Sateri (Shanghai) Management Limited v. Vinall

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Sateri (Shanghai) ManagementLimited v.

Vinall,

2017 BCSC 491

Date: 20170324

Docket: S111963

Registry: Vancouver

Between:

And:

Sateri (Shanghai) Management Limited,

Sateri International (Singapore) Pte. Ltd. and

Bracell International Co. Ltd.

Plaintiffs

Peter Vinall, Fortress Paper Ltd. and

Fortress Specialty Cellulose Inc.

Defendants

Corrected Judgment: The text of the judgment was corrected at

paras. 428 and 481 on April 4, 2017

Before: The Honourable Madam Justice Ballance

Reasons for Judgment

Counsel for the Plaintiffs:

J. McArthur

M. Good

Counsel for the Defendant,

Peter Vinall:

S. Fitterman

A. Sabur

Counsel for the Defendants

Fortress Paper Ltd. and Fortress

Specialty Cellulose Inc.:

W. Smart, Q.C.

J. K. McEwan, Q.C.

K. Leung

Place and Dates of Trial:

Vancouver, B.C.

September 28-30,

October 1-2, 5-9, 13-15,

and 20-23, 2015

Plaintiffs’ Further Written Reply Submissions

October 30, 2015

Received:

Place and Date of Judgment:

Vancouver, B.C.

March 24, 2017

Sateri (Shanghai) Management Limited v. Vinall

Page 2

INTRODUCTION.................................................................................................................... 5

BACKGROUND ..................................................................................................................... 5

The Plaintiffs and Other Sateri Companies.................................................................... 6

The Defendant, Peter Vinall ............................................................................................. 9

Chadwick Wasilenkoff ....................................................................................................... 9

The Defendant, Fortress Paper Ltd...............................................................................10

Preliminary Remarks about Credibility..........................................................................10

Early Dealings between Vinall and Wasilenkoff ..........................................................13

Communications between Vinall and Wasilenkoff in 2007 and 2008 ......................13

The 2008 Poyry Report ...................................................................................................16

Solicitation of Investors in the Thurso Mill....................................................................17

Sateri’s Recruitment of Vinall – Summer/Fall 2008 ....................................................18

Wings and Beer Meeting – October 2008 ....................................................................19

Vinall’s Acceptance of Employment with Sateri Shanghai ........................................21

Overview of Vinall’s Sateri Employment Contract.......................................................22

Life at the Bahia Mill.........................................................................................................24

Mr. Hoon and Mr. Goh.....................................................................................................25

Tragedy Strikes the Vinall Family..................................................................................26

Vinall’s Secondment/Transfer to Sateri Singapore .....................................................27

Fraser Papers under Creditor Protection .....................................................................28

Wasilenkoff’s Discussions with Sappi...........................................................................28

Vinall’s Trips to Mills in Asia ...........................................................................................29

Identifying Mill Candidates for Conversion to Dissolving Pulp..................................30

October 8, 2009 Meeting.................................................................................................34

Telephone Discussion between Vinall and Wasilenkoff – October 2009................39



When did Wasilenkoff receive a copy of the 2008 Poyry Report? ...............40

Did Sappi and Wasilenkoff discuss the Thurso Mill in 2009? .......................43

Summary of the Content of the October 2009 Call.........................................46

Second October 2009 Meeting ......................................................................................48

Performance Reviews at the Bahia Mill – October 2009 ...........................................50

Carrying out the Actions Assigned at the October 8 Meeting ...................................52

Fraser Papers’ News Release .......................................................................................53

Fortress Paper Board Meeting – November 5 and 6, 2009.......................................53

Inquiries about the Kemijarvi Mill Equipment...............................................................54

Sateri (Shanghai) Management Limited v. Vinall

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Other Events in November 2009 ...................................................................................57

December 4, 2009 Meeting ............................................................................................58

Incorporation of Fortress Specialty and Terminology.................................................59

Presentation to the Quebec Government – December 2009....................................59

Appointment of Vinall as a Director of Sateri Companies..........................................60

Events in January 2010...................................................................................................61

Fortress Paper Board Meeting – January 25, 2010....................................................63

Events in February 2010.................................................................................................64

Events in March 2010......................................................................................................66

Mr. Tanoto’s Inquiry – March 2010................................................................................70

Completion of the Thurso Mill Transaction...................................................................71

Vinall’s Resignation..........................................................................................................71

