Culligan Canada Ltd. et al. v. Fettes et al., (2009) 340 Sask.R. 162 (QB)

• Judge: Ball, J.
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Case Date: September 01, 2009
• Jurisdiction: Saskatchewan
• Citations: (2009), 340 Sask.R. 162 (QB);2009 SKQB 343

Culligan Can. Ltd. v. Fettes (2009), 340 Sask.R. 162 (QB)

MLB headnote and full text

Temp. Cite: [2009] Sask.R. TBEd. SE.017

Culligan Canada Ltd. and WaterGroup Companies Inc. (plaintiffs/applicants) v. Donald Fettes, Jon Sandomirsky, Toby Hughes, Michael Fiorante, Dale Lewgood, John Cardiff, Denton Gaiser, James Heaps, Daniel Cyr, Novo Water Group Inc., Canature International Inc. operating as Canature North America (defendants/respondents)

(2009 Q.B.G. No. 845; 2009 SKQB 343)

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

Saskatchewan Court of Queen's Bench

Judicial Centre of Regina

Ball, J.

September 1, 2009 and September 9, 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 also 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 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 data 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).

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - The Saskatchewan Court of Queen's Bench stated that "In the absence of non-competition clauses and where departing employees are not subject to fiduciary duties, those who leave their employment are free to compete against their former employer. ... The situation is different for the fiduciary employee. For a reasonable period of time the departed employee has a continuing duty to keep confidences and to act in the best interests of his or her former employer. Although the law permits the fiduciary employee to compete with the former employer, it does not permit active solicitation of the former employer's customers nor the use of confidential information to the employee's own advantage. Directors and senior officers and managers are presumed to stand in a fiduciary relationship with an employer corporation. Whether other employees will be found to be a fiduciary will depend upon the substance of the relationship between the employer and employee. Each case is assessed on its own facts." - See paragraphs 62 to 64.

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - 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 also 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 Saskatchewan Court of Queen's Bench stated that "It is clear that each of the individual defendants had different levels of executive and managerial responsibility at WaterGroup. As departing employees it might be suggested that each were impressed with greater or lesser fiduciary obligations to the plaintiffs. However, it is also clear that all nine individual defendants have acted in concert and participated in fiduciary breaches as a group. Hughes and Sandomirsky left WaterGroup in early 2008, and did not take part in the proposal to purchase WaterGroup presented to the plaintiffs on July 7, 2008. There is little evidence that they breached any fiduciary duties or responsibilities to WaterGroup before they were joined by Fettes in October of 2008. As departing employees those responsibilities would have ceased after a reasonable period of time. Nevertheless, once they were joined by Fettes, Hughes and Sandomirsky were active participants in the solicitation of their former colleagues at WaterGroup and the solicitation of WaterGroup's former customers. It is a reasonable inference that each and every member of the group assisted or participated in the misuse of confidential information on the part of the other members of the group. One cannot be separated from another for the purposes of injunctive relief." - The court held that an injunction also had to extend to Novo as the corporate beneficiary of the individual defendants' breach of their fiduciary obligations - See paragraphs 75 to 77.

Equity - Topic 3726

Fiduciary or confidential relationships - The employer-employee relationship - Duty of employee after termination - [See Equity - Topic 3648 ].

Equity - Topic 3902

Fiduciary or confidential relationships - Breach of confidence - What constitutes - [See Equity - Topic 3648 ].

Equity - Topic 3903

Fiduciary or confidential relationships - Breach of confidence - Confidentiality agreements - 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 also 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 Saskatchewan Court of Queen's Bench 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 in respect of that covenant - It was entered into as part of the sale of Fettes' ownership interest in WaterGroup, including the goodwill - As the most senior executive within the organization, Fettes had the greatest access to all of its confidential information - The use of that information for his own benefit had the potential to destroy the value of what he sold to the plaintiffs, including the goodwill - It would likely cause irreparable harm to the plaintiffs - Interim injunctions were granted for a specified period of time, while interlocutory injunctions usually extended until the action's final disposition - Both could be varied by further order - Counsel for the plaintiffs assured the court that this action would be taken to trial as quickly as possible - Even so, he submitted that an injunction should be granted now against all of the defendants for two years - The court disagreed - A two year injunction would be more in keeping with a final order and inconsistent with the application for interim and/or interlocutory relief - Moreover, the court declined to grant an interlocutory injunction to continue until the action's final disposition lest the plaintiffs failed to proceed to trial as expeditiously as possible - A six month interim injunction on terms would suffice - If either party delayed in bringing the plaintiffs' action to trial, the court could adjust the six month interim period - See paragraphs 83 to 85.

