) ) 969625 ONTARIO LIMITED v. GARY, 2013 ONSC 3187

CITATION : 969625 Ontario Limited et al. v. Goldstone Resources Inc., 2013 ONSC 3187 COURT FILE NO.: 2393/10 DATE: 20130607 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) 969625 ONTARIO LIMITED and GARY CONN Plaintiffs – and – GOLDSTONE RESOURCES INC. Defendant ) ) ) ) ) ) ) ) )) ) Joyce Harris , for the Plaintiffs, Respondents Adam D.H. Chisholm , for the Defendant, Moving Party ) ) ) HEARD: May 23, 2013 REASONS FOR DECISION Lederman J. Background to the Motion [ 1 ] The defendant, Goldstone Resources Inc., (“Goldstone”) brings this motion for

summary judgment dismissing the action brought against it by the plaintiff, Gary Conn (“Conn”). [ 2 ] Goldstone was a newly formed corporation that came into existence in December, 2009 as a result of a merger between Ontex Resources Limited (“Ontex”) and Roxmark Mines Limited (“Roxmark”). Conn, who had worked for Ontex, served as a Co- Chairman and Chief Operating Officer of Goldstone after the merger. [ 3 ] Conn’s relationship with Ontex was governed by a Management Consulting Agreement (“MCA”). [ 4 ] The MCA permitted termination for cause only under certain conditions.

The condition relied upon by Goldstone as a defence to Conn’s claim for wrongful dismissal stipulated in clause 4 of the MCA as follows: “(

b) Termination of Agreement with Cause This Agreement may only be terminated by the Corporation upon the happening of any of the following events: . . . (iv) the engaging by the Consultant or Conn in any criminal act of dishonesty resulting or intended to result directly or indirectly in personal gain of the Consultant or Conn at the Corporation’s expense [ 5 ] Goldstone was set up so that there were three directors appointed to represent Ontex, three appointed to represent Roxmark and one independent.

[6] Bad blood existed between the Ontex group and the Roxmark group virtually from the outset. [7] Conn believed that the Roxmark board members were agitating for his termination almost from the very beginning ofGoldstone. After the merger, Conn fired two Roxmark employees and he had serious concerns about two other Goldstone employees,Cheryl Lesperance (“Lesperance”) and Rick Robert (“Robert”), both from the Roxmark camp. [8] Lesperance and Robert worked at mine sites near Beardsmore, Ontario.

When at those sites, they used a house/officebuilding (the “Beardsmore House”) owned by Goldstone in Beardsmore, located near Goldstone’s mining properties. [9] Conn hired an IT consultant, Ian Schleihauf (“Schleihauf”) to install hidden covert cameras at the two Goldstone locations inBeardsmore: (1) in Robert’s office (on a site away from the Beardsmore House) and (2) in the Beardsmore House. Two hidden cameraswere installed by Schleihauf on the Labour Day weekend of 2010 in the Beardsmore House.

Software was installed on Conn’s computerin his office in London, Ontario to enable Conn to remotely access the hidden cameras at the Beardsmore House. As it turned out, thesystem could not transmit to Conn’s London office. [10] On October 1, 2010, Conn was fired for cause. He, nevertheless, continued the use of the surveillance system. In lateOctober 2010, after Conn’s termination, Lesperance and Robert discovered the hidden cameras in the Beardsmore House and Robertimmediately disabled them. Issues [11] The issues in the action are: a. Whether Conn engaged in a “criminal act of dishonesty”; b.

Whether this “criminal act of dishonesty” either resulted or was intended to result directly or indirectly in “personal gain” to Conn“at the expense of Goldstone”. Criminal Act of Dishonesty [12] A Court has already found that Conn engaged in a criminal act by installing the camera surveillance system. In a

summaryjudgment motion in a related action for defamation, Justice Gorman found that Conn committed the criminal offence of interception ofprivate communications contrary to s. 184(1) of the Criminal Code [2011 ONSC 3176] which decision was affirmed by the Court ofAppeal [2011 ONCA 727]. [13] The question remains whether such criminal act is one of dishonesty within the meaning of clause 4(b)(iv) of Conn’s MCA.

