ENDORSEMENT

COURT FILE NO.: CV-11-106780-00

DATE: 20120907

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Benson Kearley IFG Insurance Brokers, Plaintiff

AND: Scott Logan and Campbell, Roy & Eldridge Insurance Services Inc., Defendants

BEFORE: The Honourable Mr. Justice McKelvey

COUNSEL: Alex Van Kralingen, for the Plaintiff

Patrick J. Cotter, for the Defendants

HEARD: April 30, 2012

Introduction

[ 1 ] This is a motion brought by the defendants to strike out the plaintiff’s statement of claim, in whole or in part, without leave to amend. The motion is brought pursuant to 21.01(1)(b) and Rule 25.11 of the Rules of Civil Procedure.

[ 2 ] The plaintiff in this action is Benson Kearley IFG Insurance Brokers (“Benson Kearley”) who operate an insurance broker business in Newmarket. The defendants Campbell, Roy & Eldridge Insurance Services Inc. (“Campbell Roy”) also operate an insurance broker business in Markham, Ontario. The defendant Scott Logan (“Logan”) is a former employee of Benson Kearley and who subsequently left that firm to join Campbell Roy. Some of the allegations contained in the statement of claim include the following:

(i) In early April, 2011 management at Benson Kearley heard a rumour that Logan was planning a move to another brokerage firm in Markham and was planning on taking all members of the personal lines team with him;

(ii) Upon hearing this rumour the management at Benson Kearley spoke with Logan who told them that he was not intending to leave Benson Kearley and he had not and would not solicit any member of the personal lines team to leave Benson Kearley for any other brokerage;

(iii) At the same time Logan also agreed to enter into an employment agreement;

(iv) Subsequently Logan entered into an employment agreement with Benson Kearley which included a covenant not to solicit employees of Benson Kearley for a period of two years if he left Benson Kearley for any reason;

(v) On June 16, 2011 Logan abruptly resigned from Benson Kearley and accepted employment with Campbell Roy;

(vi) On October 14 and October 17, 2011 each member of the personal lines team resigned their employment with Benson Kearley and moved to Campbell Roy without giving reasonable notice.

Requirements of the Rules

[ 3 ] Rule 21.01(1)(b) permits a party to move before a Judge, “to strike out a pleading on the ground that it discloses no reasonable cause of action or defence”.

[ 4 ] Rule 25.11 provides that a court may strike out all or part of a pleading, with or without leave to amend on the grounds that the pleading, “ (a) may prejudice or delay the fair trial of the action; (b) is scandalous, frivolous or vexatious; or (c) is an abuse of the court.”

[ 5 ] In considering these rules there are some general guidelines developed in the case law which I believe are appropriate to consider in the facts of this case. In order to succeed on a Rule 21.01 motion I must accept the facts as alleged in the claim as being proved. In addition, the defendants must show that it is plain, obvious and beyond doubt that the claim cannot succeed. This is clear from the decision of the Supreme Court of Canada in Hunt v. Carey Canada , 1990 90 (SCC) , [1990] 2 S.C.R. 959. In addition it is also apparent that if the claim has any hope of success whatsoever it should be allowed to proceed. A novel cause of action should be allowed to proceed unless it is absolutely clear that a triable issue has not been raised (see for example the decision in Dalex Co. Limited v. Schwartz Levitsky Feldman et. al. , (1994), 1994 7290 (ON SC) , 19 O.R (3 rd ) 463.

[ 6 ] With these principles in mind I now turn to the specific issues raised by the defendants.

Breach of the Non Solicitation Clause

[ 7 ] The defendants take issue with the plaintiff’s pleading that Logan breached the non solicitation clause.

[ 8 ] Paragraph 20 of the statement of claim reads as follows:

“BKIFG states that Logan breached the non solicitation covenant by;

(a) soliciting and/or enticing each member of the personal lines team to resign their employment with BKIFG and start working for Campbell Roy; or

(b) in the alternative to (a) abetting the solicitation or enticement of each member of the personal lines team to resign their employment with BKIFG and start working for Campbell Roy.”

