Dreco Energy Services Ltd. et al. v. Wenzel Downhole Tools Ltd., (2008) 440 A.R. 273 (CA)

• Judge: Berger, Ritter and Rowbotham, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: June 04, 2008
• Citations: (2008), 440 A.R. 273 (CA);2008 ABCA 290

Dreco Energy v. Wenzel Downhole Tools (2008), 440 A.R. 273 (CA);

      438 W.A.C. 273

MLB headnote and full text

Temp. Cite: [2008] A.R. TBEd. AU.144

Dreco Energy Services Ltd. and Vector Oil Tool Ltd. (appellants/plaintiffs) v. Kenneth Hugo Wenzel, Kenneth H. Wenzel Oilfield Consulting Inc. and KW Downhole Tools Inc. (respondents/defendants)

(0803-0065-AC; 2008 ABCA 290)

Indexed As: Dreco Energy Services Ltd. et al. v. Wenzel Downhole Tools Ltd.

Alberta Court of Appeal

Berger, Ritter and Rowbotham, JJ.A.

August 26, 2008.

Summary:

Wenzel, the inventor of downhole oilfield equipment, and his company owned the shares of Vector. The shares were sold to Dreco. Wenzel remained an employee of Vector. The deal included restrictive covenants and an employment contract between Wenzel and Vector which allegedly bound Wenzel to restrictive covenants, confidentiality agreements and fiduciary duties for five years following termination of Wenzel's employment at Vector's. Dreco and Vector were subsequently sold to National. Wenzel resigned from Vector effective March 15, 2002. He formed a new competing company. Vector and Dreco sued Wenzel and other defendants, asking for injunctive relief and damages for breach of the share purchase agreement and the employment contract. The plaintiffs applied for an interlocutory injunction to prevent the defendants from carrying on business in the downhole tools industry in contravention of the restrictive covenants.

The Alberta Court of Queen's Bench, per Hembroff, J., in a decision reported [2003] A.R. Uned. 83, dismissed the application. The plaintiffs appealed.

The Alberta Court of Appeal, in a decision reported (2004), 346 A.R. 356; 320 W.A.C. 356 allowed the appeal. The court issued an interlocutory injunction and directed that it remain in place until final disposition of the lawsuit, or until a contrary order by a judge of the Court of Queen's Bench. The court also remitted the matter to a different judge of the Court of Queen's Bench to fix the terms of the interlocutory injunction. On June 21, 2007, the plaintiffs sought to extend the interlocutory injunction beyond five years from the date Wenzel resigned. On September 25, 2007, the defendants applied to set the interlocutory injunction aside or have it cease on March 15, 2008.

The Alberta Court of Queen's Bench, in a decision reported [2008] A.R. Uned. 796; 2008 ABQB 112, set aside the interlocutory injunction. The plaintiffs appealed.

The Alberta Court of Appeal dismissed the appeal.

Injunctions - Topic 1604.2

Interlocutory or interim injunctions - General principles - Clean hands doctrine - The defendant Wenzel bound himself to restrictive covenants which ran for five years following the date of his termination of employment with the plaintiffs - Wenzel resigned effective March 15, 2002 - He formed a new competing company - The plaintiffs sued Wenzel and others, and applied for an interlocutory injunction - In 2004, the court issued an interlocutory injunction and directed that it remain in place until final disposition of the lawsuit, or until a contrary order by a judge of the Court of Queen's Bench - On June 21, 2007, the plaintiffs sought an extension - On September 25, 2007, the defendants sought a termination - On February 19, 2008, the Alberta Court of Queen's Bench set aside the interlocutory injunction - The plaintiffs appealed, submitting that the chambers judge failed to consider whether the defendants' litigation conduct precluded the termination of the injunction - They argued that the chambers judge, instead of asking whether the injunction should be continued, should have asked whether it should be set aside - Had she adopted the latter approach, she would have appreciated that the onus of proof lay with the defendants, and accordingly, should have applied the clean hands doctrine - The Alberta Court of Appeal rejected the argument and dismissed the appeal - See paragraphs 13 to 16.

