeatedly stressed that there is a strict ethic in thisarea of the law (see pp 607, 610).

He reviewed the principles that limit the ability of those who owe a fiduciary duty to a corporation totake advantage of business opportunities that might otherwise be available to them in the absence of the fiduciary relationship. [127] Laskin J wrote that the doctrine precludes a fiduciary from (at pp 606-7): [O]btaining for himself, either secretly or without the approval of the company (which would have to be properly manifested upon fulldisclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating.

Nature of a Corporate Opportunity [128] Key to the analysis is the determination of whether the opportunity “belonged” to the corporation. This requires acontextual analysis and various overlapping tests have been referred to in the case law and academic authority.

In Dr Leonard I Rotman,Professor, Fiduciary Law (Toronto: Thomson Carswell, 2005), the author refers to American jurisprudence and describes three primaryformulations which assist in determining when corporate opportunities exist (at p 435): [I]t appears that courts have opened or closed the business opportunity door to corporate managers upon the facts and circumstances ofeach and by application of one or more of three variant but often overlapping tests or standards:

(1) The “interest or expectancy” test,which precludes acquisition by corporate officers of the property of a business opportunity in which the corporation has a “beachhead” inthe sense of a legal or equitable interest or expectancy growing out of a preexisting right or relationship; (2) the “line of business” test,

which characterizes an opportunity as corporate whenever a managing officer becomes involved in an activity intimately or closelyassociated with the existing or prospective activities [of] the corporation; and (3) the “fairness” test, which determines the existence of acorporate opportunity by applying ethical standards of what is fair and equitable under the circumstances. [129] In Canadian Aero, Laskin J also reviewed American authority, including “line of business” cases.

He ultimatelyconcluded that one “cannot pretend that there is any one consistent line of approach” and that (at p 612): What emerges from a review of the American case law is an imprecise ethical standard “which prohibits an executive—here defined toinclude either a director or an officer—from appropriating to himself a business opportunity which in fairness should belong to thecorporation”. [emphasis added] [130] Laskin J explained that the question of corporate opportunity must be “tested in each case by many factors” and that itwould be “reckless to attempt to enumerate [those factors] exhaustively” (at p 620).

One of the articulated factors (the only one referredto by the trial judge in this case), was whether the impugned activities involved a “maturing business opportunity” which the company is“actively pursuing”.

He stated, “In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or divertingto another person or company with whom or with which he is associated a maturing business opportunity which his company is activelypursuing” (at p 607). [131] Laskin J identified the following additional factors for consideration (at p 620): [T]he factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director’s ormanagerial officer’s relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it wasspecial or, indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach occurs after terminationof the relationship with the company, and the circumstances under which the relationship was terminated, that is whether by retirementor resignation or discharge. [132] The list of factors is not closed.

However, the factors noted in Canadian Aero provide a useful foundation for thenecessary contextual analysis in this case. The determination of whether a director has taken an opportunity belonging to the corporationis a fact-intensive exercise. For example, Mark Vincent Ellis, Fiduciary Duties in Canada (Toronto: Carswell, 2013) (loose-leaf, release5) ch 15 at 25 writes, “[T]he complexity of factual analysis [in corporate opportunity cases] contrasts with the simplicity of the statementthat a corporate director or senior officer may not usurp a corporate opportunity”.

Mature Business Opportunity [133] There is some divergence in the case law after Canadian Aero in respect of whether, and to what extent, a businessopportunity must be “mature” for its diversion to constitute a breach of the doctrine. [134] Some decisions, employing a strict application of the wording in Canadian Aero, have found there was no breach whenthe corporate opportunity did not involve a “mature” or “ripe” opportunity.

In Physique Health Club Ltd v Carlsen et al (1996), 1996ABCA 358 , 193 AR 196 (CA), for example, the Alberta Court of Appeal found there was no breach as the opportunity was“merely an idea” which the record showed was not developed by the company (at para 6). [135] Other cases that have adopted a narrow

interpretation of the concept of a “maturing” business opportunity havesometimes articulated additional criteria, such as the opportunity being “immediately available”. See Tracey v Tracey, 2012 ONSC 3144at para 56, 293 OAC 15; and Donor Gateway Inc v Passero (2007), (ON SC), 28 BLR (4th) 309 (Ont Sup Ct). [136] In contrast, there is considerable authority for the view that the strict ethic imposed on fiduciaries applies to “potential”opportunities as well as maturing ones.

