Culligan Canada Ltd. et al. v. Fettes et al., (2009) 346 Sask.R. 100 (CA)

• Judge: Vancise, Lane and Jackson, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: November 17, 2009
• Jurisdiction: Saskatchewan
• Citations: (2009), 346 Sask.R. 100 (CA);2009 SKCA 144

Culligan Can. Ltd. v. Fettes (2009), 346 Sask.R. 100 (CA);

    477 W.A.C. 100

MLB headnote and full text

Temp. Cite: [2010] Sask.R. TBEd. JA.050

Donald Fettes, Jon Sandomirsky, Toby Hughes, Michael Fiorante, Dale Lewgood, John Cardiff, Denton Gaiser, James Heaps, Daniel Cyr and Novo Water Group Inc. (appellants) v. Culligan Canada Ltd. and WaterGroup Companies Inc. (respondents)

(No. 1835; 2009 SKCA 144)

Indexed As: Culligan Canada Ltd. et al. v. Fettes et al.

Saskatchewan Court of Appeal

Vancise, Lane and Jackson, JJ.A.

December 22, 2009.

Summary:

The plaintiffs, Culligan and its wholly owned subsidiary WaterGroup, applied for interim and/or interlocutory injunctive relief against the individual defendants and their newly formed company, the defendant Novo Water Group (Novo). Like the plaintiffs, Novo sold and distributed water treatment and filtration products and services. Until recently all of the individual defendants were employed with WaterGroup. They filled substantially the same roles with Novo as they previously had with WaterGroup (executive or senior management positions). The plaintiffs also applied for mandatory orders relating to the production of electronically stored data relevant to the dispute. In addition, the plaintiffs said that the defendant Fettes, formerly the most senior employee of WaterGroup in Canada and now President of Novo, had breached contractual covenants not to compete with WaterGroup or to disclose its confidential information. The plaintiffs sought to enjoin Fettes from a continuing breach of 1997 contractual non-compete and non-disclosure covenants until further court order.

The Saskatchewan Court of Queen's Bench, in a decision reported at (2009), 340 Sask.R. 162, granted the plaintiffs a six-month interim order restraining and enjoining the individual defendants and Novo from: (a) soliciting, in any manner, or aiding in soliciting, serving, catering to or assisting, directly or indirectly, the business of the plaintiffs' previous or current customers; (b) soliciting or inducing for employment, or aiding in the solicitation for employment, of any person who was, at the time of such solicitation or inducement, employed or contracted by the plaintiffs; (c) using or disclosing in any way customer lists, product information, marketing information, business strategy information, financial information, operational margins, details of any needs and demands of particular suppliers and customers; or (d) interfering with the plaintiffs' contractual relations with its employees, suppliers and customers. The court granted a further six-month interim order restraining and enjoining the defendant Fettes from breaching his 1997 employment agreement. The request for mandatory orders requiring the preservation, disclosure and production of electronic date and information by the defendants was dismissed, without prejudice to the plaintiffs' right to renew the application following a post pleadings conference as contemplated by Queen's Bench Rule 191(11A). The plaintiffs applied for an order finding the defendants in contempt of the interim restraining and injunctive order.

The Saskatchewan Court of Queen's Bench, in a decision reported at (2009), 340 Sask.R. 187, found the defendants in contempt. The court ordered the defendants to purge their contempt by immediately recalling and removing any and all promotional materials provided to WaterGroup customers. The court also awarded the plaintiffs solicitor and client costs of $7,500, plus disbursements actually incurred. The defendants appealed from the granting of the interim injunctions.

The Saskatchewan Court of Appeal allowed the appeal in part, adjusting the wording of the injunction granted against all of the defendants so as to narrow its scope.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - The plaintiffs, Culligan and its wholly owned subsidiary WaterGroup, applied for interim and/or interlocutory injunctive relief against the individual defendants and their newly formed company, the defendant Novo Water Group (Novo) - Like the plaintiffs, Novo sold and distributed water treatment and filtration products and services - Until recently all of the individual defendants, including Fettes, were employed with WaterGroup - They filled substantially the same roles with Novo as they previously had with WaterGroup (executive or senior management positions) - Ball, J., held that the plaintiffs had established a strong prima facie case that the non-compete and non-solicitation covenants entered into by Fettes as part of his employment agreement were valid and enforceable - Article 8.01prohibited Fettes from soliciting WaterGroup's customers for two years following the termination of his employment - The prohibition extended to both Canada and the United States, a geographical area that coincided with Fettes' responsibilities within Culligan and WaterGroup - It also coincided with the area in which Novo was pursuing market share - Under article 9.01, Fettes agreed not to use confidential information following the termination of his employment for 10 years - The plaintiffs had met the requirements for obtaining pre-trial injunctive relief respecting that covenant - It was entered into as part of the sale of Fettes' ownership interest in WaterGroup, including the goodwill - Ball, J., also found that (1) the defendants had executive and senior management duties and responsibilities giving rise to a fiduciary duty owed to WaterGroup; (2) WaterGroup had established a strong prima facie case that the defendants had breached this fiduciary duty by using, for their own advantage, confidential information of WaterGroup's business; (3) every member of the group assisted or participated in the misuse of confidential information, and one member of the group could not be separated from another for the purposes of injunctive relief; (4) WaterGroup proved irreparable harm and were "likely to suffer a very substantial loss of market share and goodwill, the value of which will be difficult if not impossible to prove and quantify" in the absence of injunctive relief; and (5) the balance of convenience favoured WaterGroup - The Saskatchewan Court of Appeal refused to interfere with these findings - See paragraphs 26 to 38.

