Ali Arc Industries LP et al. v. S & V Manufacturing Ltd. et al., 2011 MBQB 95

• Court: Court of Queen's Bench of Manitoba (Canada)
• Case Date: April 28, 2011
• Jurisdiction: Manitoba
• Citations: 2011 MBQB 95;(2011), 265 Man.R.(2d) 1 (QBM)

Ali Arc Ind. v. S&V Mfg. Ltd. (2011), 265 Man.R.(2d) 1 (QBM)

MLB headnote and full text

Temp. Cite: [2011] Man.R.(2d) TBEd. MY.038

Ali Arc Industries LP, RW & AM Bartley Ltd. and The RWB Trust (plaintiffs) v. S & V Manufacturing Ltd., Ricky Boodoo and Rick Noble (defendants)

(CI 05-01-42643; 2011 MBQB 95)

Indexed As: Ali Arc Industries LP et al. v. S & V Manufacturing Ltd. et al.

Manitoba Court of Queen's Bench

Winnipeg Centre

Cooper, Master

April 28, 2011.

Summary:

This action arose out of the alleged misappropriation by the defendants of intellectual property owned by the plaintiffs. The plaintiffs claimed that defendants Boodoo and Noble appropriated confidential manufacturing information from them and that defendant S & V Manufacturing Ltd. used that information to manufacture and sell its own products. The defendants moved for summary judgment.

A Master of the Manitoba Court of Queen's Bench summarily dismissed the following claims: breach of fiduciary duty by Boodoo and Noble; inducing breach of contract and common law and fiduciary duties; conspiracy by unlawful means; and vicarious liability against Boodoo. The motion for summary judgment was otherwise dismissed.

Actions - Topic 1588

Cause of action - Contracts - Assignment of cause of action - This was a summary judgment motion on an action arising out of the alleged misappropriation of intellectual property by two former employees - The plaintiff company was the successor to the company where defendant Boodoo had been employed - The defendants argued that the plaintiff company had no cause of action against Boodoo - A Master of the Manitoba Court of Queen's Bench declined to summarily dismiss the claims against Boodoo on that basis - It was at the very least arguable that the plaintiff company had acquired a cause of action its predecessor might have against Boodoo - The assets transferred in the asset purchase agreement included "all claims of the Vendor against third parties" - There was further evidence on the "close interrelationship" between the two companies and that the successor company was a continuation of its predecessor with essentially the same principals - See paragraphs 100 to 104.

Contracts - Topic 3904

Performance or breach - By fiduciaries - Breach - General - This was a summary judgment motion on an action arising out of the alleged misappropriation of intellectual property by two former employees, Boodoo and Noble - The plaintiffs alleged that Boodoo and Noble breached their employment contracts - The plaintiffs relied on the employees' duties and obligations which were implied by the law; i.e., the implied duty of "fidelity" - A Master of the Manitoba Court of Queen's Bench found that the plaintiffs had raised a genuine issue for trial - The plaintiffs had adduced sufficient evidence to support their claims that the two former employees took and used information they obtained from their employment - However, in order to establish that Boodoo and Noble breached their duties of fidelity, the plaintiffs had to demonstrate that the information was confidential - As the plaintiffs raised a genuine issue for trial on that issue, there was a genuine issue for trial on the issue of breach of employment contract - See paragraphs 105 to 120.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - This was a summary judgment motion on an action which involved, inter alia, a claim with respect to breach of fiduciary duty - A Master of the Manitoba Court of Queen's Bench reviewed the three general characteristics of fiduciary status, and commented that "[i]t appears that the law governing the law governing which employees are considered fiduciaries is however 'somewhat uncertain' ... [F]iduciary relationships have been found where the employee exercises a relatively broad and independent discretion in handling critical aspects of the employer's business, and where the employer's business interests are especially vulnerable to the actions of the fiduciary. The courts have not restricted the duty to senior officials, but have extended it to even low to middle managers" - See paragraphs 176 to 179.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - A corporate employer commenced an action arising out of the alleged misappropriation of intellectual property (designs, drawings, templates, and photographs of machinery) by two former employees - Employee Boodoo was the shop foreman before he was terminated - Employee Noble was a welding supervisor of the night shift for about one year until his resignation - A Master of the Manitoba Court of Queen's Bench granted the motion for summary judgment dismissing the claim that the employees stood in a fiduciary relationship - Asking the fundamental question, "Has the employer entrusted the employee with all or a significant portion of its business in a manner that has developed a relationship of dependence or vulnerability", nothing in the evidence established either employee as a key employee - Even if Boodoo was in a fiduciary relationship, his fiduciary status would not flow to Noble by virtue of his association with Boodoo - See paragraphs 192 to 198.