Conn’s counsel submits that the phrase “a criminal act of dishonesty” is directed to crimes such as theft, fraud, embezzlement, breach oftrust and bribery which are clearly dishonest and which clearly enrich the criminal and deprive his or her victim. She submits that theoffence in s. 184(1) of the Criminal Code dealing with the interception of communications is not such

an act of dishonesty. Rather, PartVI of the Criminal Code in which s. 184 is contained deals with “invasion of privacy”, whereas other parts of the Criminal Code dealwith such matters as theft, fraud, forgery, bribery, perjury etc. She argues that s. 184(1) gives no indication by its language thatdishonesty is an element of that offence. [14] Goldstone’s counsel submits that ‘dishonesty’ in the MCA should be construed broadly as “an underhanded design which hasthe effect, or which engenders the risk of depriving others of what is theirs.”: R. v. Zlatic (1993) (SCC), 79 C.C.C. (3d)466 (S.C.C.) at para. 19.

He submits that dishonourable conduct and acts of concealment can be characterized as dishonest. Inparticular, Conn’s installation of the hidden cameras to intercept private communications involves concealment and deprives those livingin the house of their privacy. It is conduct that caused feelings of shock and violation as expressed by Lesperance and Robert.

EvenConn’s own witness (Andrew Harris) stated that this conduct was “way off side”, would alarm him by a “factor of 10” and was “veryoffensive.” [15] The phrase “criminal act of dishonesty” is not a defined term in the Criminal Code and there is no such category of crimeslisted in any specific part of the Criminal Code. It is common place in criminal proceedings for courts to consider whether certainconvictions in an accused’s criminal record constitute crimes of dishonesty so as to be able to be used to challenge an accused witnesses’truthfulness under s. 12 of the Canada Evidence Act.

However, there is no overarching definition of what constitutes a “crime ofdishonesty.” [16] What I believe was intended by this phrase in the MCA, was that a fundamental component of the particular criminal act inquestion be characterized by dishonesty in the carrying out of that act. Much therefore depends on the very nature of the act in questionand the context in which it has taken place in order to determine whether a lack of honesty or candour or probity were intrinsic to theact.

As there is no specific category in the Criminal Code of such crimes, a contextual analysis must be undertaken to determinewhether the crime in question fits within the phrase in the MCA. Did the installation of the surveillance system result in or was intended to result in personal gain to Conn [17] There is no evidence that Conn derived any actual personal benefit from the surveillance cameras.

However, for Goldstone tolegitimately terminate the agreement for cause, Conn’s criminal act need only to have been intended for his direct or indirect benefit. [18] Goldstone has demonstrated a shifting position with respect to Conn’s intention in installing the surveillance cameras. On thesummary judgment motion in the defamation proceeding before Gorman J., Goldstone alleged that Conn’s purpose was one of self

amusement or of a “peeping tom” nature; whereas on the instant motion, Goldstone alleges that Conn’s intention was one of personal gain in that he intended to use the surveillance videos in order to remain employed and to win the battle over corporate control that was taking place within Goldstone. In this regard, it is notable that he continued with the surveillance even after he was fired. [ 19 ] On the other hand, Conn denies that he had any intention of deriving personal benefit.

He states that there were three corporate purposes for which he installed the cameras at the Beardsmore House: 1) Conn had received information about theft and vandalism at that site. There is some basis for this in that there is an email from Lesperance noting such problems. He also heard from others about stolen equipment and a witness, Andrew Harris, gave evidence that anything that was not nailed down was stolen. 2) Conn also stated that he was also concerned about the whereabouts of Robert, the manager of the Beardsmore mine, who could not be located for days despite having a cell phone.

Again, Andrew Harris referred to the fact that when he was at the Beardsmore site for two weeks, he had not seen Robert once. 3) Conn’s third reason for installing surveillance cameras was that he had some information about the surreptitious sale of gravel and rip rock from the Beardsmore sites and there was some evidence of invoices and cheques to support this position. [ 20 ] At the time of the installation of the cameras, Conn was the Chief Operating Officer of Goldstone and had overall responsibility for the company’s proper management.

