.Survival Systems Training Ltd. v. Survival Systems Ltd., 2012 NSSC 202

SUPREME COURT OF NOVA SCOTIA Citation: .Survival Systems Training Ltd. v. Survival Systems Ltd., 2012 NSSC 202 Date: May 17, 2012 Docket: Hfx No. 374897 Registry: Sydney Between: Survival Systems Training Limited Plaintiff v.

Survival Systems Limited, a body corporate, Paul Douglas, Joel Carroll, David Comeau, Sean Fitzpatrick, Edward Fudge, Colin MacIntosh, Margaret MacPhail, Gregory Onions, and Robert Walker Defendant LIBRARY HEADING Judge : The Honourable Justice Frank Edwards Heard: April 18, 2012 Written Decision: May 15, 201 Subject: Subject: Motion for Interlocutory Injunction, CPR 41 Facts: Owner of Survival Systems Training Limited fires Chief Operating Officer who then participates in directly competing business (SSC) using same training programs with former and potential clients of SSTL.

Owner of SSL hires a number of SSTL key employees to consolidate its new venture into the training market. (SSL had previously not participated in domestic training market). Issue: Whether to apply the more rigorous “ strong prima facie case ” standard rather than determine simply whether there was a serious issue to be tried.

Result: Motion dismissed. When the granting of an injunction would prevent former employees from engaging in theirchosen vocation, the more rigorous standard required. Here, the evidence fell just short of establishing a strong prima facie case. Cases Noted: RJR-MacDonald Inc. v. Canada (A.G.) (SCC), [1994] 1 SCR 311 at paras 49, 62 and 67;Superior Truss Co. v. Truss Fab Inc.,

(2010) MBQB 179;France v. Smith (1987), (SCC), 42 D.L.R. (4th) 81 (S.C.C.)(Frame); RJR-MacDonald Inc. v. Canada (A.G.) [1994] 1 SCR 311 at paras 49, 62 & 67.) RJR MacDonald Inc. At pars. 56; 60-61; FrontLine Safety Inc. v. MacKenzie, 2003 NSSC 15 at paras. 20-23; Danka Canada Inc. V Huntington, v. Huntington, 2003 SKQB 532, atpara. 11;Brown v. First Contact Software Consultants Inc. (2009), (ON SC), 77 C.C.E.L. (3d) 295 (O.S.C.J.) Atparas. 24-25; GasTOPS Ltd. v. Forsyth, (ON SC), 2009 CarswellOnt 5773 (Ont. S.C.J.) (GasTOPS); DiFlorio v.Con Structural Steel Ltd. [2000] O.J. No. 340 (Ont. S.C.J.) at para 117; 57134 Manitoba Ltd. v. Palmer (1989), (BCCA), 37 BCLR. (2d) 50 (B.C.C.

A) at para. 29) Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd.(1996), 1996 ABCA 169 , 39 Alta. L.R. (3d) 411 (Alta C.A.) at paras. 21-38; Berkey Photo (Can.) Ltd. v. Ohlig (1983), (ON SC), 43 O.R. (2d) 518 (Ont. H.C.) at para. 57] ; Can. Aero Services Ltd. v. O'Malley, (SCC), [1974]S.C.R 592 (S.C.C.) ("Can Aero"); GasTOPS, supra, at paras. 117 - 140] THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THEDECISION, NOT THIS LIBRARY SHEET. SUPREME COURT OF NOVA SCOTIA Citation: Survival Systems Training Ltd. v. Survival Systems Ltd., 2012 NSSC 202 Date:

(20120515) Docket: Hfx No. 374897 Registry: Halifax Between: Survival Systems Training Limited Plaintiff v. Survival Systems Limited, a body corporate, Paul Douglas, Joel Carroll, David Comeau, Sean Fitzpatrick, Edward Fudge, Colin MacIntosh, Margaret MacPhail, Gregory Onions, and Robert Walker Defendants

Judge: The Honourable Justice Frank Edwards Heard: Halifax, Nova Scotia April 18, 2012 Written Decision: May 15, 2012 Counsel: Noella Martin / Dillon Trider / for the plaintiff Peter McLellan, Q.C.

Counsel for Defendants Joel Carroll and David Comeau Bradley Proctor, Counsel for Defendants Fitzpatrick, Fudge, MacIntosh, MacPhail, Onions and Walker Eric Durnford, Q.C./Nancy Barteaux/Hanaa Al Sharief, Counsel for Defendants Survival Systems Limited and Paul Douglas By the Court : [ 1 ] This is a motion for an interlocutory injunction requiring the Defendants to deliver to Survival Systems Training Limited all papers, electronic files and other materials in their possession, power or control containing any of Survival Systems Training Limited ’ s client information, financial information or other confidential information, and enjoining and restraining them from disclosing confidential information belonging to Survival Systems Training Limited, contacting customers of Survival Systems Training Limited, encouraging employees of Survival Systems Training Limited to compete with Survival Systems Training Limited and otherwise competing with Survival Systems Training Limited. [ 2 ] The Plaintiff/Mover, Survival Systems Training Limited (SSTL), is in the business of providing survival and safety training services.