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - [See Contracts - Topic 3904 ].

Equity - Topic 3716.2

Fiduciary or confidential relationships - Commercial relationships - Distributorship or franchise agreements - The plaintiffs, including Bartley Ltd. and the RWB Trust, alleged that the defendants used the plaintiffs' intellectual property to make and sell copies of the plaintiffs' products and to make machinery to manufacture the copies - The defendants moved for summary judgment - They argued that the statement of claim pled no facts that would support Bartley Ltd. and the RWB Trust having a cause of action - A Master of the Manitoba Court of Queen's Bench accepted a franchise agreement as evidence of those entities' commercial interest in the intellectual property - "Whether this 'commercial interest' is sufficient to lay the foundation to support a cause of action is another question. It appears [given the case law] that it may be sufficient" - The court concluded that this aspect of the claim needed to be more fully argued by a trial of the issue - See paragraphs 87 to 99.

Equity - Topic 3726

Fiduciary or confidential relationships - The employer-employee relationship - Duty of employee after termination - [See second Equity - Topic 3606 ].

Equity - Topic 3902

Fiduciary or confidential relationships - Breach of confidence - What constitutes - This was a summary judgment motion on an action which involved, inter alia, a claim with respect to breach of confidence - The defendants submitted that the evidence showed that there was nothing confidential about the plaintiffs' intellectual property - A Master of the Manitoba Court of Queen's Bench considered the relevant factors and was persuaded that the plaintiffs' evidence was sufficient to raise a genuine issue of material fact as to whether the information at issue was confidential - See paragraphs 135 to 171 - As to the extent to which the information was known and the plaintiffs' measures to keep it secret, the plaintiff maintained that outsiders were not permitted to walk around unattended for confidentiality and safety reasons, while the defendants "make it sound like it was Saturday afternoon at Safeway" - There was a clear conflict in the evidence on what was a material point, and therefore required an assessment of credibility by a judge at trial - See paragraphs 136 to 148.

Equity - Topic 3904

Fiduciary or confidential relationships - Breach of confidence - Elements of actions for - This was a summary judgment motion on an action which involved, inter alia, the plaintiff Ali Arc's claim with respect to breach of confidence - The plaintiffs claimed that two former employees appropriated confidential manufacturing information from them and that the defendant S & V Manufacturing Ltd. misused that information - A Master of the Manitoba Court of Queen's Bench considered the three elements to establish a breach of confidence, and found that the plaintiffs' evidence was sufficient to raise a genuine issue of material fact as to whether the information was confidential - See paragraphs 135 to 171 - Also, the evidence was sufficient to establish a triable issue that the defendants knew or ought to have known that the information was being communicated to them in confidence - "Clearly, if the information meets the first two elements of the test, there is adequate evidence to raise a genuine issue for trial that it was misused by the defendants, as that was the reasonable inference to be drawn from the presence of the material on the S & V premises. There is at least the appearance that the defendants used the Ali Arc information to 'springboard' the business of S & V" - See paragraphs 172 to 175.

Practice - Topic 3604.6

Evidence - Affidavits - General - Supplementary or reply affidavits - Prior to the hearing of this motion for summary judgment, the defendants filed a motion to expunge an affidavit filed by the plaintiffs after the defendants had filed several affidavits in reply and their motion brief - A Master of the Manitoba Court of Queen's Bench referred to the Queen's Bench Rules, including the family division rules - "The Queen's Bench Rules do not specifically address the order in which evidence on a motion in a civil proceeding is to be filed ... In contrast, Queen's Bench Rule 70, which governs family proceedings, has specific rules regarding the filing of affidavit evidence on motions ... [I]f the general civil rules were intended to prohibit 'sur-reply' or 'rejoinder' affidavits, the rules would provide, as does the family rule, that the court may grant leave to file such an affidavit in an appropriate case. Thus, in my view, the civil rules in themselves do not proscribe the filing of 'sur-reply' or 'rejoinder' affidavits" - See paragraphs 44 to 58.