[ 9 ] The defendants argue that the plaintiff’s pleading contain “bald” allegations of “soliciting and/or enticing” or “abetting the solicitation or enticement” of each member of the personal lines team. It is suggested that this is mere conjecture and that the plaintiff has failed to plead the material facts such as when the solicitation or enticement was made, what the solicitation or enticement was, how the solicitation was made and to whom it was made. Without these material facts it is argued that the defendants are not able to respond and the pleadings should be struck.

[ 10 ] In considering this issue it is apparent that the context of the plaintiff’s allegations is an important consideration in considering the adequacy of the pleading. In this case the plaintiffs are alleging that Logan solicited employees of Benson Kearley to leave their employment. If such an allegation were true it is reasonable to conclude that these solicitations were done privately and one would not reasonably expect the plaintiff at this stage of the litigation to be familiar with all of the details. In Holden v. Infolink Technologies Ltd ., (2006), 146 ACWS (3 rd ) 70 the defendants brought a motion pursuant to Rule 21 and 25 to strike certain claims against the defendants. The pleading in question alleged conspiracy and fraud to injure Infolink by unlawfully taking their customers and inducing certain employees to leave their employment with Infolink. In dismissing the motion the court stated;

“The moving parties claim the plaintiffs’ pleading is devoid of such particulars that they cannot plead. I disagree. The statement of claim is to be considered as a whole. The plaintiff’s cannot reasonably be expected to know all of the particulars of the alleged conspiracy. In my view, the statement of claim achieves a sufficient level of material fact disclosure mandated by Rule 25.06(1). In my view, the plaintiff’s pleading is such that the moving party can plead a response to the allegations at hand. They must necessarily know full well whether or not they are participants in the alleged conspiracy and engaged in the alleged actions constituting the claimed wrong doings. The defendants must have knowledge of such particulars if the allegations are true. If they are untrue, the time has come to deny them in a statement of defence and for the parties to move forward for discovery.”

[ 11 ] In the present case it is apparent that the plaintiff has pleaded facts which would generally be expected to be within its knowledge. For example the statement of claim identifies Logan as the party who solicited Benson Kearley’s staff. The four employees solicited have been identified and the time frame in which the alleged solicitations occurred has been identified. I would not expect at this stage of the action that the plaintiffs would be familiar with further details. To require the plaintiffs to plead such details would, in effect, deprive them of the right to pursue their cause of action.

[ 12 ] In the context of the fact situation alleged it is my view that the plaintiff’s statement of claim is adequate and the defendant’s motion in this regard is dismissed.

[ 13 ] The defendants also take issue with paragraph 24 which sets out the plaintiff’s claim for damages as a result of Logan’s breach of the employment agreement.

[ 14 ] Paragraph 24 of the plaintiff’s statement of claim reads as follows:

“Logan’s conduct is a clear breach of the non solicitation covenant, and, therefore, a breach of the employment agreement. BKIFG has suffered damages as a result, and is entitled to recover same from Logan.”

[ 15 ] The defence argues that the pleading of damages is defective because it fails to provide the material facts relating to the damages. With respect to this issue it is reasonable to expect that the plaintiff would have knowledge of the material facts in connection with the damages it has suffered. Those material facts should have been pleaded and I therefore strike paragraph 24 of the plaintiff’s statement of claim, but grant leave to the plaintiff to deliver an amended pleading setting out the material facts relating to the damages alleged.

