Court File and Parties

Citation: Sprott Private Wealth LP v. BMO Nesbitt Burns Inc., 2014 ONSC 5842 Divisional Court File No.: 435/14 Date: 2014-10-07

Superior Court of Justice – Ontario

Divisional Court – Toronto

Re: Sprott Private Wealth LP v. BMO Nesbitt Burns Inc. and others

Before: Nordheimer J.

Counsel: I. Dick & M. Smith, for the defendants/ moving parties S. Laubman, for the plaintiff

Heard: October 6, 2014

Endorsement

[1] The defendants seek leave to appeal from the order of Myers J. dated June 27, 2014 that granted an interlocutory injunction against the defendants that restrained the individual defendants from soliciting clients of the plaintiff and restrained all of the defendants from using the plaintiff’s confidential information including client lists.

[2] I do not intend to set out all of the background facts. It is sufficient to note that the individual defendants were employed by the plaintiff. They all left that employment without any notice to join the corporate defendant. Both the plaintiff and the corporate defendant are engaged in wealth management for individuals. The plaintiff claims that since their departure, the individual defendants have been soliciting the plaintiff’s clients by using the plaintiff’s confidential information. The plaintiff says that this conduct is also in breach of the non-solicitation provisions of the employment agreements that the individual defendants all signed.

[3] The defendants assert that the motion judge erred in granting the interlocutory injunction. While there are a number of complaints made regarding the motion judge’s decision, I believe that those complaints can be boiled down to three:

(i) the motion judge failed to properly apply the “serious prima facie case” test in deciding whether to grant the injunction;

(ii) the motion judge erred in concluding that the plaintiff had demonstrated that it would suffer irreparable harm if the injunction was not granted, and;

(iii) the motion judge failed to properly consider the balance of convenience.

There was also a question raised regarding restrictions on contacting prospective clients but since the precise wording of the order of the motion judge does not extend to such contacts, I do not see how any issue actually arises in that respect.

[4] It is not apparent to me that the motion judge failed to apply the proper test in deciding whether or not to grant the injunctive relief sought by the plaintiff. While, at one point, the motion judge referred to a serious issue to be tried that comment was made when he was dealing with the enforceability of the confidentiality clauses in the employment agreements. Later in his endorsement, while expressly addressing the solicitation of clients, the motion judge found that a strong prima facie case had been made out. It is the restriction on soliciting clients that is at issue in this motion.

[5] One must keep in mind, on this point, that the motion judge gave a handwritten endorsement detailing the reasons for his decision, directly after hearing the motion. No one should expect, nor would it be reasonable to demand, that reasons in that situation will be a model of perfection. Motion judges are required to deal with a great number of matters on a daily basis and to expect that, in every instance, the judge will produce flawless reasons is not realistic. What is important is that a reviewing court be able to understand the rationale that led the motion judge to his/her conclusion. When one reviews the reasons of the motion judge, against the factual record, I am satisfied both that the motion judge applied the strong prima facie case test and correctly found that it had been met.

[6] I also do not accept that the motion judge failed to properly consider the issue of irreparable harm. The motion judge appreciated that losses sustained by the plaintiff would be susceptible of calculation. What was important on this issue, however, is the finding of the motion judge that the actions of the defendants could, in essence, threaten the very viability of the plaintiff and its continued business. The severity of the result of the defendants’ actions, on the plaintiff’s very existence, was capable of moving what otherwise might be calculable damages into the realm of irreparable harm: RJR MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311 at para. 59. The destruction of the plaintiff’s business is of a measure that is demonstrably different than a simple dispute over the profit to be derived from a given client. There was evidence that was before the motion judge upon which he could properly reach that conclusion including that the corporate defendant had refered to the plaintiff as a “failing” business, the significant percentage of the external client accounts that the individual defendants believed that they could carry over to the corporate defendant relative to the plaintiff’s entire book of business and, of course, the evidence that the plaintiff itself gave regarding the potential impact on its business. I cannot conclude that the motion judge made any error in finding that the damages that might result from the defendants’ actions, if unrestrained, would constitute irreparable harm. Certainly his conclusion could not properly be characterized as a “palpable and overriding factual error” of the type that would justify interference by an appellate court: MD Management Limited v. Campbell, 2010 ONSC 6373 (Div. Ct.) at para. 4.

[7] The defendants also advanced an argument before the motion judge, that he did not accept, that the harm to the plaintiff could not be irreparable because the plaintiff is the wholly owned subsidiary of a large American company and the parent company would be able to pursue, through a derivative action, any losses sustained from the collapse of the plaintiff. No authority was cited for this proposition and, like the motion judge, I have difficulty with the logic underlying it. However, for the purposes of this motion, it is sufficient to say that a novel proposition is an inadequate basis to raise a doubt as to the correctness of the underlying order.

[8] On the issue of the balance of convenience, I fail to see how the motion judge could have concluded other than the balance of convenience favoured the plaintiff. The motion judge was faced with a factual scenario where the defendants had carefully plotted their actions. They had engaged in a scheme to allow the individual defendants to jettison their existing employer and join the corporate defendant with the singular objective of bringing with them most, if not all, of the plaintiff’s clients for whom they had been responsible. The defendants did so with the full knowledge of the non-solicitation arrangements to which the individual defendants were bound. There was also clear evidence that the individual defendants had used confidential information belonging to the plaintiff to effect this result. It would be difficult to see how, in those circumstances, the motion judge could have concluded other than the balance of convenience favoured the plaintiff.

[9] The defendants’ final effort to avoid the injunction granted by the motion judge is to argue that the order adversely affects innocent clients. That effort does not withstand any degree of scrutiny. All of the clients are free to take their business wherever they wish including to the defendants if they do so of their own free volition. All that the order of the motion judge does is to preclude the defendants from enticing any of those clients to join them. Any effect on clients from the existence of the injunction is indirect and relatively minor. When it is compared to the defendants’ actions in orchestrating this whole endeavour, it visits very little prejudice on the clients involved.

[10] I conclude, therefore, that the defendants have failed to show that the correctness of the motion judge’s order is open to doubt. I also fail to see any conflicting decisions between the existing authorities and the one reached by the motion judge. While I accept that there may be conflicts in the individual results, there is no conflict in the principles applied.

[11] The defendants have therefore failed to satisfy either of the tests for leave to appeal under r. 62.02. In light of that conclusion, I do not need to deal with the issue whether this motion was out of time. I will say though that, should it have been necessary to address that issue, I would not have been inclined to dismiss this motion on that technical ground given the short amount of time that the defendants were outside of the applicable time limit for the bringing of this motion.

[12] The motion is dismissed. The defendants will pay to the plaintiff its costs of the motion fixed in the amount of $12,000 inclusive of disbursements and HST within thirty days.

NORDHEIMER J.

DATE: October 7, 2014