Injunctions - Topic 1601

Interlocutory or interim injunctions - General principles - Interlocutory and interim injunction distinguished - The Saskatchewan Court of Queen's Bench stated that "Interim injunctions are granted for a specified period of time, while interlocutory injunctions usually extend until the final disposition of the action." - See paragraph 84.

Injunctions - Topic 1606

Interlocutory or interim injunctions - General principles - Balance of convenience - 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 also 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 Saskatchewan Court of Queen's Bench held that a strong prima facie case existed that the individual defendants chose to establish a new business in competition with their former employer by exploiting for their own benefit the knowledge, relationships and goodwill acquired in their former employment - Irreparable harm to the plaintiffs was also established - The balance of convenience clearly favoured the granting of at least some of the orders sought by the plaintiffs - Although the defendants submitted that Novo would also suffer irreparable harm unless it was permitted to compete directly with WaterGroup, the argument that they would be prejudiced if they were not permitted to continue to solicit WaterGroup's customers using WaterGroup's confidential information and its former employees was not persuasive - If they were unable to carry on their business without breaching their fiduciary duties and responsibilities to the plaintiff (a proposition the court did not accept) they had placed themselves in that position - See paragraphs 73 to 81.

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 also sold and distributed water treatment and filtration products and services - Until recently all of the individual defendants were employed with WaterGroup - The plaintiffs claimed that the defendant Fettes had breached contractual covenants not to compete with WaterGroup or to disclose its confidential information - The plaintiffs sought, inter alia, to enjoin Fettes from a continuing breach of non-compete and non-disclosure covenants - The Saskatchewan Court of Queen's Bench stated that "In the employment context, Saskatchewan courts have held that where an interlocutory injunction is sought to uphold a restrictive covenant, the plaintiff must establish a 'strong prima facie case', rather than merely establishing that there is a 'serious question to be tried'." - See paragraph 61.

Injunctions - Topic 1607

Interlocutory or interim injunctions - Requirement of strong prima facie case or appearance of right - [See Injunctions - Topic 1606 ].

Injunctions - Topic 1614

Interlocutory or interim injunctions - General principles - Term of - [See Equity - Topic 3903 ].

Injunctions - Topic 1802

Interlocutory or interim injunctions - Requirement of irreparable injury - What constitutes - [See Equity - Topic 3903 and Injunctions - Topic 1606 ].

Injunctions - Topic 1805

Interlocutory or interim injunctions - Requirement of irreparable injury - Covenants not to compete - [See Equity - Topic 3903 ].

Injunctions - Topic 1807

Interlocutory or interim injunctions - Requirement of irreparable injury - Fiduciary duty - [See Injunctions - Topic 1606 ].

Injunctions - Topic 6309

Particular matters - Injury to trade - Competition from former employee, shareholder, franchisee, etc. - [See Equity - Topic 3606 , Equity - Topic 3648 and first Injunctions - Topic 1607 ].

Injunctions - Topic 6309

Particular matters - Injury to trade - Competition from former employee, shareholder, franchisee, etc. - An interim order restrained and enjoined the defendants (former employees of the plaintiffs) and their new company from, inter alia, "(a) 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;" - The Saskatchewan Court of Queen's Bench stated that "Paragraph 90, clause (a) is intended to restrain and enjoin the defendants from soliciting the applicants' previous or current customers. Soliciting encompasses selling, marketing and taking any initiative that might reasonably be construed as intended to establish a business relationship with another person. The terms 'serving, catering to or assisting' derive their meaning from the term 'soliciting'. To 'serve' may be defined as 'to be useful to', while the words 'catering to or assisting' include initiatives such as offering information, advice or prerequisites to potential customers. All are methods of soliciting business from potential customers and all are restrained and enjoined by the terms of paragraph 90(a) of the court's order" - See paragraphs 94 to 99.

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 - The Saskatchewan Court of Queen's Bench stated that "In the absence of non-competition clauses and where departing employees are not subject to fiduciary duties, those who leave their employment are free to compete against their former employer. The contract of employment ends when the employer or the employee terminates the employment relationship. Residual duties may remain such as, for example, the duty on the part of both employer and employee to provide reasonable notice, but absent those duties departing employees are free to pursue new opportunities and to compete with their former employer." - See paragraph 62.

