Alberta Care-A-Child Ltd. v. Payne et al., (2005) 383 A.R. 43 (QB)

• Judge: Hillier, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: July 21, 2005
• Citations: (2005), 383 A.R. 43 (QB);2005 ABQB 561

Alta. Care-A-Child Ltd. v. Payne (2005), 383 A.R. 43 (QB)

MLB headnote and full text

Temp. Cite: [2005] A.R. TBEd. JL.140

Alberta Care-A-Child Limited Carrying on Business As Alberta Care-A-Child (plaintiff) v. Tim Payne, Scott Rodda, Alexis Rodda, Neil MacNeil and Raminder Sandhu and Tim Payne, Scott Rodda, Carrying on Business As Prodigy Human Service Consultants Inc. (defendants)

(9803 18571; 2005 ABQB 561)

Indexed As: Alberta Care-A-Child Ltd. v. Payne et al.

Alberta Court of Queen's Bench

Judicial District of Edmonton

Hillier, J.

July 21, 2005.

Summary:

The plaintiff company was an approved foster care agency. It facilitated placements with foster families and provided support services. The defendants, Rodda and Payne, began providing services to the plaintiff in 1996. They were paid through their partnership Prodigy Human Service Consultants. In October 1998, the defendants left the plaintiff and set up Prodigy Human Resources Consultants Inc. in direct competition with the plaintiff. The plaintiff sued the defendants, alleging that they were key personnel who breached their fiduciary duties to the plaintiff. Specifically, the plaintiff alleged that the defendants induced the plaintiff's employees to come to work for them and led foster families to transfer their contracts from the plaintiff to Prodigy. Rodda had declared bankruptcy in 2000 and had been granted an absolute discharge. That raised a further issue with respect to whether the breaches of fiduciary duty alleged against him constituted a "fraud, embezzlement, misappropriation or defalcation" under s. 178(1)(d) of the Bankruptcy and Insolvency Act (BIA) so that the plaintiff's claim against him would not be released by his discharge.

The Alberta Court of Queen's Bench found that the defendants breached their fiduciary duties to the plaintiff. The court awarded the plaintiff damages of $267,155 plus prejudgment interest. The court further held that Rodda's conduct came within s. 178(1)(d) of the BIA and the plaintiff's claim against him was therefore not released by his discharge from bankruptcy.

Bankruptcy - Topic 8983

Discharge of debtor - Liabilities not released by discharge - Act of defalcation or misappropriation in fiduciary capacity - The plaintiff company sued the defendants, Rodda and Payne, alleging that they were key personnel of the plaintiff who breached their fiduciary duties by setting up a business in direct competition with the plaintiff - Rodda had declared bankruptcy and had been granted an absolute discharge - The plaintiff argued that its claim against Rodda was not released by his discharge where his conduct was a "misappropriation or defalcation while acting in a fiduciary capacity" within s. 178(1)(d) of the Bankruptcy and Insolvency Act (BIA) - The Alberta Court of Queen's Bench found that the defendants breached their fiduciary duties to the plaintiff and granted judgment to the plaintiff for its loss of profits - The court further held that Rodda's breach of fiduciary duty came within s. 178(1)(d) of the BIA and that the plaintiff's loss of profits was a quantifiable liability which came within the phrase "any debt or liability" in that section - The plaintiff's claim against Rodda was therefore not released by his discharge from bankruptcy - See paragraphs 100 to 113.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - The plaintiff company was an approved foster care agency - It facilitated placements with foster families and provided support services - The defendants, Rodda and Payne, began providing services to the plaintiff in 1996 - In October 1998, the defendants left the plaintiff and set up Prodigy Human Resources Consultants Inc. in direct competition with the plaintiff - The plaintiff sued the defendants, alleging that they were key personnel who breached their fiduciary duties to the plaintiff - Specifically, the plaintiff alleged that the defendants induced the plaintiff's employees to come to work for them and that the defendants led foster families to transfer their contracts from the plaintiff to Prodigy - The Alberta Court of Queen's Bench found that: (1) the defendants were not independent consultants, but rather functioned as senior management employees who owed a fiduciary duty to the plaintiff; (2) the defendants breached their fiduciary duties; (3) the plaintiff's damages for lost income should be assessed for a 19 month period from November 1, 1998 - See paragraph 32 to 99.