Equity - Topic 3648

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

Equity - Topic 3726

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

Equity - Topic 3902

Fiduciary or confidential relationships - Breach of confidence - What constitutes - [See Equity - Topic 3606 ].

Equity - Topic 3903

Fiduciary or confidential relationships - Breach of confidence - Confidentiality agreements - [See Equity - Topic 3606 ].

Injunctions - Topic 1606

Interlocutory or interim injunctions - General principles - Balance of convenience - [See Equity - Topic 3606 ].

Injunctions - Topic 1607

Interlocutory or interim injunctions - Requirement of strong prima facie case or appearance of right - The plaintiffs, Culligan and its wholly owned subsidiary WaterGroup, applied for interim and/or interlocutory injunctive relief against the individual defendants and their newly formed company, the defendant Novo Water Group (Novo) - Like the plaintiffs, Novo sold and distributed water treatment and filtration products and services - Until recently all of the individual defendants, including Fettes, were employed with WaterGroup - They filled substantially the same roles with Novo as they previously had with WaterGroup (executive or senior management positions) - Ball, J., held that the plaintiffs had established a strong prima facie case that the non-compete and non-solicitation covenants entered into by Fettes as part of his employment agreement were valid and enforceable - Article 8.01prohibited Fettes from soliciting WaterGroup's customers for two years following the termination of his employment - The prohibition extended to both Canada and the United States, a geographical area that coincided with Fettes' responsibilities within Culligan and WaterGroup - It also coincided with the area in which Novo was pursuing market share - Under article 9.01, Fettes agreed not to use confidential information following the termination of his employment for 10 years - The plaintiffs had met the requirements for obtaining pre-trial injunctive relief respecting that covenant - It was entered into as part of the sale of Fettes' ownership interest in WaterGroup, including the goodwill - The Saskatchewan Court of Appeal held that Ball, J., did not err in finding WaterGroup had established a strong prima facie case that the restrictive covenants were enforceable - As preliminary matter, Ball, J., found that the negative covenant to which Fettes contractually agreed in the employment agreement was made in the course of the sale of a business, rather than an employment contract covenant - A more rigorous scrutiny of a restrictive covenant was required for an employment contract than for a restrictive covenant that accompanied the sale of a business (Shafron v. KRG Insurance Brokers (Western) Inc. (2009 SCC)) - See paragraphs 16 to 25.

Injunctions - Topic 1703

Interlocutory or interim injunctions - Variation of interim injunction - Grounds for - The plaintiffs, Culligan and its wholly owned subsidiary WaterGroup, applied for interim and/or interlocutory injunctive relief against the individual defendants and their newly formed company, the defendant Novo Water Group (Novo) - Like the plaintiffs, Novo sold and distributed water treatment and filtration products and services - Until recently all of the individual defendants, including Fettes, were employed with WaterGroup - They filled substantially the same roles with Novo as they previously had with WaterGroup (executive or senior management positions) - Ball, J., held that the plaintiffs had established a strong prima facie case that the non-compete and non-solicitation covenants entered into by Fettes as part of his employment agreement were valid and enforceable - Article 8.01prohibited Fettes from soliciting WaterGroup's customers for two years following the termination of his employment - The prohibition extended to both Canada and the United States, a geographical area that coincided with Fettes' responsibilities within Culligan and WaterGroup - It also coincided with the area in which Novo was pursuing market share - Under article 9.01, Fettes agreed not to use confidential information following the termination of his employment for 10 years - The plaintiffs had met the requirements for obtaining pre-trial injunctive relief respecting that covenant - It was entered into as part of the sale of Fettes' ownership interest in WaterGroup, including the goodwill - Ball, J., found, inter alia, that every member of the group assisted or participated in the misuse of confidential information, and one member of the group could not be separated from another for the purposes of injunctive relief - The Saskatchewan Court of Appeal held that given the support for Ball, J.'s conclusion that there was a strong prima facie case that the restrictive covenant was enforceable, there was no basis to interfere with his discretion to formulate an injunction against Fettes personally that was cast in the same terms as the covenant itself - However, the court adjusted the wording of the injunction granted against all of the defendants so as to narrow its scope - Paragraph 1(a) was changed from "Soliciting, in any manner, or aiding in soliciting, serving, catering to or assisting, directly or indirectly, the business of previous or current customers of the Applicants;" to "Soliciting, directly or indirectly, the business of previous or current customers of the applicants;" - See paragraphs 39 to 75.