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 and first Injunctions - Topic 1607 ].

Practice - Topic 4573.3

Discovery - What documents must be produced - Computerized documents or electronic data - Plaintiffs sought various mandatory orders for the preservation, disclosure and production of electronic data and information - The Saskatchewan Court of Queen's Bench stated that "The order requested was not dealt with in any detail by the submissions of either counsel and may not be possible to comply with or to enforce. As soon as litigation was threatened in this dispute, all parties became obligated to take reasonable and good faith steps to preserve and disclose relevant electronically stored documents. If deleted or residual documents may be relevant, that information must be communicated to the other party early to mitigate the consequences of potential claims of spoliation. E-Discovery Guidelines have been approved for litigation in this jurisdiction effective September 1, 2009. They parallel E-Discovery Guidelines in other jurisdictions and are contained in the Queen's Bench Rules, Practice Direction No. 6. The E-Discovery Guidelines impose an obligation on the parties to confer early and throughout the proceedings regarding each parties' rights and obligations with respect to e-discovery. ... There will be no mandatory e-discovery orders at this time. Instead, the plaintiffs may take steps to have a post-pleadings conference ordered and/or scheduled in accordance with the E-Discovery Guidelines." - See paragraphs 86 to 89.

Cases Noticed:

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. 59].

Waddell and Waddell v. Neill, Neill and Gifts By Neill's Ltd. (1983), 26 Sask.R. 14 (Q.B.), appld. [para. 60].

Sunsweet Fundraisers Inc. v. Moldenhauer and Theissing (1991), 98 Sask.R. 81 (Q.B.), refd to. [para. 60].

Suncan Industries Ltd. v. Hefner et al. (1998), 162 Sask.R. 29 (Q.B.), refd to. [para. 60].

University of Regina Faculty Association et al. v. University of Regina et al. (1999), 182 Sask.R. 85 (Q.B.), refd to. [para. 60].

WSG Group Associates Inc. v. Tuck-Tallon (2000), 201 Sask.R. 66; 2000 SKQB 559, refd to. [para. 61].

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al., [2008] 3 S.C.R. 79; 380 N.R. 166; 260 B.C.A.C. 198; 439 W.A.C. 198; 2008 SCC 54, refd to. [para. 62].

Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al. (1996), 184 A.R. 81; 122 W.A.C. 81 (C.A.), refd to. [para. 64].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 65].

Canadian Industrial Distributors Inc. v. Dargue (1994), 20 O.R.(3d) 574 (Gen. Div.), refd to. [para. 67].

Provincial Plating Ltd. v. Steinkey et al. (1997), 162 Sask.R. 241 (Q.B.), refd to. [para. 67].

Messa Computing Inc. v. Phipps (1997), 67 O.T.C. 50; 1997 CarswellOnt 5596 (Gen. Div.), refd to. [para. 68].

Trail-Rite Flatdecks Ltd. v. Larcon Investments Ltd. (1987), 64 Sask.R. 227 (C.A.), refd to. [para. 68].

Provincial Distributing Co. v. Carey Ad Specialities Ltd., Carey and Carey (1981), 11 Sask.R. 112 (Q.B.), refd to. [para. 68].

Omega Digital Data Inc. v. Airos Technology Inc. (1996), 32 O.R.(3d) 21 (Gen. Div.), refd to. [para. 69].

Scantron Corp. et al. v. Bruce et al. (1996), 6 O.T.C. 204; 136 D.L.R.(4th) 64; 1996 CarswellOnt 2087 (Gen. Div.), refd to. [para. 69].

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. 70].

Hawboldt Industries Ltd. v. Chester Basin Hydraulics & Machine Ltd., Kaulback, Swinemar, Armstrong and Hiltz (1983), 57 N.S.R.(2d) 413; 120 A.P.R. 413; 22 B.L.R. 215 (T.D.), refd to. [para. 72].

Counsel:

Colin Feasby and Benjamin Pullen, for the plaintiffs/applicants;

Conrad D. Hadubiak and Stephanie M. Yang, for the defendants/respondents.

This application was heard by Ball, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Regina, who delivered the following decision and corrigendum, on September 1 and 9, 2009, respectively.