See Slate Ventures Inc v Hurley (1997), (NL CA), 156 Nfld & PEIR 304 atpara 34 (Nfld CA). [137] This was the view taken by Marshall JA in Sports Villas Resort Inc, Re, 2000 NFCA 11, 185 Nfld & PEIR 281 (at paras53, 55): Comment in Canadian Aero that the fiduciary duty does not make a director’s liability solely to hinge “on proof of an actual conflict ofduty and self-interest” (see p. 609) would appear to support that potential, as well as actual, conflict is the standard entailed in the dutynot only under the law of England, but also within Canadian jurisdictions.

To recapitulate, the corporate fiduciary duty exacts from directors a strict ethic to act honestly and in good faith in the corporation’s bestinterests. In the general terms employed by Canadian Aero, this holds directors to the obligations of acting towards companies onwhose boards they sit with “loyalty, good faith and avoidance of conflict of duty and self-interest”. This involves a duty not just to avoidactual conflict of duty and interest, but also potential conflict. [emphasis added] [138] A potential conflict must be a real sensible possibility and more than a theoretical conflict.

In Queensland Mines Limitedv Ernest Roy Hudson and others, [1978] UKPC 2, the Privy Council defined the phrase “possibly may conflict” by adopting the dictumof Lord Upjohn in Phipps v Boardman, [1967] 2 AC 46 (HL) (at p 124): In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that therewas a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibilityin events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

Active Pursuit [139] A factor related to the maturity of the opportunity is the extent to which the corporation is actively pursuing theopportunity. [140] In Slate Ventures, Gushue CJN observed that the director in that case would have been in breach of his duty whether ornot the corporation had expressed an active interest in the opportunity (see paras 36-37). [141] Other courts have also questioned the importance of whether a corporation is “actively pursuing” a corporateopportunity. [142] I agree with and adopt the view of Sigurdson J in Pan Pacific Recycling Inc v So, 2006 BCSC 1337 (atpara 175): To the extent that these terms suggest that fiduciaries are only barred from taking opportunities that the corporation is actively pursuing,they are probably misleading.

The question of whether a fiduciary has breached his duty by taking a particular opportunity is a questionof fact that can turn on many factors, some of which are set out by Laskin J. in Canadian Aero at p. 620. [143] See also First Majestic Silver Corp v Davila, 2013 BCSC 717 at paras 150-52, aff’d on other grounds 2013BCCA 458, 344 BCAC 262. [144] Due to the strict ethic that is imposed on directors, a breach of fiduciary duty can occur when the diverted opportunity isa potential, rather than a mature opportunity, or one that the corporation is not actively pursuing.

Again, as noted in Canadian Aero,there is no strict formula to apply, and the existence of a corporate opportunity will depend upon the particular facts.

Circumstances in Which Opportunity Obtained [145] In Canadian Aero, Laskin J’s non-exhaustive list of factors includes: “[T]he circumstances in which [the opportunity]was obtained and whether it was special or, indeed, even private” (at p 620). [146] Historically, many cases focussed on how the fiduciary came to acquire the corporate opportunity and whether thatopportunity arose “by reason of the fact that they were directors . . . and in the course of their execution of that office” Regal (Hastings),Ltd v Gulliver, [1942] 1 All ER 378 at 387 (HL). [147] Peso Silver Mines Ltd v Cropper, (SCC), [1966] SCR 673, is an early Canadian case in which the Courtheld that a director who participated in an investment group which had previously been offered to the corporation, was not in breach ofhis fiduciary duty because he was “not [approached] in his capacity as a director . . . but as an individual member of the public” (atp 682).

However, in the later decision in Canadian Aero, Laskin J tempered the requirement that the opportunity need be presented to adirector qua director. He wrote (at p 619): It is a mistake, in my opinion, to seek to encase the principle stated and applied in Peso, by adoption from Regal (Hastings) Ltd. v.Gulliver, in the straight-jacket of special knowledge acquired while acting as directors or senior officers, let alone limiting it to benefitsacquired by reason of and during the holding of those offices.

As in other cases in this developing branch of the law, the particular factsmay determine the shape of the principle of decision without setting fixed limits to it. [148] The manner in which the opportunity came to the knowledge of the director is not determinative, but is a fact to be takeninto account as part of the contextual analysis.

Limits on Liability of Directors and Officers [ 149 ] Another way to analyze the extent of the duty of a director or officer under the corporate opportunity doctrine is to examine whether any defences may be raised by a director or officer in order to limit his or her liability. [ 150 ] In Queensland Mines , Lord Scarman adopted the following limitation on the liability of a fiduciary in the context of the corporate opportunity doctrine, as stated in Phipps (at p 3): Lord Hodson put the limit in words, which the Board accepts as an authoritative formulation of a real limitation upon the liability:— “ Nothing short of fully informed consent which the learned judge found not to have been obtained could enable the appellants in the position which they occupied having taken the opportunity provided by that position to make profit for themselves (p. 109 D).” Lord Guest (p. 117

G) said:— “In the present case the knowledge and information obtained by Boardman was obtained in the course of the fiduciary position in which he had placed himself. The only defence available to a person in such a fiduciary position is that he made the profits with the knowledge and assent of the trustees. It is not contended that the trustees had such knowledge or gave such consent.” [emphasis added] [ 151 ] This defence was also referred to in Canadian Aero .

