A recent decision of the British Columbia Supreme Court underscores how seriously courts take fiduciary duties.  Those who violate those duties will be held to account, a fact which will be a comfort to employers.

FACTS

Impark Parking Canada Corporation (“Impark”) operates a number of parking lots throughout Canada and the United States.  From 2005 to August 2010, it was run by Herbert Anderson (“Anderson”), who was the CEO of the Impark group of companies.

During this time, Impark engaged the services of Michael Menzies (“Menzies”), a consultant.  Menzies had a long history with Impark, having owned several companies eventually purchased by Impark and being employed himself as an executive with Impark.  Between 2005 and 2006, Impark again acquired companies owned by Menzies.  As part of the purchase of those companies, Impark and Menzies entered into a four-year consulting agreement.  As part of that agreement, Impark paid Menzies $180,000 annually.  The purpose of the consulting agreement was to ensure that Menzies brought his expertise, clients, and relationships to Impark as part of the purchase of Menzies’ companies.

The consulting agreement contained a non-competition and non-solicitation provisions that prohibited Menzies from competing against Impark for up to six (6) years after the sale.  These limitations extended across Canada.  They were eventually extended by an additional two (2) years when Menzies’ consulting agreement was extended.

Menzies had legal counsel during the sale of his business and the execution of the consulting agreement and the non-competition agreement.

When the Impark Board of Directors began considering a sale, both Menzies and Anderson were interested in purchasing some or all of the company, and in fact incorporated Global Parking Management to facilitate their purchase.  Eventually, the Board of Directors abandoned the idea of a sale and instructed Anderson to focus his efforts on operating the business.

In June 2010, Anderson signed a letter on behalf of Impark releasing Menzies from his consulting agreement as well as the restrictive covenants associated with that agreement.  The Board became concerned with Anderson’s conduct, and eventually entered into a departure agreement with him in August 2010.  Anderson was replaced by Alan Copping (“Copping”).  Copping was unaware that Menzies’ consulting agreement (or the attached non-competition agreement) had been terminated as there did not appear to be any record of that.

Menzies and Anderson began working together to further the interests of Global Parking Management, including contacting employees and clients of Impark.  Copping eventually learned from Anderson of Menzies’ involvement in this new venture, and eventually of the fact that Anderson had released him from his non-competition obligations.  The parties made some attempt to settle the matter amicably, but eventually litigation was necessary.

ANALYSIS

As part of that litigation, Impark alleged that Anderson had breached his fiduciary duty to Impark by agreeing to end Menzies’ consulting agreement and the non-competition provisions (this agreement is referred to as the Letter Agreement).    It also alleged that Menzies had knowingly assisted in this breach.

The court analyzed the Letter Agreement and the circumstances surrounding its execution, and ultimately concluded that in entering into the agreement, Anderson was acting in his own interests and contrary to the interests of Impark.  The court noted that the decision should have involved someone from Impark other than Anderson, who had a close relationship with Menzies.  Further, the court found that Anderson and Menzies purposely concealed the existence of the Letter Agreement and that Impark was induced to enter into a generous departure agreement with Anderson as a result of that concealment.  As such, Anderson was in violation of his fiduciary duties.

With respect to Menzies, the court was troubled by his efforts to conceal the Letter Agreement.  The court’s relevant findings are set out at paragraphs 259-261:

[259]     There is no dispute Mr. Menzies had actual knowledge of Mr. Anderson’s fiduciary duty to Impark. I agree Mr. Menzies made the Letter Agreement with Mr. Anderson knowing, just as with their dealings with HG, they were doing so to serve their own interests at the expense of Impark. … It is, therefore, inconceivable that these matters did not factor into the elimination of his non-compete and more probable than not that they did.

[260]     Mr. Menzies also knew of the concealment of the Letter Agreement from Impark until June 2012. This, in my view, establishes his knowledge of the fiduciary’s dishonest conduct and his participation.

[261]     I conclude Mr. Menzies participated and knowingly assisted in the breach of fiduciary duty. He made the Letter Agreement recognizing it harmed Impark’s interests. He participated in the breach of fiduciary duty by concealing the existence of the Letter Agreement from Impark and relying on it to compete against Impark from January 2012 to August 31, 2014.

Based on that finding, Menzies was jointly and severally liable for Anderson’s breach of fiduciary duties.

The British Columbia Supreme Court’s decision in this case underscores the importance of fiduciary duties.  Employers place a great deal of trust in senior executives, and as such are vulnerable to wrongdoing on the part of these senior executives.  Interestingly, this case has arguably broadened the potential list of defendants in litigation with respect to fiduciary duties to those who assist an executive in his or her malfeasance.

While this decision is based on a very specific set of facts, the result is encouraging.  Employers can take comfort in the fact that courts will hold to account fiduciaries that violate the trust of their employers as well as those who assist them.