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - [See Equity - Topic 3606 ].

Equity - Topic 3655

Fiduciary or confidential relationships - Breach of fiduciary relationship - Damages - [See Equity - Topic 3606 ].

Equity - Topic 3655

Fiduciary or confidential relationships - Breach of fiduciary relationship - Damages - The Alberta Court of Queen's Bench found that the defendants were senior management employees of the plaintiff company and that the defendants breached their fiduciary duties to the plaintiff when they left the plaintiff and set up a business in direct competition and induced employees and clients of the plaintiff to transfer to them - The court stated that "The relevant factors that best inform an assessment of the time frame for which damages ought to be calculated in these specific circumstances include: (a) the level of responsibility of the fiduciaries and those recruited to leave; (b) the period of service; (c) the nature and scope of preplanning; (d) the degree or lack of candour; (e) the timing in terms of relative vulnerability of the operation; (f) the steps required to react, particularly given the business significance of personal relationships with clients" - See paragraph 93.

Equity - Topic 3726

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

Master and Servant - Topic 303

Nature of relationship - What constitutes an employer-employee relationship - The plaintiff company was as an approved foster care agency - The defendants, Rodda and Payne, began providing services to the plaintiff in 1996 - They were paid through their partnership Prodigy Human Service Consultants - In October 1998, the defendants left the plaintiff and set up business in direct competition - The plaintiff sued the defendants, alleging that they were key personnel who breached their fiduciary duties to the plaintiff - The Alberta Court of Queen's Bench found, inter alia, that the defendants were not independent consultants, but rather functioned as senior management employees of the plaintiff - The court considered that the defendants worked full time hours for the plaintiff, they used regular employee forms to requisition vacation times and were paid for statutory holidays, they had offices at the plaintiff's premises and used the job titles of Vice-President and Executive Director of the plaintiff, they used the plaintiff's supplies, equipment and vehicles, they participated in the plaintiff's health plan and neither defendant had any business profit opportunities or risk of losses while working at the plaintiff - While payments were made to the Prodigy partnership, that was merely a paper arrangement - See paragraphs 32 to 43.

Master and Servant - Topic 343

Fiduciary duty - When owed - [See Equity - Topic 3606 ].

Master and Servant - Topic 344

Fiduciary duty - Breach - [See Equity - Topic 3606 ].

Master and Servant - Topic 4207

Duties of servant - Fiduciary duty - [See Equity - Topic 3606 ].

Master and Servant - Topic 4305

Duties of servant - On termination - Competition in business - General - [See Equity - Topic 3606 ].

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Equity - Topic 3606 ].

Cases Noticed:

International Corona Resources Ltd. v. LAC Minerals Ltd. (1989), 101 N.R. 239; 36 O.A.C. 57; 61 D.L.R.(4th) 14 (S.C.C.), refd to. [para. 25].

Frame v. Smith and Smith (1987), 78 N.R. 40; 23 O.A.C. 84; 42 D.L.R.(4th) 81 (S.C.C.), refd to. [para. 26].

Hodgkinson v. Simms et al., [1994] 9 W.W.R. 609; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1 (S.C.C.), refd to. [para. 27].

Canadian Aero Services Ltd. v. O'Malley (1973), 40 D.L.R.(3d) 371 (S.C.C.), refd to. [para. 30].

Brown v. Western Legal Publications, [1998] B.C.T.C. Uned. 122; 51 B.C.L.R.(3d) 345 (S.C.), refd to. [para. 33].

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, refd to. [para. 34].

Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553; 70 N.R. 214 (F.C.A.), refd to. [para. 34].

Market Investigations Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732 (Q.B.D.), refd to. [para. 34].

Marbry et al. v. Avrecan International Inc. (1999), 119 B.C.A.C. 266; 194 W.A.C. 266; 171 D.L.R.(4th) 436 (C.A.), refd to. [para. 35].

Carter v. Bell, [1936] 2 D.L.R. 348 (Ont. C.A.), refd to. [para. 35].

Hillis Oil and Sales Ltd. v. Wynn's Canada Ltd., [1986] 1 S.C.R. 57; 65 N.R. 23; 71 N.S.R.(2d) 353; 171 A.P.R. 353, refd to. [para. 35].