Laskin J concluded that a breach of fiduciary duty occurred, not only because the opportunity belonged to the corporation, but because the fiduciary obtained the opportunity “ either secretly or without the approval of the company” (at p 606) . [ 152 ] In

summary, determining whether a director has breached his or her fiduciary duty under the corporate opportunity doctrine requires an extensive contextual analysis. [ 153 ] All relevant factors must be taken into account, including: the maturity of the opportunity; whether it was actively pursued by the corporation; whether the corporation was capable of taking advantage of the opportunity; whether the opportunity was in the corporation’s line of business or a related business; how the opportunity arose or came to the attention of the director; whether the other directors of the corporation had knowledge of the director’s pursuit of the opportunity; and whether the other directors gave their fully informed consent to the director’s pursuit of the opportunity.

The overall goal of the analysis is to determine whether the opportunity fairly belonged to the corporation in the circumstances. Standard of Review [ 154 ] The question of whether Matic’s actions were in breach of his fiduciary duty to Springhill involves the application of a legal test to the facts. The trial judge’s findings of fact are entitled to deference in the absence of palpable and overriding error, as is his application of the legal test (if correctly stated) to those facts.

If the trial judge applied the wrong legal tests in determining whether Matic owed a fiduciary duty to Springhill, and the nature and extent of that duty, these are extricable questions of law and are reviewable on a standard of correctness.

Analysis [ 155 ] The defendants argue that the trial judge erred in law by failing to find that Matic owed any fiduciary duty to Springhill. [ 156 ] The trial judge stated that, “[ A]s I will hereinafter describe, I am satisfied that Tony Matic did not breach his fiduciary duty and duty of care to Springhill and its related companies by operating Callidus” (at para 355) . [ 157 ] This indicates that the trial judge understood the fundamental principle that a director or officer is a fiduciary to his or her corporation. [ 158 ] Later in his reasons, the trial judge unfortunately restated his earlier conclusion in this manner, writing, “I am not satisfied that [Matic] had a fiduciary duty to Springhill as it related to construction projects” (at para 363).

If read in isolation, this statement appears to be an error in law in that it implies that no fiduciary duty existed.

However, it must be read in the context of the trial judge’s earlier conclusion that, “ Matic did not breach his fiduciary duty . . . to Springhill” ( ibid ) . [ 159 ] Accordingly, I do not agree that the trial judge erred in law in failing to apply the basic legal principle that directors and officers owe a fiduciary duty to their corporations. [ 160 ] The defendants’ second argument is that the trial judge erred in law and fact by failing to find that Matic breached the fiduciary duty he owed to Springhill by diverting a corporate opportunity for his own benefit.

[ 161 ] For the reasons that follow, I conclude that the trial judge committed palpable and overriding errors, and I would allow the cross-appeal. [ 162 ] In concluding that Matic did not have “a fiduciary duty to Springhill as it related to construction projects” (at para 363), the trial judge relied entirely on his finding that Springhill did not intend “to continue to do construction for First Nations bands that were its customers” (at para 364), and that there was no evidence at the time of the Keewaywin project or at the time of the trial “that Springhill was pursuing construction projects” (at para 366).

He concluded that Springhill “had no intention to open and operate a construction division” (at para 371). [ 163 ] The trial judge concluded that Springhill was not actively pursuing projects like the Keewaywin project. In essence, he found that “construction projects” were not opportunities belonging to Springhill. [ 164 ] It is important to note the following factual findings made by the trial judge.

First, he found that during the time that Laengin and Dyck owned Springhill, it participated profitably in many construction projects (at paras 215, 364, 367). [ 165 ] Second, the trial judge summarized the evidence given by Scott Malyon (Malyon), an employee of Springhill, on Springhill’s construction activities as follows (at para 245): Scott Malyon also testified that in the 1990s, and right up to 2008, Springhill was involved in construction contracts for First Nations. In some of those projects, Springhill acted as a general contractor and hired sub-contractors to do some of the work.

In other projects, Springhill would arrange for a general contractor to perform the contract but, if the general contractor agreed to accept payment that was less than the full price of the contract, Springhill could take a management fee out of the project. [ 166 ] The nature of this aspect of Springhill’s business was also described by Laengin in her evidence, as was her expectation regarding Springhill’s involvement in the Keewaywin project.

