Dillon v. Dillon Hillstead Melanson C.G.A. Prof. Corp. et al., 2015 SKQB 18

Judge:Tholl, J.
Court:Court of Queen's Bench for Saskatchewan
Case Date:January 16, 2015
Jurisdiction:Saskatchewan
Citations:2015 SKQB 18;(2015), 466 Sask.R. 176 (QB)
 
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Dillon v. Dillon Hillstead Melanson (2015), 466 Sask.R. 176 (QB)

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Temp. Cite: [2015] Sask.R. TBEd. JA.054

Michael Dillon (applicant) v. Dillon Hillstead Melanson C.G.A. Prof. Corp., and Dillon Hillstead Melanson Holdings Ltd. (respondents)

Dillon Hillstead Melanson C.G.A. Prof. Corp. (plaintiff/defendant by counterclaim) v. Gordon Dillon and Michael Dillon (defendants/plaintiffs by counterclaim)

(2011 Q.B.G. No. 1617; 2012 Q.B.G. No. 437; 2015 SKQB 18)

Indexed As: Dillon v. Dillon Hillstead Melanson C.G.A. Prof. Corp. et al.

Saskatchewan Court of Queen's Bench

Judicial Centre of Regina

Tholl, J.

January 16, 2015.

Summary:

On June 30, 2010, M. Dillon was terminated from his employment with Dillon Hillstead Melanson C.G.A. Prof. Corp. (DHM Prof. Corp.). In addition to being an employee, M. Dillon was one of the shareholders and directors of DHM Prof. Corp. After his termination, M. Dillon took no further role in the operation or management of DHM Prof. Corp. In July 2010, G. Dillon, a former partner in the predecessor to DHM Prof. Corp., came out of retirement and set up a new accounting firm. Shortly after G. Dillon opened his new firm, a substantial number of clients from DHM Prof. Corp. switched their business to G. Dillon's firm and three former employees of DHM Prof. Corp. commenced employment at G. Dillon's firm. DHM Prof. Corp. formed the belief that G. Dillon and M. Dillon were working together in the new firm. A dispute arose. M. Dillon initiated an oppression action seeking, inter alia, orders with regard to payment of bonuses, share values, method for share redemption and payment of two promissory notes. DHM Prof. Corp. commenced an action against G. Dillon and M. Dillon for, inter alia, conspiracy to breach fiduciary obligations. M. Dillon counterclaimed for damages for wrongful dismissal. G. Dillon counterclaimed for legal fees he paid to reinstate the payments for the buyout of his interest in the predecessor firm which had been temporarily halted when G. Dillon opened his new firm. The matters were tried together.

The Saskatchewan Court of Queen's Bench allowed M. Dillon's oppression action against DHM Prof. Corp. The court determined the amounts owing to M. Dillon as a remedy for oppression. The court dismissed DHM Prof. Corp.'s action for conspiracy to breach of fiduciary duty and dismissed M. Dillon's counterclaim for damages for wrongful dismissal. The court also dismissed G. Dillon's counterclaim for legal fees.

Company Law - Topic 2170

Shareholders (incl. stakeholders) - Shareholders rights (incl. stakeholders' rights) - To rectify oppressive or unfairly prejudicial act - The Saskatchewan Court of Queen's Bench set out the two step test for determining whether there was oppression within the meaning of the Business Corporations Act - First one should look to whether a complainant's expectation was reasonable, and if so, whether the conduct complained of breached that reasonable expectation - Second, if a breach of a reasonable expectation was established, the court had to consider whether the conduct complained of amounted to "oppression", "unfair prejudice" or unfair disregard" of the complainant's interests - Both inquiries were highly fact specific - The court noted also that the grounds of "oppressive" and "unfairly prejudicial" carried with them a higher connotation of intention and fault, while "unfairly disregards the interests" was a relatively lower standard because that ground relied on the unfairness of a result rather than the impropriety of the acts themselves - See paragraphs 163, 164 and 172.