The Defendant, Survival Systems Limited (SSL), is in the business of providing equipment and materials for survival and safety training. [ 3 ] The predecessor of both corporate parties was founded by Albert Bohemier in 1982. In 1996, Bohemier incorporated a number of separate companies including SSTL. The original Survival Systems (SS) continued providing its services through these separate companies. These consisted of (

a) developing and delivering survival and ditching training to its clients in the oil, off-shore, military, and marine industries; (

b) manufacturing equipment for use in providing the training; and (

c) providing consulting services for national and international clients interested in developing survival training centres. These services included the provision of SSL developed courseware and instructor training services. [ 4 ] The present owner of SSTL is John Swain. Swain began working for SS as a diver in 1991. In 1994, Swain was promoted to training manager. Between 1998 and 2006, Bohemier sold all the shares of SSTL to Swain. There is no doubt that Bohemier intended to sell, and Swain intended to buy, the exclusive right to do domestic survival training at the Dartmouth site.

In hindsight, Swain might be criticized for not having a non-compete clause inserted into the sales agreement. On the other hand, the absence of a non-compete clause speaks to the intentions and understanding of the parties that SSL would never be a competitor. Swain and Bohemier enjoyed a close

and cordial working relationship at the time. It is not surprising that they did not contemplate a formal non compete. The two companies would continue to work in tandem as they had in the past. They would even continue to share similar names. It was inconceivable that SSL would start to compete for training business. [ 5 ] Between 2006 and 2011, the two companies worked cooperatively with frequent interaction among the employees of each. SSL looked after the development, manufacture and sales of survival equipment.

SSTL did survival training often as subcontractor training clients who had purchased SSL equipment. [ 6 ] The two companies are in close physical proximity to each other, the street address of one being 240 and the other 250. Crucially, SSL has on its premises a Survival Training Simulation Theatre (STST). This is superior to anything SSTL has as it has the ability to simulate ocean conditions with a mock-up of a ditched helicopter/aircraft. SSL ’ s crane is certified to lift personnel. SSTL ’ s crane is not. This is a critical deficiency regarding the ability to perform appropriate survival training.

SSTL regularly used the STST in its training and advertised such. Some clients (e.g. Cougar Helicopters & Provincial Airlines) insisted that its training be done in the STST. [ 7 ] The Defendant Joel Carroll began working for SSTL as an instructor in 2003. At the time, Swain had him sign a confidentiality agreement, but for some reason deleted the non-compete clause. In 2006, Swain promoted Carroll to training and operations manager. [ 8 ] According to Carroll, he was recruited by a Calgary oil firm in 2010. In June 2010, Carroll says he was induced by Swain to stay.

Carroll says Swain offered him an equity position and eventual ownership of SSTL. Carroll also became Chief Operating Officer (COO) though he insists that Swain always retained overall control. [ 9 ] Later in 2010, Carroll asked Swain to bring another employee, David Comeau, in on the intended purchase of SSTL. Comeau had worked with SSL from 1986 to 1989 and from 1997 to 2001. Between 2001 and 2011, Comeau worked for SSTL first as an instructor and then as a “ Special Projects Officer ” reporting to Carroll. [ 10 ] Swain agreed to Comeau ’ s participation.

Effective January 1, 2011, they signed a management agreement (Carroll says they signed in March 2011), but Carroll/Comeau or their management company got the right to purchase only 49 percent of the shares of SSTL. As would later become evident, the Management Agreement, whatever its deficiencies, effectively tied Comeau ’ s professional fate to that of Carroll ’ s. [ 11 ] Carroll was clearly not pleased with what he considers Swain ’ s going back on his promise to transfer ownership of SSTL.

He says he signed the agreement “ reluctantly ” because his bargaining position was weak - he had already passed on the Calgary offer. At this point, it is unclear what part, if any, that dissatisfaction played in subsequent events. [ 12 ] Meanwhile, change was also afoot over at SSL. In September 2009, Bohemier brought in Paul Douglas, a former investment banker, as president of the company. Two years later, on September 29, 2011, Bohemier transferred majority ownership of SSL to Douglas.

It would appear that from the outset, Douglas and Carroll worked closely together ostensibly for the mutual benefit of each company. [ 13 ] In particular, Douglas and Carroll negotiated a lease which would have given SSTL exclusive use of the STST. They presented the lease to Swain on June 11, 2011, but Swain refused to sign. According to Swain, under the lease, the annual cost of the STST would have gone from $50,000.00 to $140,000.00. Swain did not feel that the lease was in the best interests of SSTL.

