Hawkes v. Levelton Holdings Ltd.

2011 BCSC 861 Hawkes v. Levelton Holdings Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Hawkes v. Levelton Holdings Ltd., 2011 BCSC 861 Date: 20110629 Docket: S108241 Registry: Vancouver Between: Darryl Hawkes Plaintiff And: Levelton Holdings Ltd., Levelton Consultants Ltd., Neil Alexander Cumming, Alex Schutte Defendants Before: The Honourable Mr. Justice Macaulay Reasons for Judgment (In Chambers) Counsel for the Plaintiff: D.S. Boyle Counsel for the Defendants: S.R. Brearley and D.L. Rusnak Place and Date of Hearing: Vancouver, B.C. May 13, 2011 Place and Date of Judgment: Vancouver, B.C. June 29, 2011 [1] On December 21, 2010, Harris J. ordered a time limited interim injunction that, among other provisions, enjoined the defendants, or any of them, from transferring shares in Levelton Holdings Ltd. ("Holdings"), held in the name of the plaintiff ("Hawkes"), without his consent. The injunction was in effect until March 31, 2011 (the "injunction period"), but the order also provided that Hawkes had liberty to apply for further injunctive relief at a hearing de novo. By consent, the injunction period was later extended to May 14, 2011, and I heard Hawkes' fresh application for injunctive relief on May 13, 2011. At the conclusion of the hearing, I reserved judgment but varied and extended the original injunction pending my decision. This is my decision. [2] Hawkes is both a long-time shareholder in Holdings and

was, until November 22, 2010, also an employee of Levelton Consultants Ltd. ("Consultants") and its predecessors since 1992. Consultants is wholly owned by Holdings. There are, in total, 22 shareholders in Holdings. Apart from Hawkes, the rest of the shareholders are still employees of Consultants. [3] Hawkes contends that Consultants wrongfully terminated his employment on November 22, 2010. Consultants disputes the claim and alleges that it had cause to terminate Hawkes. There is no question that Consultants did, in fact, terminate Hawkes' employment with the company on November 22, 2010. Even though the injunction does not directly relate to the claim of wrongful dismissal, the question whether Hawkes was dismissed for cause impacts on another question raised in the proceeding, to which the injunction directly relates, namely, whether a triggering event has occurred justifying the transfer of Hawkes' shares in Holdings to other shareholders over the objection of Hawkes. [4] The leading B.C. case on interlocutory injunctions is British Columbia (Attorney General) v. Wale (1986), 9 B.C.L.R. (2d) 333 (C.A.), aff'd (1991), 53 B.C.L.R. (2d) 189 (S.C.C.), where McLachlin J. described the two-pronged test in the following terms, at para. 45: ... First, the applicant must satisfy the Court that there is a fair question to be tried as to the existence of the right which he alleges

and a breach thereof, actual or reasonably apprehended. Second, he must establish that the balance of convenience favours the granting of an injunction. [5] The court in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385, added another stage between the two stages of the Wale test that required the plaintiff to establish that it may suffer irreparable harm if the injunction is not granted. The test is set out in that case as follows, at 334: ... First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. It may be helpful to consider each aspect of the test and then apply it to the facts presented in these cases. McLachlin J. in Wale considered the question of irreparable harm to be a part of determining the balance of convenience, although a plaintiff will rarely ever succeed in obtaining an injunction without being able to establish irreparable harm. [6] All that the applicant need demonstrate at the first stage of the application is that the claim is not frivolous or vexatious, and that there

is a serious question to be tried: American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.), expressly adopted in RJR-MacDonald. In determining a fair or serious question to be tried, a plaintiff obviously need not establish that he will succeed at trial on a balance of probabilities. Instead, the threshold is a low one: North Pender Island Local Trust Committee v. Conconi, 2009 BCCA 174. If the case is not obviously frivolous, the court will normally proceed to the irreparable harm and balance of convenience requirements without further examination of the merits. [7] The purpose of the application is to determine what will be the state of affairs until the merits can be finally determined. There are exceptions but I need not consider them here as none apply. [8] I am persuaded on the evidence before me that there is a serious or fair question to be tried in relation to the alleged wrongful dismissal. I do not consider it necessary to review the evidence of wrongful dismissal in great detail. It is vigorously contested. [9] According to Consultants, concerns arose over Hawkes' expenses in October 2010. The concerns resulted in a close look at previous expense reports and, again, according to Consultants, the company found that Hawkes expensed his attendances at two hockey camps, one in 2008 and one in 2010. Hawkes contends that there were legitimate networking and business

