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v. Pastro and Marshall |
Date: |
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Docket: |
C996490 | ||
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Registry: Vancouver | ||||
IN THE SUPREME COURT OF BRITISH COLUMBIA | ||||
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Ruling on
Interlocutory Injunction Application | ||||
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BETWEEN: | ||||
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MERRILL LYNCH CANADA INC. | ||||
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PLAINTIFF | ||||
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AND: | ||||
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DARREN PASTRO AND SCOTT MARSHALL | ||||
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DEFENDANTS | ||||
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Counsel for the Plaintiff: |
S.K. Gudmundseth, Q.C. |
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Counsel for the Defendant: |
G.E.H. Cadman, Q.C. And Ms. H. Craig |
[1] THE COURT: This, counsel, is my ruling with respect to the application brought by the plaintiff for an interlocutory injunction.
[2] I will note at the outset that the plaintiff, Merrill Lynch Canada Inc. seeks an interlocutory injunction which in general terms would restrain the defendants from using Merrill Lynch client information contrary to Merrill Lynch's interests to restrain them from contacting or soliciting Merrill Lynch clients and from engaging in competition against Merrill Lynch within ten kilometres of the Merrill Lynch branch office in Trail, B.C. In particular, the plaintiff seeks orders pursuant to Rules 45 and 46 of the Rules of Court that:
1. the defendants delivered to Merrill Lynch all papers, diskettes, and other materials in their possession, power or control, which contain any Merrill Lynch client information;
2. the defendants immediately delete and destroy any Merrill Lynch client information saved or stored in any manner on an electronic device or computer in their possession, power or control;
3. the defendants not provide directly or indirectly any Merrill Lynch client information to any other person or corporation;
4. the defendants do not solicit or contact directly or indirectly for a period of 6 months any Merrill Lynch clients who the defendants deal with or of whom the defendants became aware while they were employed at Merrill Lynch;
5. the defendants not engage in any undertaking or business as an employee, partner, principal, agent, consultant or otherwise with or of a competitor of Merrill Lynch within ten kilometres of the Merrill Lynch branch office situate in Trail for a period of six months;
6. the defendants not use any information acquired by them while employed by Merrill Lynch in any manner contrary to the interests of Merrill Lynch; and
7. the defendants keep detailed records of all Merrill Lynch clients transferring their business to Nesbitt Burns Inc. or the defendants and all subsequent transactions carried out by the defendants on behalf of these clients.
[3] The background facts, that are pertinent to this application, are as follows:
(1) Merrill Lynch Canada Inc. is a full service investment broker with offices across Canada, including one in Trail, British Columbia;
(2) Merrill Lynch acquired the Trail office in August of 1998 when it amalgamated its business with that of Midland Walwyn Inc. which had operated that office for some 40 years;
(3) Merrill Lynch operates the only full service investment business in Trail. It claims to manage the majority of the investment funds in Trail and in the surrounding communities; and
(4) Merrill Lynch's Trail office specializes in individual rather than institutional accounts.
[4] On the evidence I accept that brokers who work for Merrill Lynch and manage individual investment accounts maintain the business relationships between Merrill Lynch and its clients. I accept as well that the brokers are the primary contact persons with each investor. But Merrill Lynch maintains that those clients are its clients at all times, rather than being clients of the individual brokers.
[5] According to Merrill Lynch, the extremely competitive nature of the business and the central role played by its brokers leaves it extremely vulnerable to loss by the solicitation of its clients and their business by former employees.
[6] Mr. Pastro joined Midland Walwyn in or about March 1977, as a trainee or in the terminology employed by Merrill Lynch, a new financial consultant. He then took and completed a training program offered by Midland Walwyn and which typically takes some three years to complete. Although Mr. Pastro is apparently a fully registered broker, he remains in the category of a new financial consultant. More significantly, upon entering into employment with Midland Walwyn Mr. Pastro entered into and signed an employment agreement dated March 27, 1977. That agreement contains clauses relating to confidential information and clauses dealing with non-competition and non-solicitation of clients.