Swain maintains that most of SSTL ’ s customers do not wish to pay the extra cost of using the STST. [ 14 ] It appears that around that time (June 2011), if not before, relations between Swain and Carroll became strained. In fact, there appears to have been little, if any, oral communication between them from that point on (Carroll says for 6 weeks before October 11, 2011). Swain and Carroll blame each other for the non-communication. The evidence does not define the cause. Carroll says that is why he started sending written reports to Swain (as opposed to informal oral updates as in the past).

SSTL is a small company (21 employees before the rupture; 14 afterward). It is not surprising that there would be an informal atmosphere. It is also not surprising

that when the two top operatives stopped talking, something had to give. When one of those operatives (Swain) had ultimate control, the result was almost inevitable. [ 15 ] Either Carroll could resign or he could wait to be fired. As I will explain later, Carroll may have considered that resignation was not his best option. In any event, Carroll could not have been surprised when Swain fired him. Carroll had to know that his termination by Swain was a distinct possibility.

Given the very close relationship between Carroll and Douglas, it would be very interesting to know whether they ever discussed such an eventuality. (As I note later, Carroll confided other internal SSTL information to Douglas; the dissatisfaction of the Defendant MacPhail.) [ 16 ] On October 11, 2011, Swain fired Carroll. Carroll then left Swain ’ s office and went over to Douglas ’ office to tell him the news. Douglas was about to leave on a three-week business trip.

Douglas says he left Carroll to use his office and computer for job searches. [ 17 ] When Swain fired Carroll, it was obvious that Comeau ’ s future with SSTL was also in doubt. As I have noted, Carroll and Comeau were tied together by the January 2011 Management Agreement which would eventually see them take a 49 percent equity stake in SSTL. Swain asked Comeau about his intentions (also on October 11) and Comeau said he was not prepared to make an immediate decision. On October 28, 2011, Comeau resigned.

On November 2, 2011, Swain gave Comeau and Carroll notice of termination of the Management Agreement. [ 18 ] When Douglas returned in November 2011, he says he lost confidence in SSTL ’ s ability to deliver SSLS ’ s training contracts because of the dismissal of Carroll and Comeau. It was then he says that he ... “ began considering having SSL perform its own training contracts to its clients ” (affidavit para 21). He also considered how he could help Carroll and Comeau. Paragraph 23 of his affidavit reads: 23.

As of January 2012, Carroll and Comeau through their management company, CBS Management Inc., have been providing consulting services to SSL, but to date there are no formal written agreements between SSL and Carroll or Comeau, and the nature of their future roles with SSL has not been finalized. [ 19 ] Douglas then moved swiftly to consolidate SSL ’ s venture into the local training market. He acknowledges that, since his arrival in September 2009, he was very interested in getting into the training business. He knew there was no written non-compete between SSTL and SSL.

Further, Douglas was unencumbered, as Bohemier must have been, by any unwritten understanding between himself and Swain. [ 20 ] Douglas ’ first move was to secure a human resource individual. Douglas had been advised by Carroll, while he was still the COO of SSTL, that the Defendant Margaret MacPhail (MacPhail) (SSTL ’ s HR person) was dissatisfied with her employment at SSTL and was actively seeking employment elsewhere. (It is a good question why the COO of one company would confide such information to the senior officer of another.) In November 2011, Douglas contacted and met with MacPhail.

In December 2011, he offered her employment and MacPhail accepted. [ 21 ] Then, also in November 2011, Douglas contacted Edward Fudge, SSTL ’ s quality manager. In December 2011, Douglas offered Fudge a job which he accepted. In December 2011, Douglas contacted Gregory Onions, SSTL ’ s Training and Operations Manager. Douglas offered Onions a job and he accepted. [ 22 ] Robert Walker was also hired by Douglas in December 2011. Walker had been SSTL ’ s Military/Civilian Course Director.

Walker says that he had heard from Comeau, while Comeau was still with SSTL, “ ... that SSL was moving forward with new and innovative training programs. ” He therefore decided to contact Douglas. [ 23 ] Douglas hired Sean Fitzpatrick, an instructor with SSTL, in December 2011, after Fitzpatrick contacted Douglas. The same occurred with SSTL Instructor Colin MacIntosh. Douglas ’ affidavit states:

37. Prior to offering employment with SSL to the Defendants Fudge, Walker, Fitzpatrick, Onions, and MacIntosh, I asked some of them, including Onions, whether they had any agreements with SSTL. Those who I asked advised me that they only had confidentiality agreements with SSTL; others may have indicated that they had agreements but I do not recall. As such, I asked each one of them to not use anything belonging to SSTL once they started their employment with SSL. No one indicated to me that they had either an employment contract or a non-competition agreement with SSTL. 38.