The trial judge stated ( at para 230) : When Chris Laengin learned that Callidus was doing the construction work on the Keewaywin project, she assumed that it was through Springhill and that Springhill had hired Callidus. She assumed that Springhill would invoice Keewaywin for the project and, once Springhill was paid for the construction, it would in turn pay Callidus. Any excess amount would be profit for Springhill. [ 167 ] However, one important factual finding was not supported by the evidence.

With respect, the trial judge made a palpable error in finding that there was “no evidence” that, at the time of the trial, Springhill was “operating a construction division or doing construction projects” (at para 371). [ 168 ] In his direct examination, Malyon described a chart (entered as an exhibit at trial) that he had prepared which listed the First Nations construction projects that Springhill had been involved in from the early 1990s through until 2012. He gave the following evidence in direct examination: Q Okay.

Based on your experience at Springhill, did they do or were they involved in construction work? A Yes. Q And have they been involved in construction work since Mr. Matic left? A Yes. Q And were they involved in construction work before Mr. Matic arrived? A Correct. [ 169 ] Clearly, n ot all factual errors made by a trial judge, in particular in a lengthy trial, will be significant and warrant appellate intervention.

[ 170 ] However, in this case the error was overriding.

The trial judge’s finding that there was no evidence that Springhill was doing construction projects at the time of the trial was critical to his conclusion that Springhill had no intention to do construction work while Matic was general manager and that, accordingly, “construction projects” were not being actively pursued by Springhill and were not opportunities belonging to Springhill. [ 171 ] As I will explain, when I consider the full context, I am of the view that each of the relevant factors weighs in favour of a conclusion that the Keewaywin project was an opportunity belonging to Springhill, and that Matic breached his fiduciary duty to Springhill by diverting the opportunity to Callidus without Springhill’s knowledge.

Maturity [ 172 ] The Keewaywin project was a mature and immediately available opportunity. Laengin’s evidence was that she and Matic initially met with Keewaywin First Nation to discuss a contract for Springhill to supply the First Nation with building materials and a mobile home. One month later, Laengin learned the project had a construction component. The construction contract between Callidus and Keewaywin First Nation was signed the following month. Active Pursuit [ 173 ] Springhill was not actively pursuing the Keewaywin project, because only Matic had knowledge of the opportunity.

Indeed, Waldner said that he had no knowledge of the Keewaywin project until after Matic was terminated by Springhill. While Laengin, a senior employee of Springhill, had knowledge of the Keewaywin project, she assumed that Springhill was involved. Capacity of Corporation to Take Opportunity [ 174 ] Springhill was capable of performing the Keewaywin project. The evidence of Laengin and Malyon was that Springhill had done construction projects both before and after Matic’s tenure.

Indeed, the only period of time during which Springhill was not involved in one of its client’s construction projects was while Matic was Springhill’s general manager. Line of Business [ 175 ] The evidence shows that Springhill regularly did construction projects both before and after Matic’s tenure. Accordingly, the Keewaywin project was within Springhill’s line of business.

How the Opportunity Arose [ 176 ] The evidence of Laengin was that the Keewaywin project came to Matic’s attention as part of a contract between Springhill and Keewaywin First Nation to supply building materials and a mobile home to the First Nation. Matic learned of the opportunity while conducting business on behalf of Springhill. Knowledge and Consent of Corporation [ 177 ] The other directors of Springhill did not give their fully informed consent to Callidus taking on the entire Keewaywin project to the exclusion of Springhill.

In fact, the other directors of Springhill were not even aware of Callidus’s involvement. Waldner testified that Matic never advised the other directors that Callidus would be doing construction work in Manitoba or Northwestern Ontario. In addition, he said Matic failed to advise Waldner of the potential profit available from the Keewaywin project.

The other directors of Springhill were never given the chance to consider the opportunity to continue Springhill’s involvement in construction projects for its customers. [ 178 ] I would allow the cross-appeal and return the matter to the trial court to determine Springhill’s damages. VIII.

Conclusion [ 179 ] I would allow the plaintiffs’ appeal in respect only of the contract claim and return the matter to the trial court to determine damages. [ 180 ] I would dismiss the plaintiffs’ appeal in respect of the wrongful dismissal claim, the materials claim and the Prairie Post claim. [ 181 ] I would allow the cross-appeal and return the matter to the trial court to determine Springhill’s damages. [ 182 ] As both the plaintiffs and defendants have been successful on their main grounds of appeal, I would not make any order as to costs. JA I agree: JA I agree: JA