Company Law - Topic 2170

Shareholders (incl. stakeholders) - Shareholders rights (incl. stakeholders' rights) - An accountant, who was also a shareholder and director, was terminated from his employment by an accounting firm (professional corporation) - The accountant initiated an oppression action against the firm - The Saskatchewan Court of Queen's Bench found that the professional corporation's actions brought about a result which unfairly disregarded the accountant's interests as a shareholder - He was removed as a director without any notice or without recording his removal in the corporate minute books and prevented from receiving corporate financial information - It also refused to pay out the value of his preferred shares without penalty - The corporation refused to apply the past practice for valuing the business and refused to recognize any value in or pay him for his common shares - The corporation's actions breached the accountant's reasonable expectations in a manner that unfairly disregarded his interests - He was therefore entitled to a remedy - See paragraphs 160 to 173.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - The Saskatchewan Court of Queen's Bench held that a senior management employee or a director of a corporation owed a fiduciary obligation to his former employer or the corporation he is or was a director of - See paragraph 212.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - The Saskatchewan Court of Queen's Bench stated that a fiduciary obligation of a director existed even in the absence of a non-competition or non-solicitation agreement - See paragraph 213.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - The Saskatchewan Court of Queen's Bench referred to a statement of the foundational principles regarding the fiduciary duties of former senior employees and directors - The court stated that the fiduciary obligation did not exist only if the employee, officer or director resigned or retired - It might also continue if such a person involuntarily left - However, a fiduciary obligation did not continue, or at least was significantly reduced, if an employee was wrongfully dismissed - The fiduciary duty, however, continued if the employee was terminated for cause - See paragraphs 214 to 216.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - An accountant, a senior management employee and director, was terminated from his employment for cause by an accounting firm - The firm sued the accountant, alleging that he conspired to breach fiduciary obligations to the corporation - The Saskatchewan Court of Queen's Bench found that the accountant was a key management employee and a director of the accounting firm - He had significant responsibilities and access to confidential and important information in those roles - He clearly owed a fiduciary obligation to the firm which continued after his termination for cause - The court examined the accountant's actions after he was dismissed and concluded that the facts were not sufficient to establish a breach of fiduciary obligations or that a conspiracy existed to breach his fiduciary obligations - See paragraphs 208 to 236.

Company Law - Topic 9734

Actions against corporations and directors - Practice - Costs - General - An accountant, who was also a shareholder and director, was terminated from his employment by an accounting firm (professional corporation) - The accountant initiated an oppression action against the firm - The Saskatchewan Court of Queen's Bench found that the professional corporation's actions brought about a result which unfairly disregarded the accountant's interests of as a shareholder - He was therefore entitled to a remedy - The court declined the accountant's request for solicitor and client costs, where the corporation's behavior did not reach the level where such costs should be awarded - There was no behaviour which was scandalous, outrageous or reprehensible - See paragraphs 245 to 249.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See both Company Law - Topic 2170 ].

Company Law - Topic 9797

Actions against corporations and directors - Action for oppressive conduct - Remedies (incl. compensation) - An accountant, who was also a shareholder and director, was terminated from his employment by an accounting firm (professional corporation) - The accountant initiated an oppression action against the firm - As part of the remedy he was seeking, the accountant proposed that the professional corporation should be restructured in order to classify payments for his shares as capital gains instead of dividends - The Saskatchewan Court of Queen's Bench allowed the oppression action and determined the amounts owing to the accountant - However, the court was not prepared to order the restructuring of the business as requested by the accountant - What was requested went beyond the bounds of what was fair, reasonable and within all of the parties expectations in this matter - See paragraphs 178 to 188.

Company Law - Topic 9797

Actions against corporations and directors - Action for oppressive conduct - Remedies (incl. compensation) - An accountant, who was also a shareholder and director, was terminated from his employment by an accounting firm (professional corporation) - The accountant initiated an oppression action, seeking, inter alia, an order that he should continue to receive a share ownership bonus after his termination solely because he continued to be an owner of Class H preferred shares - The Saskatchewan Court of Queen's Bench held that no further share ownership bonus was owed to the accountant - While ratio of ownership of preferred shares was the method used to calculate the share ownership bonus, the bonuses were compensation for working and creating revenue and not for passive ownership - The overall structure of the bonus system rewarded effort not ownership - There was no right to a return on the Class H preferred shares simply as a result of ownership - See paragraphs 83 to 87.

Damages - Topic 5719

Contracts - Breach of contract - Legal fees as damages - An accounting firm (professional corporation) stopped paying buy-out payments to a former partner when he opened a new firm and sued the former partner alleging conspiracy to breach fiduciary obligations - The former partner counterclaimed, seeking legal fees he incurred to reinstate the payments - The Saskatchewan Court of Queen's Bench noted that the firm had no right to stop the payments and that the payments were fully reinstated by the time the counterclaim was issued (i.e., the matter was resolved) - The former partner was asking the court to grant a remedy of solicitor and client costs in the absence of a claim for any other substantive remedy - Legal fees incurred to successfully resolve a dispute were simply not recoverable in a matter such as the one at hand - Absent contractual obligations or the presence of exceptional circumstances, which were not present here, the cost of negotiation and resolution outside of litigation had to be borne by the individual parties - See paragraphs 237 to 244.