I also advised each one of them that they would be employed at their pre-existing salaries with SSTL but without any profit sharing benefits, and that their employment contracts will only be for one year without any security or guarantee about the continuation of their employment with SSL thereafter. [ 24 ] A significant amount of SSTL ’ s business has now gone to SSL. Swain says that over the last three years, SSTL earned millions of dollars in revenue from Exxon. As of January 2012, Exxon is having its training done by SSL. Douglas denies soliciting Exxon business.

In January 2012, Douglas says it was Exxon who approached Carroll. [ 25 ] Cougar Helicopters and Provincial Airlines (PAL) require that the training of their air crews be done in the STST. Cougar has been a client of SSTL since 1999 and SSTL received approximately $220,000.00 in annual revenue from Cougar (Swain para 173). In February 2012, Cougar advised SSTL that it would be going elsewhere. It also requested the return of its deposit/registration fee totalling $36,030.51 (Swain para 176). [ 26 ] Douglas says that SSL has never refused SSTL access to the STST.

In fact, Swain has refused SSL ’ s offer of its use. In the circumstances, this gesture by SSL is probably strategic (i.e. with an eye to the current litigation). In the circumstances, there is no way Swain could realistically have been expected to accept the offer. [ 27 ] PAL had booked training with SSTL for January 2012. It cancelled. [ 28 ] The bottom line is that, with SSL, the former SSTL employees are developing and offering safety training courses to the public (including to some former clients of SSTL) which are substantially the same as the training services they provided while employed at SSTL.

Undoubtedly, while SSL had the capacity to develop programs on its own, it hit the ground running with the acquisition of the core group of SSTL employees. Further, as noted in the Plaintiff ’ s brief: 12. The Former Employee Defendants have contacted clients of SSTL in an attempt to disrupt SSTL’s business. For example, in an email from Walker to a contact with the Department of National Defence, Walker stated that SSTL was not qualified to provide military training and attempted to induce this long-time client of SSTL to contract with SSL for its survival training. 14.

SSTL does not know the extent to which its clients have been contacted by SSL or the Former Employee Defendants. However, SSL and the Former Employee Defendants are providing H2S Alive, Offshore Helicopter Survival, Helicopter Underwater Egress Training, Offshore Survival Introductions, Safety Awareness Bootcamp, Aircraft Ditching and Gas Detector training programs to clients of SSTL (and in some cases now former clients of SSTL). These clients include Exxon Mobil, Provincial Airlines and Cougar Helicopters. 15.

The Former Employee Defendants left SSTL with intimate knowledge of, and contacts with its clients, knowledge of, and competency in, the specialized safety training courses offered by SSTL, and have used this knowledge to establish a competing business with SSTL. ... [ 29 ] ISSUE: The granting of an injunction is an extraordinary remedy. Courts have exercised reticence in granting injunctions which may drastically affect the Defendants ’ rights.

In this case, most of the non-corporate Defendants would be restricted from earning a livelihood in their chosen vocations for an extended period of time. (It could be a year or more before this matter gets to trial.) [ 30 ] The accepted tests for granting an injunction or well known;

1. Is there a serious issue to be tried. 2. Will the Plaintiff suffer irreparable harm if the injunction is not granted. 3. Does the balance of convenience favor the granting of an injunction. (See RJR-MacDonald Inc. v. Canada (A.G.) (SCC), [1994] 1 SCR 311 at paras 49, 62 and 67.) [31] This case turns on the first consideration. In fact, in the circumstances of this case, it is clear that the application of a morestringent standard is required. (See RJR MacDonald Inc. At pars. 56; 60-61; also Front Line Safety Inc. v. MacKenzie, 2003 NSSC 15 atparas. 20-23. See also Danka Canada Inc. V Huntington, v.

Huntington, 2003 SKQB 532, at para. 11 and Brown v. First ContactSoftware Consultants Inc. (2009), (ON SC), 77 C.C.E.L. (3d) 295 (O.S.C.J.) At paras. 24-25. [32] In Superior Truss Co. v. Truss Fab Inc.,

(2010) MBQB 179, the Court states in part at paragraph 7: “...absent an agreement between the parties containing an enforceable restrictive covenant (which does not exist here), an interiminjunction restricting former employees (whether they are ‘key employees’ or not) should only be granted in the clearest ofcircumstances.” (Emphasis added). I agree with that propsition. [33] Here it is necessary for me to determine whether the Plaintiff has established a strong prima facie case, that is, one that wouldsatisfy me that the Plaintiff will likely succeed at trial.