development aspects to the camps so as to justify the expenses. He further claims that the expenses were approved in advance. [10] There are significant credibility issues relating to these issues. For example, there is some evidence that the invoice submitted in support of the 2010 expense was altered at Hawkes' request to delete reference to the hockey camp and to describe it instead as a networking and business development symposium. [11] In addition to the above, Consultants also alleges that Hawkes claimed expenses for multiple vehicles contrary to company policy. Hawkes acknowledges that he claimed expenses for more than one vehicle but states that doing so was not contrary to any policy. According to him, other employees did the same thing. On the other side of the issue, the written policy in evidence is, in my view, reasonably capable of supporting a conclusion that the employer agreed to pay the leasing, subject to a $500 per month cap, and reasonable operating costs of a single vehicle. [12] An employer may terminate an employee for cause, and, accordingly, without reasonable notice, if the employee acts dishonestly in a way that causes a breakdown in the employment relationship: McKinley v. BC Tel, 2001 SCC 38. [13] For present purposes, the more important question is whether there is a serious or fair question to be tried respecting the alleged breach of the

agreements that the shareholders in Holdings entered into in 2005 and 2009 (respectively the "2005 and 2009 shareholders agreements"). Consultants is not a shareholder in Holdings and accordingly, is not a party to either of the shareholders agreements. [14] According to Hawkes, the 2009 shareholders agreement does not permit any of the defendants to force the sale of his shares in Holdings upon his dismissal by Consultants. The 2009 shareholders agreement contains a buy-sell provision that comes into operation in the event of a triggering event as defined in the agreement. One of the triggering events, as defined in s. 10.1(g) of the agreement, is "if a Shareholder ceases to be an employee of the Company or any Subsidiary for any reason other than for cause." For the purpose of the agreement, Holdings is the company and Consultants is a subsidiary. [15] Section 12.2(a) of the 2009 agreement provides: On the occurrence of a Triggering Event and service of notice pursuant to Paragraph 10.2, the Company shall cause the Shares (the "Triggered Shares") owned by the Triggering Shareholder to be offered for sale ... [to other shareholders]. Section 15.9 appoints the secretary of Holdings, or alternatively the chairman, as attorney authorized to effect the transfer contemplated above. Hawkes alleges that the personal defendants are the same persons authorized pursuant to s. 15.9. [16]

The 2005 shareholders agreement was different. Section 9.0 addressed the effect of end-of-employment and s. 9.1(e) defined the default of a shareholder, in part, as: materially breaches the terms of ... an employment agreement with the Company or any subsidiary of the Company, or the Company, or any subsidiary of the Company, terminates his employment for cause. In addition, s. 9.2 defined a defaulting shareholder, in part, as one who commits a default (s. 9.2(a)) or one who "voluntarily ends his employment with the Company or a subsidiary of the company" (s. 9.2(c)). In any of those events, Holdings was entitled to force the sale of the employee's shares but, arguably, not otherwise. [17] When the shareholders of Holdings entered into the 2009 shareholders agreement, Holdings issued a memorandum stating that because s. 9.0 of the 2005 shareholders agreement was silent on the matter of termination without cause, and in the event of a future termination of an employee without cause, the employee should retain the ability "to argue the validity of the termination under the terms of the 2005 Agreement" (the "May 2009 memorandum"). [18] The May 2009 memorandum in its entirety reads: Section 9.0 of the September 6, 2005 Shareholders Agreement is silent on the matter of a termination of a shareholder's employment without cause. One interpretation of this is that the company does not