Allegation that Campbell Roy is Vicariously responsible for the Conduct of Logan

[ 16 ] Paragraph 22 of the plaintiff’s statement of claim alleges that Campbell Roy is vicariously liable for Logan’s conduct with respect to the alleged breach by Logan of his employment agreement with Benson Kearley. The defendants argue that vicarious liability cannot be imposed upon Campbell Roy where the conduct in question relates to a breach of contract to which the corporate defendant was not privy. There is at least some authority, however to suggest that the plaintiff has an arguable case. The plaintiff’s counsel has referred to the decision in Prendergast v. CHV Hydraulics (2002), 114 ACWS (3 rd ) 208 . In this decision the Court was dealing with a proposed pleading amendment. In the decision the court states:

“The second ground advanced is that the Counterclaim is not tenable at law because Fluxion was not a party to the employment agreement. There is ample authority for the proposition that Fluxion can be found to be vicariously liable for the consequences of the plaintiff’s breach of the non competition and non solicitation clauses.”

[ 17 ] Counsel for the defendant argues that the case law relied upon by the judge in the Prendergast case does not support the conclusion reached. However, the decision in Prendergast is sufficient in my view to raise a triable issue. At this stage in the proceeding it cannot be said that the allegation has no hope of success. I therefore decline to strike the plaintiff’s pleading on this issue.

Inducement of Logan by Campbell Roy to Breach the Non Solicitation Clause

[ 18 ] The defendants take issue with the plaintiff’s pleading that Campbell Roy induced Logan to breach his non solicitation clause.

[ 19 ] Paragraph 25 of the plaintiff’s statement of claims states as follows:

“BKIFG states that Campbell Roy induced Logan’s breach of the non solicitation clause as:

(a) Campbell Roy was aware of the non solicitation clause, which was part of a valid contract;

(b) Campbell Roy had a general understanding of what the non solicitation clause meant;

(c) Campbell Roy intentionally procured, persuaded or prevailed upon Logan to breach the employment agreement by acting contrary to the non solicitation clause;

(d) Logan breached the employment agreement by acting contrary to the non solicitation clause;

(e) BKIFG has suffered damages from the aforementioned breach of the employment agreement.”

[ 20 ] The defendants assert that this claim fails to set out full particulars such as when the inducement was made, what the inducement was, how the inducement was offered or who made the inducement. For the reasons noted above I have concluded that it is not reasonable to expect that the plaintiff will have these types of particulars at the pleadings stage and I therefore decline to strike this paragraph.

[ 21 ] However, the allegation set out in paragraph 25(e) regarding damages would appear to be inadequate for the reasons which are also described above. This sub paragraph is therefore struck, but with leave granted to the plaintiff to deliver an amended pleading with the required material facts supporting the claim for damages.

Inducement by Logan and Campbell Roy on the Personal Lines Team

[ 22 ] The plaintiff’s allegations with respect to inducement by Logan and Campbell Roy of the personal lines team are found in paragraph 25 and 26 of the plaintiff’s statement of claim. The defendant’s position is similar to the issues described above with respect to the inducement of Logan by Campbell Roy to breach the non solicitation clause. For the same reasons I decline to strike those paragraphs of the plaintiff’s statement of claim. However, I do strike the allegations with respect to damages which are found in paragraph 25(e) and 26(e) with leave granted to the plaintiff to deliver an amended claim setting out the material facts which are relied upon in connection with the alleged damages.

Misrepresentation Claim

[ 23 ] The plaintiff alleges that Logan made statements to the plaintiff which constituted misrepresentations.

[ 24 ] Paragraph 23 of the Statement of Claim makes the following assertions,

“Logan’s above referenced statements to Michael McQueen in March 2001 constitute actionable misrepresentations. In particular, BKIFG states that:

(a) Logan owed BKIFG a duty of care based on their special relationship as employer and employee, and Logan’s senior position within BKIFG;

(b) The representations were untrue, inaccurate or misleading;

(c) Logan either intentionally or negligently made the representations;

(d) BKIFG reasonably relied on the representations;

(e) As a result of the representations, BKIFG has suffered damages;”

[ 25 ] These allegations relate to the alleged statements by Mr. Logan in April of 2011 that he was not intending to leave the corporate defendant’s employment and had no intention of soliciting any members of the personal lines team to leave for any other brokerage.