Injunctions - Topic 1802

Interlocutory or interim injunctions - Requirement of irreparable injury - What constitutes - [See Equity - Topic 3606 ].

Injunctions - Topic 1805

Interlocutory or interim injunctions - Requirement of irreparable injury - Covenants not to compete - [See Equity - Topic 3606 ].

Injunctions - Topic 1807

Interlocutory or interim injunctions - Requirement of irreparable injury - Fiduciary duty - [See Equity - Topic 3606 ].

Injunctions - Topic 1935

Interlocutory or interim injunctions - Practice - Appeals - Duties of Appeal Court (incl. standard of review) - The Saskatchewan Court of Appeal discussed the standard of review to be applied on an appeal from the granting of an interim or interlocutory injunction - It had often been said that appellate courts had a limited role in reviewing the granting of an interim or interlocutory injunction - The reviewing court must not interfere with a chambers judge's exercise of discretion merely on the ground that the members of the court would have exercised their discretion differently - It would be a rare finding of fact that would vitiate the exercise of discretion in refusing or granting an injunction - See paragraphs 13 to 15.

Injunctions - Topic 6309

Particular matters - Injury to trade - Competition from former employee, shareholder, franchisee, etc. - [See Equity - Topic 3606 , Injunctions - Topic 1607 and Injunctions - Topic 1703 ].

Master and Servant - Topic 4207

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

Master and Servant - Topic 4302

Duties of servant - On termination - Confidentiality - [See Equity - Topic 3606 ].

Master and Servant - Topic 4305

Duties of servant - On termination - Competition in business - General - [See Equity - Topic 3606 and Injunctions - Topic 1607 ].

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Equity - Topic 3606 , Injunctions - Topic 1607 and Injunctions - Topic 1703 ].

Cases Noticed:

Hadmor Productions Ltd. v. Hamilton, [1982] 1 All E.R. 1042 (H.L.), refd to. [para. 13].

Metropolitan Stores (MTS) Ltd. v. Manitoba Food and Commercial Workers, Local 832 and Labour Board (Man.), [1987] 1 S.C.R. 110; 73 N.R. 341; 46 Man.R.(2d) 241, refd to. [para. 13].

Harper v. Canada (Attorney General), [2000] 2 S.C.R. 764; 262 N.R. 201; 271 A.R. 201; 234 W.A.C. 201; 2000 SCC 57, refd to. [para. 13].

Canada (Attorney General) v. Saskatchewan Water Corp. and Souris Basin Development Authority, [1992] 4 W.W.R. 712; 92 Sask.R. 295 (C.A.), refd to. [para. 13].

Govan (Local) School Board v. Last Mountain School Division No. 29 (1991), 93 Sask.R. 229; 4 W.A.C. 229; 83 D.L.R.(4th) 685 (C.A.), refd to. [para. 13].

KRG Insurance Brokers (Western) Inc. v. Shafron et al., [2009] 1 S.C.R. 157; 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 16].

WSG Group Associates Inc. v. Tuck-Tallon (2000), 201 Sask.R. 66; 2000 SKQB 559, refd to. [para. 18].

Steele v. Ingram, [2009] O.J. No. 3665 (Sup. Ct.), refd to. [para. 21].

Cameron v. Canadian Factory Corp., [1971] S.C.R. 148, refd to. [para. 23].

Apotex Fermentation Inc. et al. v. Novopharm Ltd. et al., [1994] 7 W.W.R. 420; 95 Man.R.(2d) 241; 70 W.A.C. 241 (C.A.), refd to. [para. 24].

Imperial Sheet Metal Ltd. et al. v. Landry et al. (2007), 315 N.B.R.(2d) 328; 815 A.P.R. 328; 2007 NBCA 51, refd to. [para. 30].

RJR-MacDonald Inc. et Imperial Tobacco Ltd. v. Canada (Procureur général), [1994] 1 S.C.R. 311; 164 N.R. 1; 60 Q.A.C. 241, refd to. [para. 33].