have the ability to terminate a shareholder's employment without cause. In the event of a future termination of a shareholder's employment without cause, the ability to argue the validity of the termination under the terms of the 2005 Agreement should be preserved. Without admitting that anything precludes Levelton Holdings Ltd. or any of its subsidiaries (the "Corporations") from terminating any employee without cause at any time, the Corporations agree that if any shareholder (the "Shareholder") of Levelton Holdings Ltd., as of June 29, 2009, is terminated without cause at any time prior to June 30, 2014, the Corporations agree that the issue of whether the Shareholder can be terminated without cause will be decided as if Section 9.0 of the 2005 Agreement remains in force and effect. It appears that Hawkes was instrumental in securing that concession at the time. [19] According to counsel, two principal questions arise: first, whether or not s. 9.0 of the 2005 shareholders agreement operates as a bar to the sale of the shares if Hawkes was terminated, other than for cause; and second, assuming that Hawkes was not terminated for cause, was there nonetheless a triggering event under s. 10.1(g) of the 2009 shareholders agreement? [20] Although the defendants present both questions as necessary, I am not sure that is the case. In my view, depending on the answer to the first

question, a different intervening question arises. [21] There is no question that dismissal for cause constitutes a triggering event under both the 2005 and 2009 shareholders agreements but the defendants maintain that dismissal other than for cause also triggers the sale of shares under the 2009 shareholders agreement in spite of the May 2009 memorandum and the 2005 shareholders agreement. If Hawkes prevails on the first question, including overcoming the obvious hurdle as to whether Consultants was, in the circumstances, bound by the terms of the May 2009 memorandum and the 2005 shareholders agreement, the court will next have to address an additional question, namely, whether the default provisions in the 2005 rather than the 2009 shareholders agreement apply. If the answer to that question is that the 2005 shareholders agreement applies, the content of the 2009 shareholders agreement will not matter. [22] As to the first question, the May 2009 memorandum demonstrates that the parties agreed that s. 9.0 of the 2005 shareholders agreement applies if Hawkes was dismissed other than for cause. The confusing aspect of the memorandum is that s. 9.0 does not purport to define dismissal for cause but instead sets out the consequence respecting the shares held by an employee depending on the nature of the termination. Under the 2005 shareholders agreement, only the shares of a

defaulting shareholder are subject to being sold. [23] Under the 2005 shareholders agreement, a defaulting shareholder means a shareholder who commits a default, as defined in s. 9.1 including being terminated for cause or voluntarily ending his employment. The 2005 shareholders agreement does not address the effect of a dismissal other than for cause. This is why the intervening question necessarily arises. [24] The defendants contend that neither the 2005 nor the 2009 shareholders agreement prevents Consultants from terminating an employee. Further, the law permits an employer to terminate an employment relationship without cause: Wallace v. United Grain Growers Ltd., [1997] S.C.J. No. 94 (S.C.C.) at para.

115. The absence of cause only gives rise to an actionable wrong if the employer breaches the contract by failing to give the dismissed employee reasonable notice of termination or damages in lieu of notice. [25] In spite of that, the May 2009 memorandum, to which Consultants is arguably also a party, is a curious conglomerate of employment and shareholder provisions. The memorandum expressly acknowledges that one interpretation of the 2005 shareholders agreement is that the employer may not have the power to terminate an employee without cause as a result of the provisions in the 2005 shareholders agreement. Arguably, the memorandum also implicitly acknowledges that Holdings is not entitled to compel the sale of shares if an employee shareholder is terminated other than for cause. It is difficult to imagine what other commercial purpose the agreement may have. [26] Given the defendants' concessions in the May 2009 memorandum, I conclude that Hawkes has raised a serious or fair question to be tried. Hawkes has met the threshold on the first aspect of the test for issuing an interim injunction. [27] In case I err, I want to address Hawkes' alternative claims which rest upon the assumption that the 2009 shareholders agreement applies rather than the earlier one. I do not accept that the alternative claims raise a serious or fair question to be tried. [28] According to Hawkes,

Holdings, Consultants, and their respective officers cannot, in good faith, rely on s. 10.1(g) of the 2009 shareholders agreement. Hawkes says that, in September 2010, he opposed the shareholders' resolution that would have increased the price for an internal transfer of shares. If passed, according to Hawkes, the value of shares held by the President and CEO of Consultants, who is also the chairman of the Holdings Board of Directors, would have increased by a significant amount. Again, according to Hawkes, this motivated the review of his expense claims and the eventual termination of his employment. Alternatively, Hawkes claims that the affairs of both Consultants and Holdings were exercised in a manner oppressive to Hawkes as a shareholder in Holdings and seeks to invoke the broad remedial powers of the court under s. 227 of the Business Corporations Act, S.B.C. 2002, c. 57. [29] According to the defendants, Hawkes' theory of liability is essentially an assertion that Consultants wrongfully terminated him and Holdings is now relying on the triggering clause to free up Hawkes' shares in Holdings for purchase by new or existing shareholders. All the shareholders are employees of Consultants or other subsidiaries of Holdings. Leaving aside Hawkes' belief in the truth of his assertion, the defendants say that there is no evidence to support it and point out that other