For the reasons I will outline later, I find that the Plaintiff has fallen short of thatstandard. [34] Though there are restrictive covenants respecting some (but not all) of the Defendants, their enforceability will likely not bedispositive of this litigation. Here the non competes are for five years without any geographical limitation. They are clearly notenforceable. [35] This case will ultimately turn on whether the Defendants, especially Carroll, breached their fiduciary obligations to thePlaintiff.

It will also turn on whether Carroll and the other Defendants are now unfairly competing with SSTL. [36] On the question of whether the Former Employee Defendants owed fiduciary duties to SSTL, in Frame v. Smith (1987), (SCC), 42 D.L.R. (4th) 81 (S.C.C.) (Frame), the Supreme Court of Canada set out three defining characteristics of a fiduciaryemployee at paragraphs 40-42:

(1) The fiduciary has scope for the exercise of some discretion or power.

(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.

(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [37] Under this set of criteria, traditionally, top managers and officers of a company have been found to be fiduciary employees. Based on this test Carroll and Comeau are clearly fiduciary employees. [38] Both Carroll and Comeau operated with a wide scope of authority within SSTL. Carroll was SSTL's Chief Operating Officer,had signing authority within SSTL, the ability to hire and fire employees, and exerted significant control over SSTL's employees andbusiness development.

Comeau, as Special Projects Officer, was a manager with SSTL and worked together with Carroll to develop and

implement business strategies, market SSTL's services to clients and maintain client relations. Based on the test in Frame, supra, Carrolland Comeau owed fiduciary duties to SSTL. [39] Key employees can also attract fiduciary duties. In GasTOPS Ltd. v. Forsyth, (ON SC), 2009 CarswellOnt5773 (Ont.

S.C.J.) (GasTOPS), Justice Granger set out the relevant law on when key employees will be found to owe fiduciary duties toemployers at paragraphs 82 - 85: 82 […] A key employee is one whose position and responsibilities are essential to the employer's business, making the employerparticularly vulnerable to competition upon that employee's departure. […] i. What were the employee's job duties with the former employer? ii. What was the extent or frequency of the contact between the employee and the former employer's customers and/or suppliers? iii.

Was the employee the primary contact with the customers and (or) suppliers? iv. To what extent was the employee responsible for sales or revenue? v. To what extent did the employee have access to and make use of, or otherwise have knowledge of, the former employer's customers,their accounts, the former employer's pricing practices, and the pricing of products and services? vi.

To what extent was the former employee's information as regards customers, suppliers, pricing, etc., confidential? 84 After identifying an employee as "key", further determining whether that employee is a "fiduciary" is a difficult endeavor.According to James D'Andrea, "generally, a fiduciary is one who is empowered to act on behalf of and for the benefit of another with theability to affect that other's interest through the use of discretion" (Employment Obligations in Canada, looseleaf (Aurora Ont.; CanadaLaw Book 2006)) 85 The jurisprudence has imposed fiduciary obligations on employees in a number of different factual circumstances and in so doinghave considered: (

a) whether the employee has scope for the exercise of some discretion or power, the employee can unilaterally exercise that power ordiscretion so as to effect the beneficiary is [sic] legal or practical interest and whether the beneficiary is vulnerable to or at the mercy ofthe fiduciary holding the discretion or power; (

b) knowledge of customer contact information, needs and preferences, and therefore, an ability to influence customers. An employeemay be held to be a fiduciary if they are found to have "encyclopedic knowledge" of their employer's customers, unrestricted access to allcustomer lists and information concerning customers, privy to policy issues and personal contact with, and responsibility for, a largeportion of customers…; (

c) knowledge of the business and market opportunity of the employer or playing a role in the employer's strategic market development isa consideration in determining if the employees owed a fiduciary duty to the former employer….; […]

(

d) knowledge of and access to confidential information. It is not necessary for an employee to have access to corporate financial information to be found to be a fiduciary. It is the employee's access to information of which disclosure would make the employer vulnerable. In a sales environment, customer information is critical or in a technological environment, product specifications are critical…; […] (

e) direct and trusted relationships with existing and potential customers, particularly where there is a "unique relationship with the clients personnel contacts and [the defendants] had direct access to confidential information as to the clients' needs, preferences and accepted rates"…; (

f) whether or not the employee's functions are essential to the employer's business, therefore rendering the employer vulnerable to the employee's departure… Any one of these factors, or a combination of them, could result in a finding that an individual owes a fiduciary obligation to his employer. [References Omitted] [ 40 ] If any of the Former Employee Defendants are not fiduciary employees under the test set out in Frame , supra, then they qualify as key employees under the criteria described in GasTOPS . [ 41 ] SSTL is not a large corporation where employees are just cogs in a corporate wheel.