Lefebvre v. HOJ Industries Ltd.; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; 136 N.R. 40; 53 O.A.C. 200, refd to. [para. 35].

JKC Enterprises Ltd. et al. v. Woolworth Canada Inc. et al. (2001), 300 A.R. 1 (Q.B.), refd to. [para. 36].

Lycar v. Orcutt (Lonnie W.) Farms Ltd. (2002), 331 A.R. 287 (Q.B.), refd to. [para. 36].

309925 Ontario Ltd. v. Tyrrell et al. (1981), 127 D.L.R.(3d) 99 (Ont. H.C.), refd to. [para. 52].

Metropolitan Commercial Carpet Centre Ltd. v. Donovan and Donovan (B.) Interiors Ltd. (1989), 91 N.S.R.(2d) 99; 233 A.P.R. 99 (T.D.), refd to. [para. 52].

Physique Health Club Ltd. v. Carlsen et al. (1996), 193 A.R. 196; 135 W.A.C. 196; 141 D.L.R.(4th) 64 (C.A.), leave to appeal refused (1997), 216 N.R. 239; 212 A.R. 26; 168 W.A.C. 26 (S.C.C.), refd to. [para. 53].

Alberts v. Mountjoy (1977), 79 D.L.R.(3d) 108 (Ont. H.C.), refd to. [para. 54].

Christie (W.J.) & Co. v. Greer and Sussex Realty & Insurance Agency Ltd. (1981), 9 Man.R.(2d) 269; 121 D.L.R.(3d) 472 (C.A.), refd to. [para. 55].

Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al. (1996), 184 A.R. 81; 122 W.A.C. 81; 20 C.C.E.L.(2d) 1 (C.A.), refd to. [para. 55].

Ladd v. Marshall, [1954] 1 W.L.R. 1489 (C.A.), refd to. [para. 64].

CRC-Evans Canada Ltd. v. Pettifer et al. (1998), 216 A.R. 192; 175 W.A.C. 192 (C.A.), refd to. [para. 91].

Harris Scientific Products Ltd. v. Araujo, [2004] A.R. Uned. 631; 35 C.C.E.L.(3d) 272 (Q.B.), refd to. 92].

Simone v. Daley et al. (1999), 118 O.A.C. 54; 8 C.B.R.(4th) 143 (C.A.), refd to. [para. 104].

Superior Crane (Canada) Inc. v. Kinsman, [2005] O.A.C. Uned. 19; 7 C.B.R.(5th) 111 (Ont. C.A.), refd to. [para. 104].

Ross & Associates v. Palmer (2001), 153 Man.R.(2d) 147; 238 W.A.C. 147; 22 C.B.R.(4th) 140 (C.A.), refd to. [para. 104].

Smith v. Henderson et al. (1992), 10 B.C.A.C. 249; 21 W.A.C. 249; 64 B.C.L.R.(2d) 144 (C.A.), refd to. [para. 105].

Jerrard v. Peacock (1985), 61 A.R. 161; 57 C.B.R.(N.S.) 54 (Q.B. Master), refd to. [para. 106].

Confederation Life Insurance Co. v. Waselenak et al. (1997), 210 A.R. 241; 57 Alta. L.R.(3d) 38 (Q.B.), affd. (2000), 255 A.R. 357; 220 W.A.C. 357 (C.A.), consd. [para. 107].

S.M.A.B. v. J.N.H. - see Beaudry v. Hackett.

Beaudry v. Hackett (1994), 53 B.C.A.C. 181; 87 W.A.C. 181; 31 C.B.R.(3d) 302 (C.A.), consd. [para. 109].

Taylor, Re (2002), 38 C.B.R.(4th) 107 (Alta. Q.B. Bktcy.), consd. [para. 111].

Kirkland et al. v. Taylor et al. (2001), 287 A.R. 237 (Q.B.), refd to. [para. 111].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 178(1)(d) [para. 101].

Counsel:

Neil Fenna, for the plaintiffs;

James Moffat and Tyler Perozni, for the defendants, Tim Payne, Scott Rodda and Prodigy Human Service Consultants Inc.

This action was heard on April 18-28, 2005, before Hillier, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following memorandum of decision on July 21, 2005.