Injunctions - Topic 1607

Interlocutory or interim injunctions - General principles - Requirement of strong prima facie case or appearance of right - The defendant Wenzel bound himself to restrictive covenants which ran for five years following the date of his termination of employment with the plaintiffs - Wenzel resigned effective March 15, 2002 - He formed a new competing company - The plaintiffs sued Wenzel and others, and applied for an interlocutory injunction - In 2004, the court issued an interlocutory injunction and directed that it remain in place until final disposition of the lawsuit, or until a contrary order by a judge of the Court of Queen's Bench - On February 19, 2008, the Alberta Court of Queen's Bench set aside the interlocutory injunction - A strong prima facie case was not established because the restrictive covenants had expired - The court did not consider irreparable harm and balance of convenience - The Alberta Court of Appeal upheld the decision - The chambers judge would have come to the same conclusion even if she applied the irreparable harm and balance of convenience elements - The passage of time affected both the potential harm to the plaintiffs and the potential enforceability of the covenants - The plaintiffs had over four years to develop their business - Moreover, compensation for the alleged harm would be addressed at trial - See paragraphs 1 to 5, 27 to 40.

Injunctions - Topic 1805

Interlocutory or interim injunctions - Requirement of irreparable injury - Covenants not to compete - [See Injunctions - Topic 1607 ].

Injunctions - Topic 5971

Particular matters - Restrictive covenants - Covenant not to compete - [See Injunctions - Topic 1607 ].

Cases Noticed:

Metropolitan Life Insurance Co. v. Hover (1999), 237 A.R. 30; 197 W.A.C. 30; 1999 ABCA 123, refd to. [para. 8].

Russell Food Equipment (Calgary) Ltd. v. Valleyfield Investment Ltd. (1962), 40 W.W.R.(N.S.) 292; 1962 CarswellAlta 57 (S.C.), refd to. [para. 8].

Indian Residential Schools, Re (2001), 286 A.R. 307; 253 W.A.C. 307; 2001 ABCA 216, refd to. [para. 9].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 9].

Medical Laboratory Consultants Inc. et al. v. Calgary Health Region (2005), 363 A.R. 283; 343 W.A.C. 283; 2005 ABCA 97, refd to. [para. 10].

Globex Foreign Exchange Corp. v. Kelcher et al. (2005), 376 A.R. 133; 360 W.A.C. 133; 2005 ABCA 419, refd to. [para. 10].

Meyer v. Partec Lavalin Inc. et al. (2001), 281 A.R. 339; 248 W.A.C. 339; 2001 ABCA 145, leave to appeal refused (2002), 289 N.R. 198; 299 A.R. 327; 266 W.A.C. 327 (S.C.C.), refd to. [para. 11].

Jager v. Liberty Mutual Fire Insurance Co. et al. (2001), 281 A.R. 273; 248 W.A.C. 273; 2001 ABCA 163, refd to. [para. 11].

Double N Earthmovers Ltd. v. Edmonton (City) et al. (2005), 363 A.R. 201; 343 W.A.C. 201; 2005 ABCA 104, refd to. [para. 11].

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; 111 D.L.R.(4th) 385, refd to. [para. 21].

Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445; 94 N.R. 261; 59 D.L.R.(4th) 660, refd to. [para. 22].

Kensington Energy Ltd. v. B & G Energy Ltd. (2008), 432 A.R. 141; 424 W.A.C. 141; 2008 ABCA 151, refd to. [para. 22].

ATCO Electric Ltd. v. Energy and Utilities Board (Alta.) (2004), 361 A.R. 1; 339 W.A.C. 1; 31 Alta. L.R.(4th) 15; 2004 ABCA 215, refd to. [para. 22].

Morrison v. Pantony (Rod) Professional Corp. (2008), 429 A.R. 259; 421 W.A.C. 259; 2008 ABCA 145, refd to. [para. 22].

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. 27].

American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.), refd to. [para. 27].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 29].

Enerflex Systems Ltd. v. Lynn (2005), 363 A.R. 136; 343 W.A.C. 136; 2005 ABCA 62, refd to. [para. 30].

Globex Foreign Exchange Corp. v. Kelcher et al. (2005), 376 A.R. 133; 360 W.A.C. 133; 2005 ABCA 419, refd to. [para. 30].

Dreco Energy Services Ltd. et al. v. Wenzel et al. (2004), 365 A.R. 135; 2004 ABQB 842, refd to. [para. 35].

Authors and Works Noticed:

Sharpe, Robert J., Injunctions and Specific Performance (2nd Ed. 1992) (Looseleaf), pp. 2-20 to 2-27 [para. 28].

Counsel:

T.W. Wakeling, Q.C., and P.D. Banks, for the appellants;

R. M. Curtis, Q.C., and T.W. Achtymichuk, Q.C., for the respondents.

This appeal was heard on June 4, 2008, by Berger, Ritter and Rowbotham, JJ.A., of the Alberta Court of Appeal. The Court of Appeal delivered the following memorandum of judgment on August 26, 2008.