Knight Archer Insurance Ltd. Applicant/Appellant (Plaintiff) v. Donna Dressler, Don Shindelka and, 2019 SKCA 24

Court of Appeal for Saskatchewan Docket: CACV3362 Citation: Knight Archer Insurance Ltd. v Dressler , 2019 SKCA 24 Date: 2019-02-27 Between: Knight Archer Insurance Ltd. Applicant/Appellant (Plaintiff) And Donna Dressler, Don Shindelka and TIPI General Partner Corporation Respondents/Respondents (Defendants) Before: Barrington-Foote J.A. (in Chambers) Disposition: Application denied On Application From: QBG 3466-18, Regina Application Heard: February 13, 2019 Counsel: Jonathan Martin for the Appellant Jason M.

Clayards for the Respondents Barrington-Foote J.A. [ 1 ] On February 27, 2019, I denied the application of the applicant, Knight Archer Insurance Ltd. [Knight Archer], for an order that the December 18, 2018, order of Mitchell J. [Mitchell order] be extended pending the hearing of this appeal, with reasons to follow. These are those reasons. I. Introduction [ 2 ] This appeal relates to a Queen’s Bench action based on alleged breaches of non-solicitation and confidentiality agreements and fiduciary obligations by the respondents, Donna Dressler and Don Shindelka, both of whom are former employees of Knight Archer.

The respondent TIPI General Partner Corporation [TIPI] is their new employer. Knight Archer seeks interim and permanent injunctions and damages. [ 3 ] The Mitchell order granted an interim order restraining Ms. Dressler and Mr. Shindelka from disclosing or using confidential and proprietary information and from soliciting Knight Archer’s clients. That order, which was made without notice, provided it would expire “within 60 days of issuance”.

It also provided that Knight Archer’s application for injunctive relief be returnable January 8, 2019, on 14 days’ notice. [ 4 ] On December 28, 2018, Knight Archer filed a notice of application [QB application] that sought substantially the same injunctive relief on an interim basis. That application was heard on January 17, 2019, and dismissed by Kalmakoff J. on January 25 ( Knight Archer Insurance Ltd. v Dressler , 2019 SKQB 30 [ Chambers decision ]). [ 5 ] On January 28, Knight Archer filed a notice of appeal of the Chambers decision . It alleges the Chambers judge made the following errors: (

a) an error of law or mixed fact and law in finding there is no strong prima facie case the non-solicitation agreements are enforceable; (

b) an error of law in stating the wrong legal test for irreparable harm; (

c) an error of mixed fact and law, or a palpable and overriding error in failing to find a real possibility of irreparable harm; and (

d) an error of law in striking portions of the affidavit of Mr. van Ginkel. [ 6 ] On February 5, Knight Archer filed a notice of motion seeking an order pursuant to s. 20(1) of The Court of Appeal Act, 2000 , SS 2000, c C-42.1 [ Act ], and Rule 48 of The Court of Appeal Rules extending the Mitchell order, pending the determination of this appeal. This decision deals with that application for interim relief. [ 7 ] The parties disagreed as to whether the Mitchell order remained in effect despite the Chambers decision . In my opinion, it did not.

The Mitchell order, which was made “until such time as the Court may order”, was intended to be effective only until the matter was dealt with on notice to the respondents. The Mitchell order was spent when the Chambers decision issued. I accordingly could not extend that order. However, I did not decide the application on that narrow ground. The matter was argued as an application for an interim injunction, pending the hearing of this appeal, on the basis of non-solicitation agreements. There was no reference to fiduciary obligations.

I have decided the application on the basis it was argued. [ 8 ] In the result, the issue to be decided on this application was whether an interim injunction should issue on the terms specified in the draft order filed at the hearing, to be effective until the Court’s decision on this appeal is released.

II.

Law [9] Section 20(1) of the Act is as follows: Judge in chambers 20(1) A single judge sitting in chambers may hear and dispose of an application or motion that is incidental to an appeal or matter pendingin the court and that does not involve the decision of the appeal on the merits. [10] A single judge has the authority pursuant to s. 20(1), and may have the inherent jurisdiction, to make an order to preserve thestatus quo and prevent the frustration of an appeal: Beare v Kirby Enterprises Inc., 2013 SKCA 44, 414 Sask R 66; Morin v Matheson,2017 SKCA 80 [Morin]; Veolia Water Technologies, Inc. v K+S Potash Canada General Partnership, 2018 SKCA 61 at paras 11–12[Veolia]; and a May 15, 2018, unreported fiat of Loraas v Loraas, CACV3244 (Sask CA) [Loraas].

An appellate judge has no jurisdictionto grant a stay if its effect would be to decide the appeal or render it moot: Haug v Dorchester Institution, 2016 SKCA 55 at para 3, [2016]10 WWR 484.