SSTL delivers a wide array of safety training programs and research and development in the oil and gas, military, marine and industrial sectors. The company has fewer than 25 employees. As such, most of SSTL's employees and, in particular the Former Employee Defendants, played a large role within the organization, were entrusted with significant confidential information, and had direct and trusted relationships with clients. [ 42 ] Walker was SSTL's Director of Military Training. He was the key contact with Department of National Defence and had a unique relationship with this client.

He had knowledge of the market and client needs. In his letter to Department of National Defence he used this knowledge to try to indicate that the training which would be provided by SSL would be superior to that provided by SSTL. [ 43 ] Fudge was SSTL's Quality Manager and was its former head firefighting instructor. He had intimate knowledge of the quality controls for SSTL's training programs.

Fudge also had key involvement in SSTL's Offshore Petroleum Industry Training Organization ("OPITO") certifications and course delivery to Exxon Mobil, a major client of SSTL. [ 44 ] MacPhail was SSTL's Human Resources and Training Coordinator and back up Registrar. As HR coordinator, MacPhail had an intimate knowledge of the training and skills required for the delivery of SSTL's full range of courses. As back-up Registrar, she had access to all of SSTL's client information. [ 45 ] MacIntosh was SSTL's Military and Offshore Training Instructor.

He delivered many courses for SSTL and recently wrote and delivered a helicopter landing officer course for oil and gas clients of SSTL. [ 46 ] Fitzpatrick was an Offshore Instructor with SSTL. He is a certified diving instructor and is intimately acquainted with SSTL's helicopter ditching training and offshore safety training programs. Fitzpatrick has represented SSTL at a Shell Oil conference and was actively engaged in marketing SSTL's safety training programs internationally.

[47] Onions was SSTL's Training and Operations Manager. He managed the implementation of SSTL's training programs and actedas a liaison between SSTL employees and management.

Onions had knowledge of SSTL's training programs, the continuing educationrequirements for instructors and the purchase requirements of SSTL. [48] Based on the criteria articulated in GasTOPS, supra, each of the Former Employee Defendants, if not fiduciaries in the classicsense, were key employees, attracting fiduciary duties. [49] In addition to key employees, fiduciary obligations may also attach to non-fiduciary employees who depart with fiduciaryemployees to establish a business in competition with their former employer.

See: GasTOPS, supra, at paras 97 - 101; and DiFlorio v.Con Structural Steel Ltd. [2000] O.J. No. 340 (Ont. S.C.J.) at para 117. [50] If any of the Former Employee Defendants are not fiduciary employees or key employees as set out above, they would stillattract fiduciary obligations because they departed with fiduciary employees to compete with SSTL. [51] Furthermore, even if any of the Former Employee Defendants do not owe fiduciary duties to SSTL, they would still owe acommon law duty of good faith and fidelity to SSTL (see for example: 57134 Manitoba Ltd. v. Palmer (1989), (BCCA), 37 BCLR. (2d) 50 (B.C.C.

A) at para. 29). [52] Several of the Former Employee Defendants signed confidentiality agreements with SSTL, which are summarized below: a. Walker - Confidentiality Agreement, wherein he agreed not to directly or indirectly disclose or use information he obtained whileemployed at SSTL; [Affidavit of John Swain, para. 94, Exhibit "G", page 137] b. Fudge - Confidentiality Agreement on the same terms as Walker's Agreement; [Affidavit of John Swain, para. 113, Exhibit "K",page 171] c.

MacPhail - Confidentiality Agreement on the same terms as Walker's Agreement with an additional non-compete clauseprohibiting competition with SSTL for a period of five years; [Affidavit of John Swain, para. 121, Exhibit "N", page 193] d. MacIntosh - Confidentiality Agreement on the same terms as MacPhail's Agreement; [Affidavit of John Swain, para. 127,Exhibit "P", page 209] e. Fitzpatrick - Confidentiality Agreement on the same terms as MacPhail's Agreement; and [Affidavit of John Swain, para. 133,Exhibit "R", page 230] f.

Onions - Confidentiality Agreement on the same terms as MacPhail's Agreement. [Affidavit of John Swain, para. 139, Exhibit"T", page 253] [53] The Former Employee Defendants owed SSTL the following duties: a. A common law duty to provide reasonable notice of their resignation (except for Carroll, who was dismissed); [Sanford EvansList Brokerage v. Trauzzi (ON SC), [2000] O.J. No. 1394 (Ont. S.C.J.), at paras. 78-84; GasTOPS, supra, at paras.90-94]

b. A duty not to compete with SSTL (as a part of their fiduciary duties to SSTL, as an implied term of their employment contracts,and as an explicit term of their Confidentiality Agreements for MacPhail, MacIntosh, Fitzpatrick and Onions, and) and a duty to discloseto SSTL their plans of competing; [GasTOPS, supra, para 98; Cinema Internet Networks Inc. v. Porter 2006 BCSC 1843] c. A duty not to solicit clients or employees of SSTL; [Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide CustomsBrokers Ltd. (1996), 1996 ABCA 169 , 39 Alta. L.R. (3d) 411 (Alta C.A.) at paras. 21-38; Berkey Photo (Can.) Ltd. v.