[7] Without going into great detail, I would note that the provisions of the employment contract relating to confidential information provide that Mr. Pastro in the course of his employment would have access to secret and confidential business information of Midland Walwyn and of its clients on a confidential basis. He further acknowledged that disclosure of that type of information or trade secrets would severely damage the economic interests of Midland Walwyn, and he agreed not to disclose any such information whilst an employee or after he had left the employment of Midland Walwyn until such time as information of that nature becomes public knowledge. Mr. Pastro also agreed in that employment contract that upon termination of his employment he would deliver up to his supervisor or manager all customer lists, books, equipment and documentation of that nature.
[8] Turning to the non-competition and non-solicitation provisions of that employment contract I will note only that Mr. Pastro agreed that for a period of six months following the termination of his employment he would not engage in any business or undertaking as an employee, partner, agent of a competitor of Midland Walwyn within, for the purposes of this application, a radius of ten kilometres from the Midland Walwyn branch office in Trail. He further agreed not to contact or solicit or attempt to solicit any clients of Midland Walwyn during that six month period following the termination of his employment.
[9] Further, and in my view significantly, Mr. Pastro acknowledged in that employment contract that a breach or threatened breach of the non-competition/non-solicitation provisions would result in Midland Walwyn suffering irreparable harm and that as a consequence Midland Walwyn would be entitled to interim and permanent injunctive relief as well as other remedies to which it may be entitled.
[10] In or about the month of April 1998 Mr. Pastro entered into another agreement with Midland Walwyn to, as I understand it, license client accounts that had been serviced by another Midland Walwyn financial consultant prior to his retirement. Pursuant to what is described as a ProPlan Licensing Agreement Mr. Pastro agreed to pay to Midland Walwyn a lump sum of money over a period of time and the agreement provided or stipulated that on termination of his employment the outstanding amount owing under the ProPlan agreement would become immediately payable.
[11] Turning to Mr. Marshall, the evidence shows that he joined Midland Walwyn in or about the month of February 1995, as a new financial consultant. Mr. Marshall also successfully completed the training program and became a fully registered broker. He, too, entered into an employment agreement with Midland Walwyn. In his case it is dated February 13, 1995. That employment agreement also contains a confidential information clause in which he agreed not to communicate information of that nature, including client lists and any information relating to clients. In it he agreed that client lists and any information relating to such lists are the sole property of Midland Walwyn and may not be communicated to any party during or following the termination of his employment. Mr. Marshall's employment agreement also contained a non-competition clause that in effect prohibited Mr. Marshall from approaching or soliciting business from any client obtained or developed by him during his employment. This provision is stipulated to be effective for a period of two years from the date of the employment contract. The employment agreement also provided that a breach or threatened breach of the non-competition clause would result in Midland Walwyn suffering irreparable harm and that in addition to a claim for damages Midland Walwyn would be entitled to interim and permanent injunctive relief.
[12] Mr. Marshall also entered into a ProPlan Licensing Agreement with Midland Walwyn in or about April 1998. That agreement gave him the right to service client accounts that had been serviced by a former financial consultant prior to his retirement. As in Mr. Pastro's case, Mr. Marshall agreed to pay a lump sum of money for that right and the agreement stipulates that on termination of his employment any amount outstanding under the agreement would become immediately due and payable,
[13] At this point I will note that the ProPlan agreements entered into between Midland Walwyn and each of the defendants contain a provision which the defendants submit revokes the confidential information non-competition and non-solicitation restrictions contained in their respective employment contracts. The provision which they say has that effect is found under Article 5 of the ProPlan Agreement and it reads as follows:
This agreement constitutes the whole agreement between the parties and supersedes all agreements, arrangements or understandings between the parties whether written or oral.
[14] The evidence before me shows that in or about July 1998 Mr. Pastro and Mr. Marshall entered into a partnership in order to conduct in that manner their business as brokers. Thereafter they in fact conducted their brokerage business as partners, it seems, sharing both clients and revenues. In or about June 1999 Mr. Pastro and Mr. Marshall as partners hired Ms. Debbie Baines to work as their sales assistant. Prior to that time Ms. Baines had been the branch administrator of the Trail office for some 15 years and had over that period of time developed an intimate knowledge of the business practises and clients of the Trail office. The plaintiff alleges that while at Merrill Lynch Messrs. Pastro and Marshall managed approximately 33 percent of the asset base of the Trail office business, and generated approximately 30 percent of the annual revenues of the Trail office. The plaintiff further alleges that approximately 50 percent of the defendants' asset base and 50 percent of their annual revenues came from the assets of Merrill Lynch clients licensed to them through the ProPlan licensing agreements to which I have referred.