Scantron Corp. et al. v. Bruce et al. (1996), 6 O.T.C. 204; 136 D.L.R.(4th) 64 (Gen. Div.), refd to. [para. 35].

Eversoft Fibre & Foam Ltd. v. James et al., [2001] O.T.C. Uned. 970; 2001 CarswellOnt 4234 (Sup. Ct.), refd to. [para. 35].

Messa Computing Inc. v. Phipps (1997), 67 O.T.C. 50; 1997 CarswellOnt 5596 (Gen. Div.), refd to. [para. 35].

Beck (Wilson M.) Insurance Services Inc. v. Moroz, [2008] B.C.T.C. Uned. 54; 2008 BCSC 113, refd to. [para. 52].

Western Tank & Lining Ltd. v. Skrobutan et al., [2006] 12 W.W.R. 376; 207 Man.R.(2d) 176; 2006 MBQB 205, refd to. [para. 52].

S.R. Metal Impregnation (Ontario) Ltd. v. C & C Coatings Ltd. et al. (1997), 77 C.P.R.(3d) 443 (Ont. Gen. Div.), refd to. [para. 57].

Harder v. Sheehan & Rosie Ltd., [2002] O.T.C. 697; 29 B.L.R.(3d) 140 (Sup. Ct.), refd to. [para. 57].

Jardine Lloyd Thompson Canada Inc. v. Fogal et al., [2007] B.C.T.C. Uned. B69; 2007 BCSC 271, refd to. [para. 57].

Jostens Canada Ltd. v. Gendron (1993), 52 C.P.R.(3d) 352 (Ont. Gen. Div.), refd to. [para. 57].

Sunsweet Fundraisers Inc. v. Moldenhauer and Theissing (1991), 98 Sask.R. 81 (Q.B.), refd to. [para. 57].

Beyen Corp. of Canada Inc. v. IMR Research of Canada Inc. (1992), 47 C.P.R.(3d) 254 (Ont. Gen. Div.), refd to. [para. 58].

Provincial Plating Ltd. v. Steinkey et al., [1998] 3 W.W.R. 1; 162 Sask.R. 241 (Q.B.), refd to. [para. 58].

Bowaters (Nfld.) Ltd. v. Pelley Enterprises Ltd. and Pelley (1977), 12 Nfld. & P.E.I.R. 251; 25 A.P.R. 251 (Nfld. C.A.), refd to. [para. 60].

Turbo Resources Ltd. v. Gibson (1987), 60 Sask.R. 221 (C.A.), refd to. [para. 60].

Winford Insulations Ltd. v. Andarr Industries Inc. et al., [1995] 10 W.W.R. 155; 173 A.R. 99 (Q.B.), refd to. [para. 64].

Nelson Burns & Co. v. Gratham Industries Ltd. (1981), 34 O.R.(2d) 558 (Ont. H.C.), refd to. [para. 64].

G.T. Precision Welding (Ont.) Ltd. v. Nelligan (1984), 3 C.P.R.(3d) 511 (Ont. H.C.), refd to. [para. 64].

W-K Trucking Inc. v. Bidulock Oilfield Service Ltd. (1998), 234 A.R. 363; 1998 ABQB 959, not folld. [para. 64].

NC2 Financial (Alberta) Corp. v. Hansen, [2003] A.R. Uned. 537; 2003 ABQB 748, refd to. [para. 67].

Barton Insurance Brokers Ltd. v. Irwin et al. (1999), 119 B.C.A.C. 109; 194 W.A.C. 109; 170 D.L.R.(4th) 69; 1999 BCCA 73, refd to. [para. 67].

Groupe Financier Assbec ltée v. Dion et Raymond Chantal & associés Inc. (1994), 67 Q.A.C. 124; 61 C.P.R.(3d) 289 (C.A.), refd to. [para. 73].

Authors and Works Noticed:

Canadian Encyclopedic Digest (West.) (4th Ed. 2009) (Looseleaf), vol. 18, para. 379 [para. 75].

O'Brien's Encyclopedia of Forms (11th Ed. 1992) (2009 Looseleaf), vol. 2, Div. viii, para. 14:01.1-6 [para. 58].

Sharpe, Robert J., Injunctions and Specific Performance (2008 Looseleaf Supp.), paras. 1.390 [para. 59]; 2.330 [para. 18].

Counsel:

Conrad Hadubiak and Stephanie Yang, for the appellants;

Colin Feasby and Benjamin Pullen, for the respondents.

This appeal was heard on November 17, 2009, by Vancise, Lane and Jackson, JJ.A., of the Saskatchewan Court of Appeal. Jackson, J.A., delivered the following decision for the court on December 22, 2009.