Ohlig(1983), (ON SC), 43 O.R. (2d) 518 (Ont. H.C.) at para. 57] d. A duty not to misappropriate trade secrets or confidential information of SSTL; and [Can. Aero Services Ltd. v. O'Malley, (SCC), [1974] S.C.R 592 (S.C.C.) ("Can Aero"); GasTOPS, supra, at paras. 117 - 140] e. A duty not to appropriate or usurp business opportunities that they became aware of because of their employment with SSTL. [Can. Aero, supra] [54] Each of the duties should not be looked at in isolation.

The combination of the Former Employee Defendants resigning enmasse without providing adequate notice, competing with SSTL and possibly soliciting clients of SSTL makes the breaches of theirduties to SSTL more profound. [55] Six key employees of SSTL (Walker, Fudge, MacPhail, MacIntosh, Fitzpatrick and Onions), who had competence in each of itskey areas of business operations, resigned from their employment and, along with Joel Carroll, SSTL's former Chief Operating Officer,and David Comeau, SSTL's former Special Projects Officer, within a few weeks had positioned SSL as a direct competitor to SSTLwithin the survival training services industry. [56] Walker, Fudge, MacPhail, MacIntosh, Fitzpatrick and Onions resigned by giving notice just before the time when SSTL shutdown for a period of two weeks.

This resulted in SSTL losing business in January and throughout the first quarter of 2012 because itwas scrambling to attend to staffing issues to address training requirements for clients. [57] Walker, Fudge, MacPhail, MacIntosh, Fitzpatrick and Onions were in contact with Paul Douglas, president of SSL.

AlthoughDouglas denies that he solicited Walker, Fitzpatrick, MacPhail and MacIntosh, he admits to soliciting Fudge and Onions to leave SSTLand join SSL. [Affidavit of John Swain, para. 148, Exhibit "V"; Affidavit of Paul Douglas, paras. 19-36] [58] Walker emailed one of SSTL's contacts within the Department of National Defence (DND), made negative statements aboutSSTL's ability to deliver on contracts with DND and attempted to solicit DND's business for his new employer SSL.

Walker admits thathe made these statements but asserts that they were factually correct. [Affidavit of John Swain, para. 102, Exhibit "I"; Affidavit ofRobert Walker, para. 18] [59] A number of clients of SSTL, including ExxonMobil Canada, Cougar Helicopters and Provincial Airlines, are now using SSLfor safety training which is being provided by the Former Employee Defendants. [60] In terms of the claims against SSL and Douglas, they induced the Former Employee Defendants to breach their employmentcontracts with SSTL by offering them consideration to compete with SSTL and use confidential information belonging to SSTL for thebenefit of SSL in developing and marketing training programs.

SSL and Douglas have wrongfully interfered with its business andintentionally caused it to suffer business losses. [61] What is prohibited, according to Steele & Thornicroft in Employment Obligations & Confidential Information (Lexis Nexis:Markham, 2009), at page 96, is unfair competition:

As a general rule, departing employees, whether or not they have fiduciary obligations, are entitled to use the skills and general knowledge they accumulated during their employment and afterwards compete with them. They may advertise to the general public and if business results simply as a consequence, there is no breach of fiduciary duty.

What is prohibited is unfair competition .” (Emphasis added) I have reluctantly concluded that despite the foregoing, the evidence stops just short of establishing a strong prima facie case. [ 62 ] The state of the evidence is such that I cannot determine the reason why Swain chose to fire Carroll when he did. As I have mentioned, it may be simply (as the Defendants have argued) that Swain could no longer tolerate being second mate on his own ship.

On the other hand, when all the evidence is heard at trial, there lurks the possibility that Carroll engineered his firing. [ 63 ] Carroll is intelligent enough to know that, if he quit, he would be in a precarious legal situation if he immediately went to work for SSL. His main defence (and I make no determination of its validity) now is that he was unjustly terminated and therefore free of any fiduciary obligation to SSTL. That defence of course would not have been available to him if he had quit.

The legal solution for the Court may be when, in the fullness of the evidence at trial, the Court can determine with some certainty why the firing took place when it did. What precisely led to the cessation of communication between Swain and Carroll? Was it Carroll ’ s fault that this breakdown occurred? If it was, then it may be that it was Carroll, and not Swain, who was responsible for the inevitable result. [ 64 ] A trial judge will also be in a better position to assess the merit of the proposed lease of the STST.

