Hydro Kleen Systems Inc. et al. v. Park et al., (2003) 351 A.R. 86 (QB)

• Judge: Mahoney, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: September 30, 2003
• Citations: (2003), 351 A.R. 86 (QB);2003 ABQB 802

Hydro Kleen Systems Inc. v. Park (2003), 351 A.R. 86 (QB)

MLB headnote and full text

Temp. Cite: [2003] A.R. TBEd. SE.107

Hydro Kleen Systems Inc., Robert Watts, Barry Pritchard and 565030 Alberta Ltd. (plaintiffs) v. William Park, Robert Brown, R.J. Summer Electric Ltd., 465523 Alberta Ltd., Eliminator Pigging Systems Inc., and Michael Palamarek (defendants)

Robert Brown, R.J. Summer Electric Ltd. and Eliminator Pigging Systems Inc. (plaintiffs by counterclaim) v. Hydro Kleen Systems Inc., Robert Watts, Barry Pritchard and 565030 Alberta Ltd. (defendants by counterclaim)

(Action No. 0201-09922; 2003 ABQB 802)

Indexed As: Hydro Kleen Systems Inc. et al. v. Park et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Mahoney, J.

September 30, 2003.

Summary:

The plaintiffs sued the defendants for breach of fiduciary duty. They alleged that the defendants Brown and Park, as former employees of the plaintiff companies, breached their fiduciary duty to the companies when they wrongfully resigned and later set up a competing company. Some of the defendants, who owned shares in the plaintiff companies, counterclaimed seeking relief on the ground of shareholder oppression.

The Alberta Court of Queen's Bench allowed the plaintiffs' action in part and dismissed the counterclaim.

Equity - Topic 1485

Equitable principles respecting relief - Clean hands doctrine - Prohibition against challenging transaction on basis of own wrong - The Alberta Court of Queen's Bench stated that the "law of equity has a maxim: 'Those who come seeking equity must come with clean hands.' This means that a claimant asking for what it thinks is right and fair now, must show that its past record in the transaction is clean. Put simply, a party seeking fair play must play fair ... This 'clean hands' maxim however, cannot be taken too far. As the equity law textbooks say, equity does not demand that it suitors lead blameless lives. But if there is a relationship between the remedy sued for and a history of wrongdoing on behalf of the suitor then relief will be denied. The bona fides of the applicant helps in determining the merits of the application." - See paragraphs 51 and 52.

Equity - Topic 3646

Fiduciary or confidential relationships - Breach of fiduciary relationship - By former director and shareholder of company -[See Equity - Topic 3648 ].

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - In 1993, Watts, Pritchard, Brown and Park started a company (Hydro Kleen) - They were all shareholders - In June 1995, Brown and Park quit - In the Spring of 1996, Brown started a company (Eliminator) which competed directly with Hydro Kleen - Park later joined Brown and Eliminator - Eliminator had initial success but eventually failed by 2002 - Watts, Pritchard, Hydro Kleen et al. sued, inter alia, Brown and Park for breach of fiduciary duty - The Alberta Court of Queen's Bench allowed the action - As co-developers of the Hydro Kleen process, founding shareholders, directors for a time and key employees, Brown and Park owed a fiduciary duty to Hydro Kleen - With their hands-on knowledge and experience, the company depended on them, especially in the early going - As fiduciaries, Brown and Park, for a reasonable time, were precluded from exercising any advantage derived from their position at Hydro Kleen in order to compete through their new company - As Eliminator had failed and its assets had been sold, the court ordered that Brown and Park pay damages to Hydro Kleen for breach of fiduciary duty by forfeiting their own and their related companies' outstanding shareholders loans to Hydro Kleen and a related company (approx. $100,000) - See paragraphs 9 to 29.

Master and Servant - Topic 4207

Duties of servant - General - Fiduciary duty - [See Equity - Topic 3648 ].

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Equity - Topic 3648 ].

Master and Servant - Topic 8155

Resignation - Notice of resignation - When required - The Alberta Court of Queen's Bench stated that "even though 99% of the time there is a power imbalance favouring employers over employees, each must give reasonable notice to the other of their intention to terminate the employment contract. Concerning the employer, this notice requirement gives it a reasonable time to find a replacement and, if necessary, adapt the workplace. What is reasonable notice depends on factors similar to a wrongful dismissal of employees but mainly it is determined by the length of time to find a suitable replacement." - See paragraph 33.

Cases Noticed:

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 16].

Rajput v. Menu Foods Ltd. (1984), 5 C.C.E.L. 22 (Ont. H.C.), refd to. [para. 17].

Tree Savers International Ltd. et al. v. Savoy et al., [1991] A.J. No. 686 (Q.B.), revd. in part (1992), 120 A.R. 368; 8 W.A.C. 368 (C.A.), refd to. [para. 18].

Anderson Preece & Associates Inc. v. Dominium Appraisal Group Inc. et al. (2001), 309 A.R. 124 (Q.B.), refd to. [para. 24].

Cadbury Schweppes Inc. et al. v. FBI Foods Ltd. et al., [1999] 1 S.C.R. 142; 235 N.R. 30; 117 B.C.A.C. 161; 191 W.A.C. 161, refd to. [para. 24].

Cheung v. Forgen Computer Systems Ltd. et al. (1991), 123 A.R. 357 (Q.B.), refd to. [para. 37].

Goldex Mines Ltd. v. Revill et al. (1974), 7 O.R.(2d) 216 (C.A.), refd to. [para. 37].

Calmont Leasing Ltd. v. Kredl et al. (1995), 165 A.R. 343; 89 W.A.C. 343; 30 Alta. L.R.(3d) 16 (C.A.), refd to. [para. 39].

Jones v. Lenthal (1669), 1 Cas. in Ch. 154, refd to. [para. 51].

Lederer et al. v. 372116 Ontario Ltd. et al. (2000), 50 O.R.(3d) 282 (Sup. Ct.), affd. (2000), 141 O.A.C. 338; 53 O.R.(3d) 203 (C.A.), refd to. [para. 52].

Authors and Works Noticed:

England, Geoffrey, Christie Innis, and Christie, Merran, Employment Law in Canada (3rd Ed. 1998), para. 11.164 [para. 20].

Peterson, Dennis H., Shareholders Remedies in Canada (1989), para. 18.21 [para. 38].

Counsel:

Don Dear and Neal McLennan (McLennan Ross LLP), for the plaintiffs, Hydro Kleen Systems Inc., Robert Watts and 565030 Alberta Ltd.;

Terry Czechowskyj (Miles Davison McCarthy McNiven LLP), for the defendants, William Park, Robert Brown, R.J. Summer Electric Ltd., 465523 Alberta Ltd. and Eliminator Pigging Systems Inc.;

David Holt (Hladun & Company), for the plaintiff, Barry Pritchard.

This action and counterclaim were heard on March 3 to 28, 2003, by Mahoney, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following reasons for judgment on September 30, 2003.