Practice - Topic 3604.6

Evidence - Affidavits - General - Supplementary or reply affidavits - Prior to the hearing of this motion for summary judgment, the defendants filed a motion to expunge an affidavit filed by the plaintiffs after the defendants had filed several affidavits in reply and their motion brief - A Master of the Manitoba Court of Queen's Bench referred to the Queen's Bench Rules, including the family division rules - The general rationale underpinning the family rule (the need to control the court's process and to prevent case-splitting) was also of concern in civil matters - The moving party, in his reply, should normally only be permitted to respond to new issues or matters raised in the responding evidence - As a general rule, the moving party should not be permitted to adduce evidence that was merely bolstering or confirmatory or raising new factual issues - See paragraphs 59 and 60.

Practice - Topic 3604.6

Evidence - Affidavits - General - Supplementary or reply affidavits - Prior to the hearing of this motion for summary judgment, the defendants filed a motion to expunge an affidavit filed by the plaintiffs after the defendants had filed several affidavits in reply and their motion brief - The defendants argued that, to the extent it purported to be a response to the defendants' reply affidavits, it constituted improper rejoinder or sur-reply evidence which was inadmissible, and, to the extent it was simply intended to augment the plaintiffs' responsive affidavit, it was inadmissible as improper bolstering evidence - A Master of the Manitoba Court of Queen's Bench dismissed the motion to expunge - Normally and ideally, the affidavit ought to have been filed with the plaintiffs' other responsive material - There was nothing in the affidavit which was responsive to any new matter raised in the reply evidence - However, there was no prejudice to the defendants - Also, the defendants did not follow the normal, ideal course with their reply affidavits - See paragraphs 42, 67 to 70.

Torts - Topic 5043

Interference with economic relations - Master and servant - What constitutes interference - [See second Torts - Topic 5242 ].

Torts - Topic 5088

Interference with economic relations - Conspiracy - Conspiracy to defraud (incl. unlawful means conspiracy) - This was a summary judgment motion on an action which involved, inter alia, a claim that each of the defendants conspired with one another to commit unlawful acts, including breach of contract, breach of duty of confidence, breach of fiduciary duties, inducing breach of contract and common law and fiduciary duties, passing off and interference with economic interests - A Master of the Manitoba Court of Queen's Bench summarily dismissed the claim - The plaintiffs offered no direct evidence of a joint plan or common design - While the evidence raised suspicions, that would not be the only inference to be drawn - For that reason alone, the plaintiffs failed to raise a genuine issue for trial on the claim - See paragraphs 269 to 275.

Torts - Topic 5155

Interference with economic relations - Unfair competition - Passing off - Evidence and proof - This was a summary judgment motion on an action which involved, inter alia, a claim with respect to passing off - In the claim, the plaintiffs, including Ali Arc, alleged that S & V had manufactured and sold copies of Ali Arc's products in competition with them - Ali Arc had "distinctive designs which are well-known to the public to be associated with" Ali Arc's products - They alleged that the defendants had incorporated those distinctive designs in S & V's products so as to misrepresent to the public that the alleged copies made by S & V were in fact Ali Arc's products - A Master of the Manitoba Court of Queen's Bench concluded that the evidence, although weak, was enough to preclude dismissal of that claim summarily - And, given that the issue as to damages were essentially factual, that issue should not be determined on a summary judgment motion - See paragraphs 202 to 233.

Torts - Topic 5208

Interference with economic relations - Contracts - Inducing breach of contract - This was a summary judgment motion on an action - The plaintiffs, including Ali Arc, claimed that the defendants induced Cantell to use his knowledge of Ali Arc's specialized equipment, acquired when he built equipment for them, to build equipment for S & V, in breach of his contractual, common law and fiduciary duties to the plaintiffs - A Master of the Manitoba Court of Queen's Bench agreed with the defendants' submission that the plaintiffs had adduced no evidence establishing that there was any kind of contract between Cantell or his business and Ali Arc - The allegation "that a valid business relationship or business expectancy existed between the plaintiffs and Cantell" did not give rise to a claim in contract - The defendants had clearly established a prima facie case for dismissal of the claim, and the plaintiffs had failed to put forward a genuine issue for trial - In the end result, that aspect of the claim was summarily dismissed - See paragraphs 234 to 242.

Torts - Topic 5242

Interference with economic relations - Interference with business relations - What constitutes - A Master of the Manitoba Court of Queen's Bench stated that unlawful interference with economic interests was an emerging tort - The parties agreed on the test, which was that the plaintiff must prove: (1) an intention to injure the plaintiff; (2) interference with another's method of gaining his or her living or business by illegal means; and (3) economic loss caused thereby - There was authority that the defendants' intention to injure the plaintiff need not be the predominant purpose - See paragraphs 258 to 262.