Counsel for Conn argued that theft and security of property; the proper discharge of duties by Robert, the mine manager; and potential thefts of gravel and rock from the company were all legitimate matters of corporate concern and not matters of personal gain. “At the expense” of Goldstone [ 21 ] An element of clause 4(b)(iv) of Conn’s MCA was that any actual or intended personal gain was to be at the expense of Goldstone.

The purpose of the clause was to protect Goldstone from misappropriation of corporate assets by Conn. [ 22 ] The only expense that Goldstone can point to is that Conn had the company pay a deposit or part of one of Schliehauf’s invoices for the installation of the equipment while Conn was still employed at Goldstone. This would be legitimate if the expenditure was for a corporate purpose. Is this an appropriate case for

summary judgment? [ 23 ] Counsel for Goldstone argues that Conn’s claim that there were legitimate corporate purposes for his criminal act holds no water. Conn’s self serving evidence that the cameras were installed to prevent break-ins, or to monitor rock sales taking place at the Beardsmore location, cannot stand because Goldstone had already dealt with potential break-ins at the house and the sale of rock through a sensor alarm system that was installed and through the investigation that was being conducted by the audit committee, respectively.

Further, Conn never informed the audit committee who was looking into the rock sales that he had installed cameras to monitor employees. [ 24 ] Counsel for Goldstone submits that the court on a

summary judgment motion can readily conclude that the criminal act here was one of dishonesty, given that the cameras were surreptitiously placed; and a court can infer an intention to obtain personal gain on Conn’s part even in the face of his explanation that it was done for legitimate corporate purposes. [ 25 ] Counsel for Conn submits that the cameras were hidden because that was the recommendation of Schliehauf, the IT expert, and it was not Conn’s idea. Accordingly, if the notion originated with Schliehauf, a court should not conclude that the act in question was one of dishonesty on the part of Conn.

She also submits that if Conn was intending to use any video tapes in his personal fight with the Roxmark directors, it is unclear how obtaining proof of inappropriate conduct by low level employees such as Lesperance and Robert would assist him in any meaningful way in the corporate struggle with the Roxmark directors. [ 26 ] The

interpretation and application of the termination clause in the MCA requires a contextual examination. The backdrop for Conn’s activities and his termination was one of a bitter corporate struggle for control of Goldstone. There was great distrust between those who came from the Ontex group, including Conn, and those from the Roxmark group. The hostility was open and palpable.

The suspicions were great and each group appeared to seek the ouster of directors and employees of the opposing side. [ 27 ] More importantly, as no personal gain was actually obtained, the focus becomes one of Conn’s intention in installing the surveillance cameras. There is great difficulty in discerning a subjective intent on a motion for

summary judgment and there is a lack of any documentary evidence to shed light on this issue. [ 28 ] In this corporate struggle, the cast of characters on both the Ontex and Roxmark sides had motivation to give self serving evidence. It is only on a trial narrative that a court can obtain a full appreciation of the evidence. It is important to understand the corporate milieu in which these acts took place and that can only be the subject of a trial. [ 29 ] This is the type of case that comes within the confines of paragraph 55 of Combined Act Mechanical Services Inc. v.

Flesch 2011 ONCA 764 : “Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative and to experience the fact-finding process first-hand.

Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record -- as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) – the judge cannot be “satisfied” that the issues are appropriately resolved on a motion for

summary judgment.” Conclusion

[ 30 ] For these reasons, the motion for

summary judgment is dismissed. If the parties cannot otherwise agree as to costs, they are to be addressed in writing: plaintiffs’ submissions to be delivered within 30 days; defendant’s submissions 15 days thereafter; and any reply within 10 days after the defendant’s submissions. Lederman J. Released: June 7, 2013 CITATION : 969625 Ontario Limited et al. v. Goldstone Resources Inc., 2013 ONSC 3187 COURT FILE NO.: 2393/10 DATE: 20130607 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 969625 ONTARIO LIMITED and GARY CONN Plaintiffs, Respondents – and – GOLDSTONE RESOURCES INC. Defendant, Moving Party REASONS FOR DECISION Lederman J. Released: June 7, 2013