shareholders also opposed the proposal that would have increased share value but were not fired. In addition, there is some evidence that other senior shareholders have agreed to divest their shares over a period of three years. [30] On its face, s. 10.1(g) of the 2009 shareholders agreement applies because, upon termination other than for cause, Hawkes ceased to be an employee of Consultants. The phrase "ceasing to be an employee" encompasses both dismissal for cause and wrongful dismissal: Brock v. Matthews Group Ltd., [1991] O.J. No. 83 (Ont. C.A.). [31] I am not persuaded that Hawkes has raised a serious or fair question challenging the applicability of s. 10.1(g) in the present circumstances. He concedes that there was a triggering event if it turns out that he was properly dismissed for cause. If he was dismissed other than for cause, there was still a triggering event under the 2009 shareholders agreement. In either event, Hawkes has ceased to be an employee thus triggering the sale of his shares under the agreement, if it applies. [32] As Hawkes has satisfied the first aspect of the test for issuing an interim injunction with respect to his claims based on the 2005 shareholders agreement, I turn next to whether the balance of convenience favours the granting of the injunction. [33] Hawkes contends that failing to grant the injunction would cause irreparable harm in that

he would lose the very shareholding interest that he seeks to preserve. If he is unsuccessful in preserving the shares, they will undoubtedly be sold over his objection in the near future without awaiting a determination of his entitlement to retain them. [34] Hawkes points to difficulties in valuating the shares as an indicator that damages would be an inadequate substitute for the shares. He claims that it would be difficult to compensate him in damages and relies on Manitoba (Attorney General) v. Metropolitan Stores (MTS) Ltd., [1987] 1 S.C.R. 110, in support. Finally, Hawkes contends that any harm or inconvenience to Holdings or Consultants can be addressed by terms similar to those imposed by Harris J. [35] The defendants properly point out that the focus here is on Hawkes' claim qua shareholder. The claim for wrongful dismissal, on the other hand, is clearly remediable in damages. [36] The defendants say that irreparable harm can only arise if Hawkes is entitled to hold the shares despite the end of his employment. They say that, on the pleadings, that can only occur if there has been a repudiation of the 2009 shareholders agreement or if the default provisions in the agreement are a penalty. This submission ignores the potential effect of the May 2009 memorandum and preservation of the 2005 shareholders agreement to which I have already referred. I am not persuaded that

irreparable harm flows from the granting of an interim injunction as the defendants allege. [37] I do accept that Hawkes ought not to hold influence over the ability of the defendants to make ongoing business decisions pending the outcome of trial but that can be addressed by adding conditions to the injunction as Harris J. did. [38] I do not accept the defendants' further contention that there will be uncertainty as to the number of issued shares in Holdings. The number of shares issued to Hawkes is readily ascertainable; the only uncertainty relates to if or when they will be sold, and, if so, their valuation. Those uncertainties currently apply to any shares held by current employees. [39] I am persuaded that Hawkes is entitled to an interim injunction. Concurrent with the release of these reasons, I grant a fresh interim injunction on the same terms as ordered by Harris J. in paragraphs 1 and 2 of the original order, except, of course, that the injunction will remain in effect until the conclusion of the proceeding, unless the court otherwise orders. [40] In addition, the injunction is subject to conditions as set out in paragraphs 4 to 6 of the original order and, as well, as set out in paragraph 7 of the original order as amended by my order at the conclusion of the hearing. [41] Finally, the parties may add, by consent, or the defendants may apply for, such other terms as are necessary to ensure that Hawkes does not hold any influence over the defendants' business affairs pending the conclusion of the proceeding. [42] The costs associated with this application will be in the cause. "M.D. Macaulay, J." The Honourable Mr. Justice Macaulay