Was it really in the best interests of SSTL to sign it or was Swain correct in determining that it was not? Was Carroll really surprised when Swain refused to sign the lease or had he negotiated a lease with Douglas that he knew Swain would probably reject? How could a properly functioning COO have concluded a lease that, from the evidence to date, appears to have been rejected out of hand? [ 65 ] In a small organization like SSTL, one would expect that the COO would have kept the owner Swain apprised of the state of the lease negotiation. The negotiation appears to have gone on over the course of several months.

It would be reasonable to assume that during this time, Carroll would have said to Swain: “ Look, here ’ s where they appear to be going with this, what do you think? ” The evidence to date suggests that Carroll may have been more concerned about pleasing Douglas than he was about pleasing Swain. Certainly, the evidence to date suggests that Carroll and Douglas concluded the lease deal before Swain had a clue about what was coming.

The evidence at this point does not permit the Court to determine what role, if any, the lease negotiation had in the breakdown between Carroll and Swain and Carroll ’ s ultimate termination. [ 66 ] I have difficulty with Carroll ’ s evidence that he was surprised that he was fired. I am also sceptical about Douglas ’ evidence that when Carroll came to Douglas ’ office on the day of the firing, he was completely distraught. As noted, it is hard to believe that Carroll was surprised that Swain fired him. As for Douglas, the firing provided him with the means to achieve what he had wanted since his arrival at SSL.

On Carroll ’ s part, he was clearly unhappy with his situation at SSTL. Not only was there the obvious tension and communication breakdown between he and Swain, but Carroll may have felt that he had been double crossed by Swain. Carroll ’ s position is that he had been induced to stay at SSTL by the promise of eventual ownership. Swain had “ resiled ” on that promise. Carroll would never be better than a junior partner. [ 67 ] There was also a practical reason why it was better for Carroll to be fired than to quit.

I have no doubt but that Carroll knew that he had the trust and loyalty of many of the key players in SSTL. But, if Carroll had quit, he would not have been the victim. The other employees may not have followed him to SSL. But when he fired Carroll, Swain clearly became the villain in the eyes of the other employee Defendants. In that circumstance, it was easy for them to respond to Douglas ’ inducement or simply follow Carroll. [ 68 ] There is the possibility that a full hearing of the evidence will dispel any notion that Swain was set up.

On the other hand, at this stage, it appears too coincidental that everything worked out so perfectly and so quickly for the benefit of Douglas (SSL) and Carroll. [ 69 ] I have difficulty accepting the Defendants ’ evidence that they did not solicit the business of SSTL ’ s clients. In some sense, they did not have to. Carroll had been the point man for SSTL (and some of the former employees also had strong personal contacts with SSTL clients). But for those contacts, SSL likely would not have gotten the business from those clients.

[ 70 ] For its part, SSL got back for free the business it (and Bohemier) had sold in 2006 to Swain. Douglas, as noted, had always wanted to get into the training business. I have no doubt but that it troubled him greatly that SSTL was making a handsome profit on the use of his company ’ s facility, the STST. I suspect that, in his mind, there was no logical reason why that money should not be flowing to SSL. [ 71 ] The foregoing uncertainties in the evidence prevent me from concluding that SSTL has a strong prima facie case.

It certainly has a serious issue to be tried, but, in this circumstance, I am obliged to require the more rigorous standard. The granting of an injunction is a drastic remedy which is reserved for the clearest of cases. With the uncertainties I have described, this case falls short of that standard. [ 72 ] As well, granting an injunction at this stage bears some similarity to attempting to put toothpaste back in the tube. The former employees will not be going back to SSTL. Nor will the former SSTL clients likely go back to SSTL especially while this litigation is pending.

I am satisfied that the use of the STST is far more vital to SSTL than Swain will concede. SSTL ’ s facility is inferior to that of SSL. Clients such as Cougar Helicopter and Provincial Airlines insist on use of the STST. SSTL simply does not at this time have the ability to provide a full range of survival safety training. [ 73 ] As I have found that SSTL has fallen short of establishing a strong prima facie case, I need not consider irreparable harm and balance of convenience. Irreparable harm to SSTL ’ s business has probably already occurred.

It appears to have lost the confidence of some of its major clients. It will probably never get them back. Its market share has likely been irretrievably diminished. If these consequences have been because of the wrongful conduct of the Defendants, damages (though difficult to measure) will be forthcoming. [ 74 ] With regard to the balance of convenience, it favors allowing the Defendants to carry on. As noted, neither the former employees or former clients will likely return to SSTL.

At the same time, there is a strong public interest in ensuring that a facility capable of providing a full range of off shore survival training, continue to do just that. [ 75 ] I am therefore dismissing the motion for an interlocutory injunction. In the circumstances, I decline to make any award for costs. I am satisfied that SSTL acted entirely appropriately in going forward with this motion. J.