Equity - Topic 3642

Fiduciary or confidential relationships - Breach of fiduciary relationship - Conspiracy to breach fiduciary obligations - The Saskatchewan Court of Queen's Bench accepted that there was an existing cause of action in Saskatchewan for conspiracy to breach fiduciary obligations - See paragraph 210.

Equity - Topic 3646

Fiduciary relationships - Breach of - By director of company - [See all Company Law - Topic 4262 ].

Equity - Topic 3726

Fiduciary relationships - Employer-employee relationship - Duty of employee after termination - [See all Company Law - Topic 4262 ].

Master and Servant - Topic 343

Fiduciary duty - When owed - [See all Company Law - Topic 4262 ].

Master and Servant - Topic 4207

Duties of servant - Fiduciary duty - [See all Company Law - Topic 4262 ].

Master and Servant - Topic 7563

Dismissal of employees - Grounds - Dishonesty - An accountant, who was also a shareholder and director, was terminated from his employment by an accounting firm for inter alia, having a consensual sexual relationship with a vulnerable subordinate - The accountant claimed damages for wrongful dismissal - The Saskatchewan Court of Queen's Bench held that the existence of a truly consensual sexual relationship between a manager and a subordinate was not sufficient, on its own, to justify a dismissal with cause, but it was a factor that could form part of the grounds for dismissal - There was not sufficient evidence to determine that there was an absence of consent or that the relationship constituted sexual harassment - However, there was evidence that the accountant engaged in a consensual sexual relationship with a subordinate and that relationship had a significant impact on the workplace - That disruption coupled with the accountant's repeated dishonesty about the relationship took the matter beyond termination for a consensual relationship between a manager and a vulnerable subordinate - That dishonesty, in this context gave rise to grounds for terminating the accountant's employment - See paragraphs 189 to 207.

Master and Servant - Topic 7574

Dismissal of employees - Grounds - Sexual harassment - [See Master and Servant - Topic 7563 ].

Practice - Topic 7466.3

Costs - Solicitor and client costs - Entitlement to solicitor and client costs - Oppression actions - [See Company Law - Topic 9734 ].

Cases Noticed:

Aegon Capital Management Inc. et al. v. BCE Inc. et al., [2008] 3 S.C.R. 560; 383 N.R. 119; 2008 SCC 69, refd to. [para. 163].

BCE Inc. v. 1976 Debentureholders - see Aegon Capital Management Inc. et al. v. BCE Inc. et al.

Sieminska et al. v. Boldt et al. (2013), 427 Sask.R. 166; 591 W.A.C. 166; 2013 SKCA 136, refd to. [para. 164].

Bernard v. Montgomery et al. (1987), 60 Sask.R. 20 (Q.B.), refd to. [para. 169].

Svensrud v. Saskatoon Boiler Mfg. Co.(2014), 453 Sask.R. 315; 2014 SKQB 263, refd to. [para. 169].

Wind Ridge Farms Ltd. et al. v. Quadra Group Investments Ltd. et al. (1999), 180 Sask.R. 231; 205 W.A.C. 231 (C.A.), refd to. [para. 171].

Such v. RW-LB Holdings Ltd. et al., [1994] 3 W.W.R. 725; 147 A.R. 241 (Q.B.), refd to. [para. 172].

Rupcich v. Mravcak et al. (2013), 415 Sask.R. 85; 2013 SKQB 77, refd to. [para. 175].

Lingelbach v. James Tire Centres Ltd. et al., [1995] 2 W.W.R. 330; 128 Sask.R. 1; 85 W.A.C. 1 (C.A.), refd to. [para. 190].

Gabriel v. Cargill Ltd., [2003] Sask.R. Uned. 246; [2004] 9 W.W.R. 140; 2003 SKQB 457, refd to. [para. 191].

Woloshyn v. Cyan Holdings Ltd. et al. (2013), 415 Sask.R. 73; 2013 SKQB 75, refd to. [para. 198].

Dooley v. Weber (C.N.) Ltd. (1994), 3 C.C.E.L.(2d) 95 (Ont. C.J.), affd. (1995), 80 O.A.C. 234 (C.A.), refd to. [para. 199].

Bank of Montreal v. Payne (2013), 443 N.R. 253; 16 C.C.E.L.(4th) 114 (F.C.A.), refd to. [para. 199].