[15] On or about November 26, 1999, the defendants abruptly and without notice terminated their employment with Merrill Lynch. At the same time Ms. Baines informed the plaintiff that she too would be leaving with them. Ms. Brenda Rutherglen, the branch manager of the plaintiff's Trail office deposes that at a meeting on November 26, 1999, the defendants informed her that they had received an offer of employment from Nesbitt Burns Inc. She deposes that they did not specify at that time where they would be working, but the evidence shows that shortly thereafter the defendants together with Ms. Baines opened a new Nesbitt Burns location or office, I should say, located in Rossland, B.C. The evidence shows that that new office is, albeit slightly, within the ten kilometre radius from the plaintiff's Trail office.
[16] The plaintiff further alleges that on or about November 27, 1999 the day following the termination of their employment, the defendants and each of them, in breach of their contractual duties to Merrill Lynch, began soliciting Merrill Lynch clients in order to induce or persuade them to transfer their business to the defendants or to the new Nesbitt Burns office in Rossland. The plaintiffs further allege that in breach of their contractual duties the defendants took away with them certain documents and other property of Merrill Lynch including papers, computer diskettes and other forms or manners of such information and that as a consequence of their allegedly wrongful acts the defendants have or will induce Merrill Lynch clients to transfer their business away from Merrill Lynch to them or to Nesbitt Burns. The plaintiff alleges that as a consequence of these acts, Merrill Lynch has and will continue to suffer loss and damage including loss of business and diminution of good will.
[17] Ms. Rutherglen deposes that she has been informed and believes that virtually of the Merrill Lynch clients formerly serviced by Mr. Pastro and Mr. Marshall have been contacted by either one of those gentlemen and have received a letter sent to them by Nesbitt Burns. A copy of that letter is attached to Ms. Rutherglen's affidavit and briefly it is dated November 29, 1999, it is over the signature of Brent Hamilton, the branch manager of Nesbitt Burns, Kelowna office, and after setting out what he believes to be the most important benefits that Nesbitt Burns clients will realize, he says and I quote -- he refers as well to the fact that he believes that Messrs. Pastro and Marshall and Ms. Baines have made a good choice by joining their firm and he goes on to say:
We look forward to working with them and their clients in the future. Lastly, and most important, we are respectful of your right to chose your investment advisors. We hope you will join them in their move.
[18] I think it worth noting that Mr. Hamilton, in that affidavit sworn December 17, 1999, states in paragraph 3, that on or about November 26th, 1999, that is the day in which the defendants gave notice of termination of their employment to Merrill Lynch, his (that is Mr. Hamilton's) assistant informed him that she received an e-mailed attachment of a mail list from Mr. Pastro and Mr. Marshall. Mr. Hamilton goes on to depose that he was not aware of the source of the list except that it came from Mr. Pastro and Mr. Marshall.
[19] He deposes further as follows:
I instructed her --
Referring to his assistant,
-- to do a mail merge and send out letters to the individuals on that list.
[20] In paragraph 4 he states that he did not intend the letter to be a solicitation of business.
[21] That lack of intention or that statement, I should say, leads me to wonder why then he included the phrase, "we hope we will join them in their move." However, in paragraph 5 Mr. Hamilton went on to depose as follows:
I am not aware of the source of this list of names. Upon instructions from counsel I have instructed my assistant and do verily believe that she deleted and purged the e-mail list and the mail merge documents off the hard drive of her computer. No copy of the list has been kept by my office.
[22] Ms. Rutherglen, in her initial affidavit also deposed that throughout the day of November 26th, 1999 she observed the defendants printing what she described as a great number of documents from their computers, documents which she believes contained confidential client information.
[23] In her affidavit Ms. Rutherglen also deposed that the confidential information which she believes was contained in the documents being printed out by the defendants is and has remained at all times the property of Merrill Lynch.