[ 26 ] The defendants submit that this claim is defective because it relates to the future intention of Mr. Logan. In addition they argue there could not be any detrimental reliance by the plaintiff on the representation because Mr. Logan subsequently entered into a non solicitation agreement.

[ 27 ] With respect to the first issue it would appear that the plaintiff’s allegation as pleaded relates to Mr. Logan’s then current intention. Thus, it was not in reference to his future conduct but rather to his intentions at the time. There would appear to be good authority that such an allegation is proper. The defendants have referred to both the decision in Queen v. Cognos Inc ., 1993 146 (SCC) , [1993] 1 SCR 87 as well as the Manitoba Court of Appeal decision in Jacks v. U & R Tax Services Ltd., [1995] M.J. No. 439 (C.A.) . As the plaintiff’s allegations appear to relate to Mr. Logan’s then current intentions at the time the statements were made I decline to strike the pleading as relating to a future intention.

[ 28 ] With respect to the issue of detrimental reliance raised by the plaintiff the fact that Mr. Logan subsequently entered into a non solicitation agreement does not necessarily rule out that the plaintiff relied on the alleged representations made by Mr. Logan. Had these statements been made at a point in time when he was in fact intending to leave the company and recruit members of the plaintiff’s staff it seems reasonable to conclude that the plaintiff might have taken additional or different steps with respect to Mr. Logan’s employment such as arranging for his exit from the company.

[ 29 ] For the above reasons I decline to strike the claim of misrepresentation.

Disgorgement of Profits

[ 30 ] Paragraph 28 of the plaintiff’s statement of claim reads as follows:

“Given all of the circumstances, it is appropriate for this honourable court to order an accounting of all amounts earned by the personal lines team until June 16, 2013 and an order directing that all such profits be awarded to BKIFG.”

The defendants take the position that disgorgement of profits is a remedy which is only available in limited circumstances, such as the misappropriation of a corporate opportunity by a fiduciary.

[ 31 ] In response the plaintiff says that they are entitled to pursue disgorgement on the basis of waiver of tort, a doctrine which they acknowledge is still unsettled law in Canada. Waiver of tort may enable a victim of tortuous conduct to obtain disgorgement of benefits rather than compensatory damages. In the Ontario Court of Appeal decision in Aronowicz v. Emtwo Properties Inc. (2010) 2010 ONCA 96 () , 316 DLR (4 th ) 621 the court comments on the waiver of tort remedy and states:

“Waiver of tort is a restitutionary remedy. There is considerable controversy over whether it exists as an independent cause of action at all or whether it is “parasitic” in the sense that it requires proof of an underlying tort and – since a tort requires damage – proof of harm to the plaintiff. By invoking waiver of tort, a plaintiff gives up the right to sue in tort but seeks to recover on the basis of restitution, claiming the benefits the wrongdoer has derived from the wrongful conduct regardless of whether the plaintiff has suffered damages or not.”

[ 32 ] Although the plaintiff’s claim based on waiver of tort is novel I have concluded that because the law in this area is still unsettled, it would be premature at the pleading stage to strike the plaintiff’s pleadings on this issue.

Punitive Damages

[ 33 ] The plaintiff has asserted a claim for punitive damages in the action. Defence counsel has acknowledged in argument that the entitlement to claim punitive damages depends on whether the claims above are successfully struck. As the claims in dispute have survived it follows that there is no basis to strike the claim for punitive damages.

Delivery of Amended Pleadings

[ 34 ] Where permitted by these reasons the plaintiffs shall have 30 days to deliver an amended statement of claim.

Costs

[ 35 ] If counsel are not able to agree on the costs of this motion they may speak to the trial coordinator within 45 days of the release of these reasons to take out an appointment to address the issue of costs. In such event counsel will deliver brief written submissions at least two days before their attendance. If no arrangements are made within 45 days for an appointment to speak to costs there will be no order for costs on this motion.

Mr. Justice McKelvey

Date: September 7, 2012