Torts - Topic 5242

Interference with economic relations - Interference with business relations - What constitutes - This was a summary judgment motion on an action - The plaintiffs, including Ali Arc, alleged that the defendants S & V and Boodoo had "wrongfully interfered with the economic relations of the plaintiffs with its customers" - A Master of the Manitoba Court of Queen's Bench held that the plaintiffs had adduced sufficient evidence to make the claim a triable issue - Boodoo's comments about putting Ali Arc out of business, the use of the Ali Arc part numbers on S & V's website, and the evidence that S & V approached Ali Arc's customers, were consistent with an intention to injure Ali Arc, and that was sufficient, given this was a developing tort, to raise a genuine issue for trial - See paragraphs 263 to 268.

Cases Noticed:

Bodnarchuk v. RBC Life Insurance Co. et al., [2009] Man.R.(2d) Uned. 76; 2009 MBQB 241 (Master), consd. [para. 54].

Bodnarchuk v. RBC Life Insurance Co. et al. (2010), 253 Man.R.(2d) 7; 2010 MBQB 85, revd. (2011), 262 Man.R.(2d) 225; 507 W.A.C. 225; 2011 MBCA 18, refd to. [para. 54, footnote 2].

Turnbull et al. v. Canadian Institute of Actuaries et al. (1995), 103 Man.R.(2d) 192 (Q.B.), consd. [para. 61].

Business Depot Ltd. v. Canadian Office Depot Inc. et al., [1999] F.T.R. Uned. 934 (T.D.), consd. [para. 64].

Robinson v. Saskatoon (City) et al. (2009), 333 Sask.R. 276; 2009 SKQB 183, consd. [para. 65].

Lameman et al. v. Canada (Attorney General) et al., [2008] 1 S.C.R. 372; 372 N.R. 239; 429 A.R. 26; 421 W.A.C. 26; 2008 SCC 14, refd to. [para. 79].

Homestead Properties (Canada) Ltd. v. Sekhri et al. (2007), 214 Man.R.(2d) 148; 395 W.A.C. 148; 2007 MBCA 61, refd to. [para. 80].

Homestead Properties (Canada) Ltd. v. Robert - see Homestead Properties (Canada) Ltd. v. Sekhri et al.

Puolitaipale Estate et al. v. Grace General Hospital et al. (2002), 170 Man.R.(2d) 32; 285 W.A.C. 32; 2002 MBCA 147, refd to. [para. 82].

Canadian Imperial Bank of Commerce v. Derksen Brothers Holdings Ltd. et al. (1995), 100 Man.R.(2d) 224; 91 W.A.C. 224 (C.A.), refd to. [para. 83].

Shell v. Barnsley et al. (2006), 208 Man.R.(2d) 264; 383 W.A.C. 264; 2006 MBCA 133, refd to. [para. 84].

Bellboy Corp. v. 3763383 Manitoba Ltd. (2002), 164 Man.R.(2d) 17; 2002 MBQB 69, refd to. [para. 85].

Cadbury Schweppes Inc. et al. v. FBI Foods Ltd. et al., [1999] 1 S.C.R. 142; 235 N.R. 30; 117 B.C.A.C. 161; 191 W.A.C. 161, refd to. [para. 98].

57134 Manitoba Ltd. v. Palmer, [1985] B.C.J. No. 3069 (S.C.), refd to. [para. 102].

CRC-Evans Canada Ltd. v. Pettifer et al. (1997), 197 A.R. 24 (Q.B.), refd to. [para. 110].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, appld. [para. 127].

Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C 203 (C.A.), refd to. [para. 169].

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 177].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 178].

Hudson's Bay Co. v. McClocklin (1986), 42 Man.R.(2d) 283 (Q.B.), refd to. [para. 180].

Western Tank & Lining Ltd. v. Skrobutan et al. (2006), 207 Man.R.(2d) 176; 2006 MBQB 205, refd to. [para. 181].

CIBA-Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R. 120; 143 N.R. 241; 58 O.A.C. 321, refd to. [para. 200].

Telecommunication Employees Association of Manitoba Inc. et al. v. Manitoba Telecom Services Inc. et al. (2005), 206 Man.R.(2d) 39; 2005 MBQB 259, refd to. [para. 209].

Continental Insurance Co. v. Almassa International Inc. et al., [2002] O.T.C. Uned. 418 (Sup. Ct.), refd to. [para. 222].