[24] I find it significant that Ms. Rutherglen, who as I stated earlier is the branch manager of the plaintiff's Trail office, deposes that based upon her experience a brokerage firm operates by necessity through its financial consultants. She states, and I referred to this earlier that those brokers have the primary contact with the firm's clients. She states that Merrill Lynch is particularly vulnerable in the case of these defendants because again as I noted earlier, their business represented approximately 33 percent of the annual revenue of the plaintiff's Trail office.
[25] I note that Mr. Pastro and Mr. Marshall provided no advance notice of the termination of their employment with the plaintiff and that Ms. Rutherglen states and the plaintiff alleges that had they done so, the plaintiff would have been able to introduce a new financial consultant to each of their clients, and ensure that that person was fully familiar with the clients investment portfolio and needs. In that way the plaintiff alleges that it would have had an opportunity to assure its clients that they would continue to receive valuable service from Merrill Lynch, notwithstanding the departure of the defendants.
[26] I turn now to a review of the defendants' position with respect to this application. They respond to the application for interlocutory relief by first saying that they have returned or destroyed all items in their possession or control which might be considered to contain any Merrill Lynch client information. I am going to pause here as I may have earlier overlooked stating that subsequent or in recent times, the precise date escapes me at the moment, counsel, Midland Walwyn and Merrill Lynch amalgamated their businesses and thus Merrill Lynch came to be the owner and operator of the Trail office. It is Merrill Lynch's position that by reason of that amalgamation it has become entitled to enforce the obligations undertaken by the defendants in the employment contracts and the ProPlan licensing agreements to which I earlier referred.
[27] Returning to the defendants' position, they say as well that any Merrill Lynch client information which was provided by them to Nesbitt Burns has been destroyed and deleted from Nesbitt Burns computer system and in that respect I have already referred to the affidavit of Mr. Brent Hamilton in which he deposes to that effect.
[28] The defendants further state that they have not solicited any Merrill Lynch clients. They say that they have only responded to concerns expressed by their clients and that no Merrill Lynch clients have transferred their business over to Nesbitt Burns. I note that the defendants' assertion that they have not solicited any Merrill Lynch clients is directly contradicted by Ms. Rutherglen who, as I said earlier, in an affidavit sworn December 22, 1999, deposes that she has been informed by several persons who she alleges are or were clients of Merrill Lynch, that Marshall or Pastro or both of them have since leaving Merrill Lynch solicited their business.
[29] The next point made by the defendants is that, and again I have referred to this already, they submit that the restrictive covenants upon which the plaintiff relies are not enforceable by reason of the provision found in the ProPlan agreements. They say that the ProPlan agreements have superseded the employment contracts and thus have invalidated the restrictive or negative covenants contained therein. However, in that regard I think it significant that both defendants seem to acknowledge that they are subject to some valid and enforceable restrictions as to what they may do after leaving Merrill Lynch. For example, Mr. Pastro acknowledges that his employment agreement with Merrill Lynch, and I quote "in certain circumstances prohibits competition within a ten kilometre radius, and prevents contact with and solicitation of Merrill Lynch clients for a period of six months." Mr. Marshall acknowledges that his employment contract contained a provision prohibiting him from approaching or soliciting clients for two years if he left Midland Walwyn during his initial training period. But as I noted earlier, both of them depose that those clients that they have spoken to contacted them after learning that they had left Merrill Lynch. Both defendants also depose that they told those clients that a) their accounts were safe and in good form at Merrill Lynch; b) that they could not and would not solicit them to move from Merrill Lynch to Nesbitt Burns; and c) that their accounts were being handled by Merrill Lynch, and that they, the clients, should not be concerned.
[30] Those statements indicate to me an awareness on the part of both defendants that there are restrictive conditions or covenants that applied to them and have applied to them since the termination of their employments.
[31] Both defendants also say that they are prepared to honour their obligations under the ProPlan agreements, and again I quote: "Merrill Lynch allows me to deal with those clients". That appears to me to be a clear recognition that the clients that came to them through their assumption of those clients' business pursuant to the ProPlan agreements are clients of Merrill Lynch. As I mentioned, both defendants deny having solicited any former clients to transfer from Merrill Lynch to Nesbitt Burns.