Gélinas v. Financial Transactions and Reports Analysis Centre of Canada (2004), 281 F.T.R. 3; 2004 FC 1755, refd to. [para. 199].

Cavaliere v. Corvex Manufacturing Ltd. et al., [2009] O.T.C. Uned. C52 (Sup. Ct.), refd to. [para. 200].

McKinley v. BC Tel et al., [2001] 2 S.C.R. 161; 271 N.R. 16; 153 B.C.A.C. 161; 251 W.A.C. 161; 2001 SCC 38, refd to. [para. 206].

Canada Cement LaFarge Ltd. et al. v. British Columbia Lightweight Aggregate Ltd. et al., [1983] 1 S.C.R. 452; 47 N.R. 191, refd to. [para. 210].

Levy-Russell Ltd. v. Tecmotiv Inc. (1994), 13 B.L.R.(2d) 1 (Ont. C.J.), refd to. [para. 210].

Provincial Plating Ltd. v. Steinkey et al. (1997), 162 Sask.R. 241 (Q.B.), refd to. [para. 212].

Culligan Canada Ltd. et al. v. Fettes et al. (2009), 340 Sask.R. 162; 2009 SKQB 343, revd. in part (2009), 346 Sask.R. 100; 477 W.A.C. 100; 2009 SKCA 144, refd to. [para. 212].

Garda Canada Security Corp. v. Ramirez et al., [2011] Sask.R. Uned. 136; 2011 SKQB 294, refd to. [para. 213].

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 214].

Psenica v. Dee-Zee Construction Ltd. et al. (1999), 187 Sask.R. 115; 1999 SKQB 198, refd to. [para. 215].

Malacek v. Service Maintenance Inc., [1999] O.T.C. 47; 48 C.C.E.L.(2d) 249 (Sup. Ct.), refd to. [para. 215].

WSG Group Associates Inc. v. Tuck-Tallon (2000), 201 Sask.R. 66; 2000 SKQB 559, refd to. [para. 215].

ADM Measurements Ltd. v. Bullet Electric Ltd. et al., [2012] 9 W.W.R. 280; 534 A.R. 333; 2012 ABQB 150, refd to. [para. 215].

Zesta Engineering Ltd. v. Cloutier et al., [2010] O.T.C. Uned. 5810; 77 B.L.R.(4th) 7; 2010 ONSC 5810, revd. in part [2014] O.A.C. Uned. 687; 2014 ONCA 762, refd to. [para. 216].

Clifton v. Ground Engineering Ltd. (1982), 19 Sask.R. 181 (Q.B.), refd to. [para. 220].

Denray Tire Ltd. v. Kotowicz et al. (2005), 199 Man.R.(2d) 117; 2005 MBQB 295 (Master), refd to. [para. 222].

Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al. (1996), 184 A.R. 81; 122 W.A.C. 81; 39 Alta. L.R.(3d) 411; 1996 ABCA 169, refd to. [para. 225].

Siemens et al. v. Bawolin et al. (2002), 219 Sask.R. 282; 272 W.A.C. 282; 2002 SKCA 84, refd to. [para. 240].

Trudgian v. Bosche (2003), 235 Sask.R. 16; 2003 SKQB 168, refd to. [para. 242].

Wilson v. Saskatchewan Government Insurance (2012), 405 Sask.R. 8; 563 W.A.C. 8; 2012 SKCA 106, refd to. [para. 242].

Voyer v. Canadian Imperial Bank of Commerce, [1986] 4 W.W.R. 554 (B.C.S.C.), refd to. [para. 242].

Brown v. Godfrey (2006), 210 O.A.C. 156; 2006 CarswellOnt 3091 (Div. Ct.), refd to. [para. 242].

Arthur v. Signum Communications Ltd., 1991 CarswellOnt 2523 (Sup. Ct.), refd to. [para. 246].

Naneff v. Con-Crete Holdings Ltd. (1993), 11 B.L.R.(2d) 218 (Ont. C.J.), refd to. [para. 246].

218125 Investments Ltd. v. Patel (1995), 33 Alta. L.R.(3d) 245 (Q.B.), refd to. [para. 246].

Statutes Noticed:

Business Corporations Act, R.S.S. 1978, c. B-10, sect. 234 [para. 161]; 234(3) [para. 174].

Counsel:

Murray R. Sawatzky, Q.C., for Michael Dillon and Gordon Dillon;

Richard B. Morris, Q.C., and Amy D. Banford, for the corporate entities.

This matter was heard by Tholl, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Regina, who delivered the following decision on January 16, 2015.

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