Towers Ltd. v. Quinton's Cleaners Ltd. et al. (2009), 245 Man.R.(2d) 70; 466 W.A.C. 70; 2009 MBCA 81, refd to. [para. 223].

Algonquin Mercantile Corp. v. Cockwell, [1997] O.J. No. 4616 (Gen. Div.), refd to. [para. 244].

Toronto (City) v. MFP Financial Services Ltd. et al., [2003] O.T.C. 584 (Sup. Ct.), refd to. [para. 246].

Tamarak Energy Inc. v. Ipsco Inc. et al. (1999), 185 Sask.R. 161 (Q.B.), refd to. [para. 247].

Ontario Public Service Employees Union et al. v. Ontario, [2005] O.T.C. 357 (Sup. Ct.), refd to. [para. 248].

ADGA Systems International Ltd. v. Valcom Ltd. et al. (1999), 117 O.A.C. 39 (C.A.), consd. [para. 250].

Lineal Group Inc. v. Atlantis Canadian Distributors Inc., [1998] O.A.C. Uned. 450 (C.A.), refd to. [para. 258].

Ultracuts Franchises Inc. v. Magicuts Inc. et al. (2005), 199 Man.R.(2d) 281; 2005 MBQB 294, refd to. [para. 259].

HMC Group Inc. v. Nova Scotia (Attorney General) et al. (2000), 188 N.S.R.(2d) 268; 587 A.P.R. 268 (S.C.), refd to. [para. 260].

671122 Ontario Ltd. v. Sagaz Industries Canada Inc. et al. (1998), 67 O.T.C. 22; 40 O.R.(3d) 229 (Gen. Div.), refd to. [para. 261].

Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada et al. (2003), 172 O.A.C. 202 (C.A.), refd to. [para. 262].

Ultracuts Franchises Inc. v. Magicuts Inc. et al. (2010), 251 Man.R.(2d) 228; 478 W.A.C. 228; 2010 MBCA 34, refd to. [para. 267].

Nicholls v. Richmond (Township), [1984] B.C.J. No. 2910 (S.C.), refd to. [para. 271].

Valley Salvage Ltd. v. Molson Brewery B.C. Ltd., [1975] B.C.J. No. 993 (S.C.), refd to. [para. 273].

671122 Ontario Ltd. v. Sagaz Industries Canada Inc. et al., [2001] 2 S.C.R. 983; 274 N.R. 366; 150 O.A.C. 12; 2001 SCC 59, refd to. [para. 277].

Statutes Noticed:

Rules of Court (Man.), Queen's Bench Rules, rule 20.01(3) [para. 76]; rule 20.02(1) [para. 77]; rule 20.02(3) [para. 208]; rule 25.11 [para. 41]; rule 37.08(3) [para. 72]; rule 39.01(2), rule 39.01(3) [para. 44]; rule 39.02(1), rule 39.02(2) [para. 45]; rule 70.20(3) [para. 50]; rule 70.20(4) [para. 51]; rule 70.20(8) [para. 47]; rule 70.20(9) [para. 48]; rule 70.20(10) [para. 49]; rule 70.20(11) [para. 52].

Authors and Works Noticed:

Atiyah, P.S., Vicarious Liability in the Law of Torts (1967), p. 31, c. 28 [para. 280].

Barnacle, Wood, England and Christie, Employment Law in Canada (4th Ed.), p. 11-12 [para. 10]; § 11.175 [para. 179].

Bryant, Sopinka and Fuerst, The Law of Evidence in Canada (3rd Ed.), p. 1165 [para. 56].

England, Geoffrey, Individual Employment Law (2000), pp. 58 [para. 112]; 61 [para. 176].

Fairbairn and Thorburn, Law of Confidential Business Information (2008), p. 3-2 [para. 126].

Hughes on Trademarks (2nd Ed.), pp. 1001 [para. 199]; 1009 [paras. 201, 211, 220].

Klar, Lewis N., Linden, Allan M., Cherniak, Earl A., and Kryworuk, Peter W., Remedies in Tort, vol. 3, pp. 24- 29 [para. 135].

Klar, Lewis N., Remedies in Tort (Looseleaf Ed.), vol. 1, pp. 8-12 [para. 241]; 8-13 [para. 235]; 8-15 [para. 240].

Counsel:

David P. Negus and Brent Ross, for the plaintiffs;

Steven Z. Raber and Dean G. Giles, for the defendants.

These motions were heard before Cooper, Master, of the Manitoba Court of Queen's Bench, Winnipeg Centre, who delivered the following judgment and reasons for judgment on April 28, 2011.