[32] The assertion by the defendants that they have only responded to concerns expressed by their clients, appears to relate to another issue mentioned by Mr. Cadman, namely that in Article 6 of Mr. Pastro's employment contract which deals with bad debt and trading error responsibility it is provided that and I quote:
[Mr. Pastro] agree to assume financial responsibility for outstanding client debts incurred by your clients and for any judgment debt or settlement amount negotiated by Midland Walwyn Capital Inc. resulting from any legal action taken or complaint made by clients handled by you and agree that such amounts may be deducted from your net commissions.
[33] Mr. Marshall's employment contract contains a similar, although not identical provision.
[34] As I understand Mr. Cadman's point, it is that these clauses may be taken to mean that there are two classes or clients whose business was handled by the defendants: clients of Merrill Lynch, and their own clients, and the restrictive covenants, if they have any validity, only apply to the former. On this point, and in passing, I will note that the defendants saw fit to include the name Merrill Lynch as well as its well known logo in their advertising material while they were employees of the plaintiff.
[35] Finally, the defendants submit that the plaintiff has not shown and cannot show that it would suffer irreparable harm or that damages would not be an adequate remedy should it be successful at trial. At issue therefore, is whether the plaintiff has established that an interlocutory injunction is appropriate in the circumstances. This involves consideration of whether there is a fair question to be tried and whether the balance of convenience favours an injunction. So far as the test to be applied is concerned, it makes no difference in substance, in my view, whether I assess the application in accordance with the two-pronged approach set out by Madam Justice McLachlin, then a Justice of Appeal in this province in Attorney General of British Columbia v. Wale (1986) 9 B.C.L.R. (2d) 333, or the three-step test laid down by the Supreme Court of Canada in Metropolitan Stores M.T.S. Ltd. v. Manitoba Food and Commercial Workers (1987) 1 S.C.R. 110, and followed by that court more recently in R.J.R. Macdonald Inc. v. Canada (1994) 111 D.L.R. (4th) 385.
[36] In Wale the court held that 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 the injunction. As I noted in the Metropolitan Stores case, the Supreme Court of Canada adopted a three-stage test: 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.
[37] So far as the first aspect of the test under Wale is concerned, the defendants concede that there are fair questions to be tried, including the questions I mentioned earlier as to the interpretation and validity of the restrictive covenants upon which the plaintiff relies. However, these are not matters to be resolved at this time.
[38] Turning then to the balance of convenience, in C.B.C. v. C.K.P.G. Television Ltd. (1992) 64 B.C.L.R. (2d) 96, the Court of Appeal of this province supplied the two-pronged test laid down in Wale and held that in assessing the balance of convenience a judge should consider these points: the adequacy of damages as a remedy for the applicant if the injunction is not granted, and for the respondent if an injunction is granted; the likelihood that if damages are finally awarded they will be paid; the preservation of contested property; other factors affecting whether harm from the granting or refusal of the injunction would be irreparable; which of the parties has acted to alter the balance of their relationship and so affect the status quo; the strength of the applicant's case; any factors affecting the balance of justice and convenience.
[39] The court further held that it should be noted that the strength of the applicant's case is a separate factor which should be considered under the second prong of the test, quite apart from the question under the first prong as to whether the applicant had established a fair question to be tried. What the court said is that the assessment of the relative strength of the parties' cases must recognize the degree to which those cases have not yet been revealed because of the nature of the evidence and the way it has been presented on the injunction application.
[40] As to the matter of status quo, our Court of Appeal held that there are three separate aspects to that matter: their respective importance to the assessment of the balance of the convenience and in any case will vary in accordance with the circumstances.
[41] The court referred to the consideration of which party took the step which brought about the alteration of their relationship and which led to the alleged actionable breach of the rights of one of the parties. Another aspect involves a consideration of which party took the action which is said to be or amount to an actionable breach of the other party's rights. The third aspect involves a consideration of the nature of the conduct which is said to be wrongful.
[42] I have concluded on reviewing the evidence and the law that the balance of convenience in this case favours the granting of the relief sought, at least in part. Let me say first that I have read and considered all of the authorities cited by the parties and contained in their respective briefs of authority. In addition I have reviewed the trial and appeal decisions in Barton Insurance Brokers Ltd. v. Irwin (1977) B.C.J. 2132, and (1999) B.C.J. 220, respectively. Counsel will recall that in his decision in R.T. Investment Counseling v. Werry et al, a case referred to by the defendants, Mr. Justice Holmes based his decision to a large extent on the decision of the Court of Appeal in the Barton case.
