Ensign Drilling Inc. v. Lundle et al., (2007) 418 A.R. 267 (QB)

• Judge: J.D.B. McDonald, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: May 25, 2007
• Citations: (2007), 418 A.R. 267 (QB);2007 ABQB 357

Ensign Drilling Inc. v. Lundle (2007), 418 A.R. 267 (QB)

MLB headnote and full text

Temp. Cite: [2007] A.R. TBEd. MY.099

Ensign Drilling Inc. (plaintiff) v. Murray Lundle, Totem Drilling Ltd. and Ron Grozell (defendants)

(0601 05067; 2007 ABQB 357)

Indexed As: Ensign Drilling Inc. v. Lundle et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

J.D.B. McDonald, J.

May 25, 2007.

Summary:

On October 31, 2003, in connection with the sale of a group of companies, Lundle and Grozell agreed, for a five year period, not to compete with Ensign Drilling Inc. in the contract drilling business in any of the western provinces. In March 2006, Lundle entered into a contract services agreement with Totem Drilling Ltd. Grozell subsequently became involved with Totem. In an action for an accounting of profits and damages relating to the breach of the non-competition agreements, Ensign sought a permanent injunction enjoining Lundle, Grozell and Totem from competing with Ensign. The defendants conceded that the agreements had been breached but contested the agreements' enforceability.

The Alberta Court of Queen's Bench held that the non-competition agreements were valid and enforceable. Lundle and Grozell were in blatant breach of them. Totem had participated in inducing Lundle and Grozell to breach their agreements. The court granted a permanent injunction to November 1, 2008, requiring Lundle and Grozell to comply with their agreements and requiring Totem to conduct itself in such a manner as to ensure that it did not assist or permit Lundle and Grozell to be in breach of their agreements.

Business Law - Topic 2511

Sale of a business - Non-competition clauses - [See Contracts - Topic 6732 and Injunctions - Topic 1441 ].

Contracts - Topic 5641

Unenforceable contracts - Uncertainty and vagueness - General - [See Contracts - Topic 6732 ].

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete - On October 31, 2003, in connection with the sale of a group of companies, Lundle and Grozell agreed, for a five year period, not to compete with Ensign Drilling Inc. in the contract drilling business in any of the western provinces - From the sale proceeds, Lundle received approximately $1.5 million - Grozell received $205,870.90 - In March 2006, Lundle entered into a contract services agreement with Totem Drilling Ltd. - Grozell subsequently became involved with Totem - Ensign sought a permanent injunction enjoining Lundle, Grozell and Totem from competing with Ensign - The defendants conceded that the agreements had been breached - At issue was the agreements' enforceability - The Alberta Court of Queen's Bench held that the non-competition agreements were valid and enforceable - The fact that neither Lundle nor Grozell sought legal advice was no defence - Nor was there any merit to an argument regarding a lack or insufficiency of consideration - The geographical scope and five year term of the agreements were both reasonable - The fact that Ensign was a considerably larger company did not mean that the parties were not on equal bargaining terms - There was no public interest reason for breaching the agreements - Finally, the phrases "contract drilling business" and "provinces of western Canada" were not so imprecise as to render the agreements void for vagueness - See paragraphs 51 to 117.

Injunctions - Topic 1441

Permanent injunctions - When granted - General - On October 31, 2003, in connection with the sale of a group of companies, Lundle and Grozell agreed, for a five year period, not to compete with Ensign Drilling Inc. in the contract drilling business in any of the western provinces - In March 2006, Lundle entered into a contract services agreement with Totem Drilling Ltd. - Grozell subsequently became involved with Totem - In an action relating to the breach of the non-competition agreements, Ensign sought a permanent injunction enjoining Lundle, Grozell and Totem from competing with Ensign until November 1, 2008 - The defendants conceded that the agreements had been breached but contested their enforceability - The Alberta Court of Queen's Bench allowed the application for an injunction - The agreements were valid and enforceable - Lundle and Grozell were in blatant breach - Ensign had moved quickly for an interim injunction - There was no basis for any equitable defence preventing them from obtaining a permanent injunction - Totem had participated in inducing Lundle and Grozell to breach their agreements - While Totem was within its rights in competing with Ensign, it could not involve Lundle and Grozell in that business - See paragraphs 118 to 135.

Injunctions - Topic 5971

Particular matters - Restrictive covenants - Covenant not to compete - [See Injunctions - Topic 1441 ].

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. 3].

Doerner v. Bliss & Laughlin Industries Inc. et al., [1980] 2 S.C.R. 865; 34 N.R. 168, refd to. [para. 64].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 66].

Tank Lining Corp. v. Dunlop Industrial Ltd. (1982), 40 O.R.(2d) 219 (C.A.), refd to. [para. 67].

Esso Petroleum Co. v. Harper's Garage (Stourport) Ltd., [1968] A.C. 269 (U.K.H.L.), refd to. [para. 69].

McDonald's Restaurants of Canada Ltd. v. West Edmonton Mall Ltd. (1994), 159 A.R. 120 (Q.B.), refd to. [para. 78].

Reed Stenhouse Ltd. v. Foster et al. (1989), 98 A.R. 49 (Q.B.), refd to. [para. 80].

McAllister et al. v. Cardinal, [1965] 1 O.R. 221, refd to. [para. 80].

Coast Testing (Canada) Ltd. v. Cook et al., [1990] B.C.T.C. Uned. 158 (S.C.), refd to. [para. 80].

Promotional Wearhouse v. Campbell (2002), 331 A.R. 344; 2002 ABQB 502, refd to. [para. 80].

Dale and Co. v. Land (1987), 84 A.R. 52; 56 Alta. L.R.(2d) 107 (C.A.), refd to. [para. 99].

Baker v. Lintott (1980), 25 A.R. 512 (Q.B.), dist. [para. 102].

Sherk et al. v. Horwitz, [1972] O.J. No. 1732 (H.C.), dist. [para. 102].

Capital Safe & Lock Service Ltd. et al. v. Steeves et al. (2000), 230 N.B.R.(2d) 117; 593 A.P.R. 117 (C.A.), refd to. [para. 113].

Towers, Perrin, Forster & Crosby Inc. et al. v. Cantin et al. (1999), 46 O.R.(3d) 180 (Sup. Ct.), refd to. [para. 125].

Mardon & Campbell Insurance Brokers Ltd. v. Creed et al., [2002] B.C.T.C. Uned. 434; 2002 BCSC 1342, refd to. [para. 125].

Counsel:

Grant Vogeli and Robert D. Wood (Burnet Duckworth & Palmer LLP), for the plaintiff;

Michelle H. Hollins and Jason L. Wilkins (Dunphy Best Blocksom LLP), for the defendants.

This application was heard on April 16-19 and 23, 2007, by J.D.B. McDonald, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following memorandum of decision on May 25, 2007.