32262 B.C. Ltd. v. Pacific Sign and Design Ltd. et al

2003BCSC1724

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 32262 B.C. Ltd. v. Pacific Sign and Design Ltd. et al 2003 BCSC 1724 Date: 20031021 Docket: S039517 Registry: New Westminster Between: 32262 B.C. LTD. Plaintiff And PACIFIC SIGN AND DESIGN LTD.

CHRISTOPHER JOHN JORDON

CAMERON GEORGE HILL

DALE WLASICHUK

SHARON CHOUINARD

JOHN MONTGOMERIE

TREVOR FOSTER

MARGARET HARRIET SCHNEIDER

SATISH CHAND

HENRY DAVIS

ED STARK

DAVID KIRBY BURNETT

HENRY HAVELOCK KIPLING AKA ALAN KIPLING Defendants Before: The Honourable Mr. Justice Groberman Oral Reasons for Judgment October 21, 2003 Counsel for Plaintiff R. Ellis Counsel for Defendants C. Ferris K. Bourchier [1] THE COURT: From the time that the defendant company was formed in 1996, it has been a competitor of the plaintiff in the business of designing, selling and manufacturing commercial and industrial signs. The defendant company was formed by ex-employees of the plaintiff. The plaintiff alleges its former employees entered into competition with it in breach of fiduciary duties and duties of good faith. Summary Trial Application Under Rule 18A [2] The trial of this matter is currently scheduled for February of 2004. Nine of the defendants bring a summary trial application under Rule 18A seeking to have the claim as against them dismissed. The defendant company and its principals - Christopher John Jordon, Cameron George Hill, and Dale Wlasichuk - are not taking any role on this application. [3] A good deal of the factual background is uncontroversial. All of the applicants worked for the plaintiff immediately prior to taking employment with the corporate defendant, with the exception of Mr. Stark who had left some time previously. None were in top management positions, nor could any be described as controlling minds of either the plaintiff or defendant companies. [4]

The defendant company succeeded in gaining a number of contracts with former customers of the plaintiff. Most notable was a large contract with Southland Canada Inc., which operates the 7-Eleven chain of convenience stores across Canada. The plaintiff alleges that the principals of the defendant breached fiduciary duties to it by utilizing its customer lists and its contacts in stealing business away from it. The Applicants' Employment [5] As the employment positions of each of the applicants is of some importance, I will summarize them. [6] Sharon Chouinard is a project coordinator with the defendant company. She held a similar position with the plaintiff for three years prior to leaving in 1996. The position involved placing orders for production and coordinating the purchase and installation of materials. She had no significant contact with customers or clients of the plaintiff during her employment there, nor did she have any significant management responsibilities. [7] John Montgomerie was a salesman with the plaintiff company for a short period in 1987 and then again for a period of less than a year prior to taking employment with the defendant company in January 1997. He remained in a sales position with the defendant company for less than a year. He deposes that he did not approach any of the plaintiff's customers attempting to solicit business during the course of his

employment with the defendant company. [8] Trevor Foster was a draftsman with the defendant for almost two years, ending in October 1996. His duties included preparation of permit drawings and doing vinyl and neon layouts and general drawings. He was employed by the defendant corporation for just under two years following termination of his employment with the plaintiff [9] Margaret Harriet Schneider is a graphic artist. She was employed by the plaintiff from January 1993 to October 1996. She created art renderings of sign displays for approval by customers of the plaintiff, as well as finished artwork for production purposes. She went to the defendant corporation and continued to work there until January 1999. [10] Satish Chand is an electrician. He has been employed by the defendant corporation since November 1996. Prior to that he was with the plaintiff for over nine years working as a general worker doing shop cleanup, testing used sign parts, doing basic wiring of signs, and removing used parts from signs for re-use. [11] Henry Davis is a welder. He worked with the plaintiff from October 1987 to October 1996, except for a two-year period between 1992 and 1994. His duties included doing sheet metal work, welding, and general mechanical work. In November 1996 he took a position with the defendant company. He has since left its employ, and now resides in Australia. [12] Ed