[43] I do not propose to review or to canvass the authorities in detail. It will suffice, I believe, if I note that in this case, unlike the R.T. Investment case, there are written contracts of employment which contain negative covenants on the part of the defendants prohibiting the disclosure of confidential information and trade secrets following the termination of their employment. In Mr. Pastro's case as well the contract prohibits competition and solicitation of clients of Merrill Lynch for a period of six months from the termination of his employment and within ten kilometres of the plaintiff's Trail office. As I mentioned earlier, the interpretation and validity or enforceability of those covenants is disputed by the defendants, but in my view at this stage and for the purposes of this application they ought to be taken as valid and enforceable. I appreciate that may change when the issues are dealt with in the appropriate way and at the appropriate time.
[44] I find that as Messrs. Pastro and Marshall are carrying on the business of brokers or financial consultants in partnership it is appropriate to consider the terms of the negative covenants appearing in Mr. Pastro's employment contract as applicable to both defendants. In this regard I adopt the conclusion drawn by Mr. Justice Tobias of the Ontario Court General Division in Midland Walwyn Capital Inc. v. Peter T. Coolican et al, an unreported decision dated May 23, 1996.
[45] The first order sought by the plaintiffs is that the defendants deliver up to them all papers, diskettes and other materials in their possession, power or control which contain any Merrill Lynch client information. The defendant Pastro listed in his affidavit all of the items he says he took away with him when he left the Merrill Lynch office, and he deposes he has returned all of those items to Merrill Lynch. Marshall in his affidavit set out a similar list. He does not depose that those items have been returned, but Mr. Cadman informed me that this is the case, and I accept that. In the absence of evidence that the defendants did not do so, there is no basis for an order compelling them to return items they do not have. Any improper use they may have made of those materials before returning them is past, and cannot be enjoined.
[46] Next, the plaintiffs seek an order that the defendants immediately delete and destroy any Merrill Lynch client information saved or stored in any manner on an electronic device or computer in their possession, power or control. Both defendants depose that they do not have any such information stored on the hard drives of their computers and that they did not take any documents or information in electronic form from Merrill Lynch. However, their employee, Ms. Debbie Baines, deposed that after downloading a mailing list and a "segmented client base", whatever that may be, onto a diskette, she gave the diskette to Mr. Pastro. It may be that the diskette she mentioned is that which he deposes contained a mailing list and has been returned to Merrill Lynch. In that case, an order would not be appropriate. However, if the segmented client base is something other than a mailing list, an order should go that the diskette on which it was recorded be deleted or destroyed and I will turn to counsel for assistance in that regard.
[47] Next, the plaintiff seeks an order that the defendants not solicit or contact directly or indirectly for a period of six months any Merrill Lynch clients who the defendants dealt with or of whom they became aware while employed at Merrill Lynch.
[48] The plaintiff also seeks orders that the defendants not engage in any undertaking or business in competition with that of Merrill Lynch within the ten kilometre radius to which I have referred, that they not use any information acquired by them while employed by Merrill Lynch contrary to the interests of Merrill Lynch and that they keep detailed records of all Merrill Lynch clients who transfer their business to Nesbitt Burns or to the defendants and all subsequent transactions carried out by the defendants on behalf of those clients.
[49] This brings me to a closer consideration of the factors described by Mr. Justice Lambert in the C.K.P.G. Television case. First, I am satisfied that the plaintiff has a strong case. Quite apart from the issue of the negative covenants and their enforceability I find that the defendants were key employees of the Merrill Lynch Trail office. I have referred to the nature of their employment, their relationship with clients and the extent of their contribution to the business of the Trail office. Those factors in my view take them out of the class of ordinary employees and they therefore have fiduciary responsibilities towards their former employer. In Canadian Arrow Service Ltd. v O'Maily et al (1974) S.C.R. 492, the Supreme Court of Canada made it clear that a fiduciary relationship owed by a senior or key employee to his employer persists after the formal employment relationship is ceased, and the direct solicitation of clients of the former employer is a breach of that duty. The court held in that case that upon his resignation and departure a key employee is entitled to accept business from former clients, but a direct solicitation of that business is not permissible. As the court said, having accepted a position of trust, the individual is not entitled to allow his own self-interest to collide and conflict with fiduciary responsibilities. The direct solicitation of former clients traverses the boundary of acceptable conduct.