The question of whether granting the stay would have that effect turns on the facts: Veolia at paras 11–12. [11] In Veolia, Ottenbreit J.A. cited Morin for the proposition that the test to be applied on an application for this kind of interimrelief is the three-part test for injunctive relief set out in Manitoba (A.G.) v Metropolitan Stores Ltd., (SCC), [1987] 1SCR 110 (WL) at paras 31–35, as confirmed in RJR-MacDonald Inc. v Canada (Attorney General), (SCC), [1994] 1SCR 311 (WL) at para 36 [RJR-MacDonald ].

Justice Ottenbreit noted the following in Veolia: [16] This test as enunciated in RJR-MacDonald at paragraphs 76–80 is whether the applicant has demonstrated: (

a) that the appeal raises aserious question to be tried (generally a low threshold); (

b) that irreparable harm will result if the relief is not granted; and (

c) the balanceof (in)convenience is in its favour. [12] Knight Archer submits this test applies in this case. The respondents say the “serious issue” standard is inappropriate becausethe QB application was for an interim injunction based on the alleged breach of a non-solicitation covenant by former employees. On anapplication of that kind, the first leg of the three-part test for interim injunctive relief specified in RJR-MacDonald does not apply.

Rather,and as correctly noted in the Chambers decision, applicants must meet a higher standard: [28] With respect to the first leg of the RJR-MacDonald test, where an interlocutory injunction is sought to uphold a restrictive covenantin the context of an employment contract, a long line of authority in Saskatchewan holds that the applicant must establish more thansimply a “serious issue to be determined”.

In such instances, the applicant must establish a “strong prima facie case”: [citations omitted]. [13] The issue identified by the respondents is whether on this application – which seeks the same relief as in the QB application,but for the time the order would be in effect – Knight Archer should be obliged to demonstrate a strong prima facie case that this appealwill succeed. [14] For the following reasons, it is my view it should. [15] The standard of review to be applied by a panel hearing an appeal from the refusal by a Chambers judge to grant interlocutoryinjunctive was described by Jackson J.A. in 101114752 Saskatchewan Ltd. v Devonian Potash Inc., 2012 SKCA 64, [2013] 2 WWR 425: [36] … When considering matters involving interlocutory injunctive relief, the standard of review is a deferential one, requiring anappellate court to find a “clear mistake on the law or the evidence, or some other glaring error”.

See: Culligan Canada Ltd. v. Fettes, 2009SKCA 144, [2010] 6 W.W.R. 420 at paras. 13–14 and Mosaic, supra at para. 84. [16] On these facts, that means the decision of the Chambers judge that there was no strong prima facie case the non-solicitationagreements were enforceable is entitled to deference, absent an extricable error of law or a palpable and overriding error. The same is trueof the conclusion that there was no proof of irreparable harm. Extricable errors of law are reviewed on a correctness standard. [17] Knight Archer says the Chambers judge made errors of law.

It appears those alleged errors relate to the legal tests for“ambiguity” and “irreparable harm”. If the serious issue standard applied, Knight Archer would face a low bar on this application. Seriousissue means “not frivolous or vexatious”: Mosaic Potash Esterhazy Limited Partnership v Potash Corporation of Saskatchewan Inc., 2011SKCA 120 at para 113(a), 341 DLR (4th) 407. The court undertakes only a preliminary and tentative assessment of the merits. KnightArcher would need to demonstrate only that it is arguable the Chambers judge was incorrect.

That is a far less rigorous standard than thestandard in Chambers, where the applicant had to persuade the Chambers judge it was correct on matters of law. [18] On the other hand, if the strong prima facie case standard applied, Knight Archer would face a significant hurdle.

In R vCanadian Broadcasting Corp., 2018 SCC 5, [2018] 1 SCR 196, Brown J., having referred to the language used by various courts todescribe a strong prima facie case, said the following: [17] … Common to all these formulations is a burden on the applicant to show a case of such merit that it is very likely to succeed at trial.Meaning, that upon a preliminary review of the case, the application judge must be satisfied that there is a strong likelihood on the lawand the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originatingnotice. (Italic emphasis in original, footnotes omitted) [19] Knight Archer also alleges the Chambers judge made palpable and overriding errors.

If the serious issue standard applied,Knight Archer would need to demonstrate only that it is arguable the Chambers judge made palpable and overriding errors when hedecided there was no strong prima facie case the restrictive covenants were enforceable and that Knight Archer did not demonstrateirreparable harm. The panel hearing the appeal might then decide the Chambers judge did not make such an error. If that occurred, KnightArcher could – assuming it could demonstrate irreparable harm if the relief sought is not granted pending the disposition of this appeal

and that the balance of convenience weighs in their favour – obtain the very form of injunctive relief sought in the QB application, pending the resolution of the appeal, despite having never demonstrated a strong prima facie case. In effect, the concern for mootness that lies at the heart of this application would indirectly trump the important public policy considerations that underpin the law relating to restrictive covenants of this kind.