Stark has worked for a number of sign companies in his career. He worked for the plaintiff as a production manager between March 1994 and May of 1995 or May of 1996, depending on whether the plaintiff's or defendant's affidavit is correct. At that time his employment was terminated. He did not have significant customer or client contact during his tenure with the plaintiff company. Thereafter, he worked for a company known as Mercury Metals, before going to work for the defendant corporation in mid-October 1996. Mr. Stark helped recruit production staff, but not sales people or office workers, for the defendant company. He was not directly involved with customers or clients in any significant way. [13] David Kirby Burnett worked for the plaintiff from 1986 to 1990 and from 1993 to 1996, primarily as a purchaser. He joined the defendant corporation as a purchaser and part-time estimator in October 1996, and remained there until May 2001. [14] Henry Havelock Kipling, also known as Alan Kipling, was employed with the plaintiff doing sign display installations for four years prior to his departure in January 1996, whereupon he began work with the defendant company as a vinyl layout worker. [15] While the vice president and general manager of the plaintiff has described the defendants as having occupied key positions in almost every significant department the plaintiff operated, I

am satisfied that that is an exaggeration, as is the description of a number of employees as having management positions. The Allegation of Breach of Fiduciary Duty [16] The plaintiff's case against all defendants is framed as breach of fiduciary obligation. Its primary allegations against the applicants, however, are that they aided the other defendants in stealing its clients. [17] It is clear that upper level management employees of a company owe fiduciary obligations to their employers and that these duties continue even after termination of the employment relationship: Canadian Arrow Service v. O'Malley (1973), 43 D.L.R.(3d), 371 (SCC). Such fiduciary duties, however, do not generally extend to lower level employees or middle management. I accept as good law what was stated by Smith J. in R.W. Hamilton Ltd. v. Aeroquip Corporation, (1988) 40 B.L.R. 79 (Ont. H.C.J.) at 86: An officer or manager will not be saddled with a fiduciary duty under Canadian Aero Service unless the position he occupies contains the power and the ability to direct and guide the affairs of the company. A title may or may not match reality per se. It is superficial and as such of little interest or assistance to the Court. The job content is what the trial Judge must define in light of all the evidence and of all reasonable inferences derived from it. A judgment call thereupon follows in the nature of

a finding of fact as to whether the defendant was an agent or an employee. [18] The plaintiff concedes that the applicants are lower level employees who do not have fiduciary obligations solely by reason of their employment positions. It says, however, that by joining with the other defendants in a competing business the applicants have made themselves parties to a breach of fiduciary duty. [19] Case law does support the proposition that a junior employee who assists a more senior one in a breach of a fiduciary duty will also be libel for the breach. In Alberts v. Mountjoy (1977), 79 D.L.R.(3d) 108 at 119-20, Estey, C.J. dealt with a situation that the plaintiff says is similar to the one at bar: In this case the defendant Mountjoy stood in a fiduciary relationship to the plaintiff and there was accordingly imposed upon him a "larger, more exacting duty" than a duty simply to respect his former employer's trade secrets and the confidentiality of its customer lists. As well, where a defendant of lower rank such as the defendant Butt might have claimed immunity from the duties attaching to a fiduciary, he lost that advantage in joining with Mountjoy in the new business venture which successfully diverted the business opportunity of his former employer and fixed him with the same fiduciary duty as Mountjoy. While there is no direct evidence of planning by the defendants while in

the plaintiff's employ, the irresistible inference which I have drawn from the documentation, from the timing of the events, and from my opportunity to examine the witnesses Mountjoy, Butt and Wright in the witness-box is that they did indeed consider the opportunities open to them to divert certain of the plaintiff's business to the defendant Mountjoy's new agency. The benefit resulting to the defendant Mountjoy obviously was the ownership of his own agency, and the benefit to the defendant Butt was continued employment without interruption in the same business. Honest intention is in this branch of the law no defence; nor is justification on the grounds of the real or imaginary mistreatment accorded or threatened by the new management of the plaintiffs. In my view, the evidence is clear and the inference irresistible, that the defendant Mountjoy set out to establish his own business and to do so by gaining for it the premium income theretofore enjoyed by the plaintiff from its insurance clientele. The defendant Butt participated in this plan at a level commensurate with that which he enjoyed in his employ with the plaintiff. By the end of the first month's operation of the new business established by the defendant Mountjoy, 100% of its commission income came from former clients of the plaintiff. [20] There are limits to how far one can take the reasoning of Alberts v.