[50] Next, I find that contractual and fiduciary obligations which the plaintiff seeks to enforce are reasonable. I find that the plaintiff has a proprietary interest in the business of their clients, which business they seek to protect. The clauses which prohibit the defendants from contacting or soliciting clients of Merrill Lynch for a period of six months from the date of termination of their employment and within ten kilometres of the plaintiff's Trail office are, in my view, reasonable. There is no attempt to otherwise prohibit or limit the defendants from carrying on their business as financial consultants outside of that ten kilometre radius, or to solicit business from anyone who is not to their knowledge a client of Merrill Lynch.
[51] Next, I note that it is the defendants whose actions are said to be a breach of their contractual or fiduciary responsibilities.
[52] Finally, I will turn to the matter of irreparable harm. First, it is to be noted that irreparable harm is harm which cannot feasibly be quantified in monetary terms. Next, courts do not require proof of irreparable harm where an injunction is sought to prevent a party from violating a negative covenant. Case authority also shows that in the context of a competitive industry such as that engaged in by Merrill Lynch, the defendants' wrongful solicitation of clients by former employees can constitute irreparable harm. Case authority also shows that loss of market share and diminution of good will may constitute irreparable harm.
[53] I find on the evidence before the court at this time that if the defendants were to continue contacting and soliciting business from Merrill Lynch clients, and within the ten kilometre radius of Merrill Lynch's Trail office, Merrill Lynch may well lose a significant number of those clients and suffer harm to its business and a diminution of its good will.
[54] I find that that harm would be difficult if not impossible to calculate. In this regard I think it appropriate again to refer to the fact that Mr. Pastro and by association, Mr. Marshall, have expressly agreed in the Pastro employment contract, that a breach of the non-competition and non-solicitation clauses relied upon by the plaintiffs would result in the plaintiff suffering irreparable harm. I find on the other hand, that if the injunction which I hereby grant results in loss suffered by the defendants, and if upon a trial of this matter on its merits it should be found that the injunction ought not to have been granted, any loss suffered by the defendants as a result thereof may be measured and may be satisfactorily compensated for by an award of damages.
[55] For those reasons I find that the balance of convenience favours the granting of the remainder of the injunctive relief sought by the plaintiffs and to which I referred a few minutes ago.
[56] One further matter, I reserve the right upon reviewing the transcript of my reasons, to alter or add to these reasons should I consider that necessary in order to more clearly explain my reasons for reaching the conclusions I have stated. Any alterations or additions -- I should say any additions or significant alterations will, counsel, be placed in square brackets on a revised transcript, so that they can be readily identified.
[57] That completes my ruling.
(SUBMISSION BY MR. CADMAN)
[58] Well, I fully expected, Mr. Cadman, that you would rise on this point, and of course on the material that is before me, the evidence that is before me, it is not possible for me to determine whether contractually or in any other sense a distinction can or should be drawn between clients of Merrill Lynch and clients of the defendants. I have noted that the defendants take the position that there can be and should be such a distinction. How that may be drawn at this stage, Mr. Cadman, I am really unable to say, unless you are able to assist me, or for that matter, Mr. Gudmundseth assists me in that regard.
(SUBMISSION BY MR. GUDMUNDSETH)
[59] I think your point is well taken, Mr. Gudmundseth, that is the case, as far as the application is concerned, and that is the order that I have made. I think I expressly referred to that term. Have I overlooked that, Mr. Cadman.
(SUBMISSION BY MR. CADMAN)
[60] I noted in the course of my reasons I believe, Mr. Cadman, that in the Canadian Arrow Service case, the Supreme Court of Canada expressly stated that a former employee, even a key employee is entitled to accept business from former clients, but the direct solicitation is not permissible. Subject to what Mr. Gudmundseth may with to say on this point, that I believe will answer your question.
(DISCUSSION BY COUNSEL)
ìI.L. Drost, J.î
The
Honourable Mr. Justice I.L. Drost