The court described those policy considerations in EMW Industrial Ltd. v Good , 2019 SKQB 47 : [29] Restrictive covenants are contracts in restraint of trade, and as a general rule, are “contrary to public policy because they interfere with individual liberty of action and because the exercise of trade should be encouraged and should be free”: Shafron v KRG Insurance Brokers (Western) Inc. , 2009 SCC 6 , [2009] 1 SCR 157 [ Shafron ].

They are accordingly prima facie unenforceable. [ 20 ] In my opinion, the fact an interim injunction in this kind of case restrains trade – ultimately due to the restrictive covenants that are prima facie unenforceable – is properly taken into account in deciding the test to be applied at the first step of the three-step test. [ 21 ] Further, adopting the serious issue standard would require that I decide central issues to be determined on the appeal proper. As noted, this application seeks essentially the same relief as the QB application, differing only as to the time the injunction would be in effect.

That difference in time would be relevant when considering the second and third steps of the test, being irreparable harm and balance of convenience. However, it would not be relevant when considering the question of whether there is a serious issue to be tried as to the first step of the test. If I decided there is no serious issue to be tried as to whether the Chambers erred in relation to the matters at issue at the first step, I would have decided this appeal has no merit.

Loraas demonstrates that result should be avoided. [ 22 ] For these reasons, it is my opinion Knight Archer was obliged to demonstrate a strong prima facie case – that is, a strong likelihood – that the Chambers judge erred when he decided Knight Archer did not make out a strong prima facie case that the agreements were enforceable and that Knight Archer would suffer irreparable harm. III. ISSUES AND Analysis [ 23 ] In the result, Knight Archer was required to demonstrate that the following factors exist: (

a) there is a strong likelihood that Knight Archer will succeed on both of the following grounds of appeal: (

i) the Chambers judge made an error of law or palpable and overriding error in deciding there was no strong prima facie case the non-solicitation agreements were enforceable; and (ii) the Chambers judge made an error of law by adopting the wrong legal test as to the meaning of irreparable harm and, as a result, erroneously failed to find a real possibility of irreparable harm, or made a palpable and overriding error in failing to find a real possibility of irreparable harm; (

b) the appellant will suffer irreparable harm if I do not grant an interim injunction pending the disposition of this appeal; and (

c) the balance of convenience favours the grant of an interim injunction pending the disposition of this appeal. [ 24 ] Knight Archer failed to discharge this burden. As the Chambers judge said, ambiguity can be fatal to a restrictive covenant. Justice Rothstein addressed this principle in Shafron v KRG Insurance Brokers (Western) Inc. , 2009 SCC 6 , [2009] 1 SCR 157: [27] … for a determination of reasonableness to be made, the terms of the restrictive covenant must be unambiguous. The reasonableness of a covenant cannot be determined without first establishing the meaning of the covenant.

The onus is on the party seeking to enforce the restrictive covenant to show the reasonableness of its terms.

An ambiguous restrictive covenant will be prima facie unenforceable because the party seeking enforcement will be unable to demonstrate reasonableness in the face of an ambiguity. [ 25 ] As to the meaning of ambiguous in this context, Rothstein J. said, “if the covenant is ambiguous, in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable. … Only if the ambiguity can be resolved is it then possible to determine whether the unambiguous restrictive covenant is reasonable” (at para 43).

The Chambers judge found the terms “confidential information” and “partner companies” were ambiguous and, on that basis, held that Knight Archer did not demonstrate a strong prima facie case that the non-solicitation agreements were enforceable. [ 26 ] I was not satisfied there is a strong likelihood the panel would conclude the Chambers judge erred – whether as a result of errors of law or a palpable and overriding error – in relation to all three of these conclusions. For that reason, Knight Archer failed at the first step of the three-step test. That was sufficient to dispose of this application.

It was not necessary to decide whether there is a strong likelihood the Chambers judge also made an error of law or a palpable and overriding error in deciding Knight Archer did not demonstrate it would suffer irreparable harm. [ 27 ] Further, I was not satisfied the applicant would suffer irreparable harm if an injunction was not granted, pending the disposition of this appeal, or that the balance of convenience favours Knight Archer.

In reaching that conclusion, I considered not only the conflicting evidence relating to the potential loss of clients, market share, reputation and competitive advantage and the adequacy of damages as a remedy, but the fact that this appeal would be heard on an expedited basis. That early hearing date, rather than the date the panel issues its decision, was the important date for the purpose of addressing these elements of the three-part test. IV. Conclusion [ 28 ] The application is denied. Costs of this application shall be in the cause. “Barrington-Foote J.A.” Barrington-Foote J.A.