Mountjoy. A party who knowingly and actively participates in another party's breach of fiduciary obligation and reaps an advantage from it, is rightly considered to be liable for the breach. On the other hand, I do not believe that a lower level employee who neither directly assists in a breach, nor enjoys a direct benefit from the breach can be held liable. The degree of complicity necessary to make such an employee a party to a breach of fiduciary obligation is simply not present in such situations. [21] I cannot conceive that the court in Alberts v. Mountjoy intended that a general worker in a sign shop responsible for salvage of used electrical components would be precluded from taking similar work with another sign company. To hold such a person liable for breach of fiduciary duty because a director of the new company inappropriately solicited business from a client of his former employer is to stretch the concept of fiduciary obligation much further than can be justified. [22] The plaintiff acknowledges that none of the applicants was in a position that would ordinarily attract fiduciary obligations. The description of the actual duties of the defendants convinces me that they were lower level employees, with only Mr. Stark having any significant managerial responsibilities. Even his responsibilities fell short of those necessary to found fiduciary obligations. [23] The

plaintiff's case against the applicants for breach of fiduciary duty is not sustainable. At its highest, the plaintiff's case is that the principals of the defendant company used contacts and information gained while working for the plaintiff to obtain business for the defendant company. If the plaintiff makes out those allegations, it will have gone a long way towards proving that those particular defendants are liable for breach of fiduciary duty. Even if that is proven, however, it will not be sufficient to visit liability on the applicants. They appear to have taken jobs with the defendant corporation out of a desire to gain greater job satisfaction, to increase their remuneration, and to enhance their career prospects. The law ought not to make it risky for low level workers to follow such a course of action for fear that any sins committed by the owners and directors of their new company will be visited upon them. [24] With respect to the Southland contract and others, I am satisfied that the applicants are not guilty of being parties to the breach of the fiduciary duty. Whatever might be the case with the remaining defendants, the applicants were mere employees who took positions with the defendant corporation because they were disenchanted with their former employer and believed that their prospects would be better with the new company. [25] The plaintiff has not

produced evidence to establish a conspiracy to breach the remaining defendants fiduciary obligations to the plaintiff, nor can it show any complicity on the part of the applicants in any such breach. Other Allegations Against the Applicants [26] Two other allegations of substance are made against the applicants. First, it is said that they used "trade secrets" of the plaintiff in doing their work with the defendant corporation. [27] In my view this allegation must also fail. While the plaintiff had developed efficient ways to design and construct signs, these did not amount to confidential information. There were no "trade secrets" appropriated by the applicants. Rather they were trained employees who came, through experience, to recognize how their jobs could be done most efficiently. The evidence falls far short of establishing that they possessed secret information in which the plaintiff holds property rights. Rather they have, through experience, simply developed expertise of a non-proprietary nature in the sign industry. [28] The final allegation made by the plaintiff is that the applicants, or some of them, breached their duties of good faith to the plaintiff during the course of their employment. [29] It is clear that even a low level employee owes a duty of good faith to an employer, though that duty will not normally survive the termination of the employment

contract. [30] In this case, there is some evidence that Mr. Foster and Ms. Schneider may have been designing signs for the defendant corporation prior to terminating their employment with the plaintiff. The particular signs in question were for 7-Eleven. To do such work for the defendant while still employed with the plaintiff would have been a clear breach of a duty of good faith. [31] Mr. Foster and Ms. Schneider deny the allegation. They say the dates on documents which implicate them in designing the signs during their employment with the plaintiff are mistaken. There is, in my view however, sufficient suspicious evidence that I do not think it appropriate to dismiss the case against them on a Rule 18A application. The issues are, I think, properly seen as credibility issues and they ought not to be determined without a judge hearing viva voce evidence in a trial. [32] These concerns do not apply, however, to the other applicants, who were involved primarily in the production rather than design of signs. There is no credible theory upon which I could conclude that they were working for the defendant corporation at the time that they were still employed by the plaintiff. Order [33] Accordingly I am granting the application by the defendants, Chouinard, Montgomerie, Chand, Davis, Stark, Burnett, and Kipling to have the claim against them dismissed. Costs will follow on scale

three. [34] I am dismissing the application by the defendants Foster and Schneider. In respect of those defendants, costs of this application will be in the cause. "H. Groberman, J." The Honourable Mr. Justice H. Groberman December 5, 2003 - Corrigendum to the Oral Reasons for Judgment issued by Mr. Justice H. Groberman advising that the Counsel for the Plaintiff should read R. Ellis, and the Counsel for the Defendants should read C. Ferris and K. Bourchier.