Events in the Aftermath of Vinall’s Resignation...........................................................73

Fabricated Email Exchange............................................................................................74

Involvement of Tecbiz......................................................................................................74

Vinall’s Fortress Employment Contract.........................................................................75

Operations at the Thurso Mill after Acquisition............................................................76

Disposition of Vinall’s Restricted Share Units..............................................................78

DISCUSSION........................................................................................................................79

The Thurso Mill “Opportunity”.........................................................................................79



Overview of Legal Framework ...........................................................................80

Analysis..................................................................................................................82

The Fiduciary Duty Claim against Vinall.......................................................................85



Overview of Legal Framework ...........................................................................85

The Parties’ Positions concerning Vinall’s Liability qua Fiduciary................95

Application of the Top Management/Key Employee Tests and the Frame

Guidelines..............................................................................................................99



Vinall’s Directorships .........................................................................................114

Allegations of Breach of Fiduciary Duties against Vinall and Knowing Assistance

Claim against Fortress...................................................................................................120

Claims of Misuse of Plaintiffs’ Confidential Information ...........................................121



Overview of Legal Framework .........................................................................121

Confidentiality Provisions in the Sateri Employment Contract....................129

Confidential Information in Issue .....................................................................131

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1. Category One Documents ............................................................................132

2. Category Two Documents ............................................................................136

(i)

The Fortress Table.................................................................................138

The Fortress Market Share Chart........................................................140

(ii)

(iii)

Fortress Cotton Production Graph and Fortress Cotton Yield Graph

.......................................................................................................142

(iv)

(v)

The Fortress Yield Information.............................................................144

The Fortress Correlation .......................................................................146



Other Allegations of Misuse of Confidential Information..............................147

Breach of Confidence Claim against Fortress...............................................149

Claim that Vinall Competed with Sateri and/or Assisted Fortress While Employed

by Sateri...........................................................................................................................150



General Comments............................................................................................150

Implied Contractual Duty to Refrain from Competing...................................151

Express Contractual Provisions to Refrain From Competing and Similar

Activities...............................................................................................................156



Analysis................................................................................................................158

Alleged Breach of Six Month Notice Requirement....................................................165

Alleged Breach of Obligation not to Retain Confidential Information.....................166

Claim against Fortress for Inducing Breach of Contract ..........................................167



Overview of Legal Framework .........................................................................167

Analysis................................................................................................................168

REMEDIES..........................................................................................................................172

General Comments........................................................................................................172

Overview of Legal Framework .....................................................................................172

Analysis............................................................................................................................176

DISPOSITION.....................................................................................................................180

COSTS.................................................................................................................................180

Sateri (Shanghai) Management Limited v. Vinall

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INTRODUCTION

[1]

The plaintiffs suggest that fidelity is at the heart of this case. The fidelity

owed by a director-employee who partakes in clandestine and wrongful actions

aimed at diverting a corporate opportunity to a third party competitor and obtains

new employment for himself in the process. The cornerstone of the claim is that the

director-employee was the plaintiffs’ fiduciary. Also front and centre is the question

of the concomitant liability of the participating third party and its parent company.

[2]

The defendants counter that the fidelity in issue is not of the kind portrayed by

the plaintiffs. Casting the dispute in a vastly different light, they claim the nature of

the fidelity is the brand of unflinching employee loyalty exacted by the plaintiffs, who

are using the court process as a platform to display outrage over an employee’s

alleged defection and to punish him for his departure to a potential competitor. More

to the point, say the defendants, this case is about finding the line between an

employee’s implied contractual duty of fidelity to the employer and the employee’s

entitlement, during the currency of employment, to take steps in anticipation of

securing a position with a potential competitor.

[3]

As will be seen, the contours of this hard-fought dispute were nuanced and

complex and engaged legal issues beyond employee fidelity, with tens of millions of

dollars in the balance. In the end, however, because I have concluded that the

director-employee does not owe fiduciary obligations to any of the plaintiffs, the

claims tied to his asserted fiduciary status fall by the wayside.

BACKGROUND

[4]

Not all of the important facts in this case were controversial. The following

summary reflects factual findings that I have made based on evidence that was not

in dispute or, where the evidence was in dispute, based on a consideration of the

totality of the evidence, and the weight that it warrants. I have explained the

reasoning underlying my findings where the evidence has conflicted in a significant

way on material points, or where a party has urged that a particular inference be

drawn from the evidence.

Sateri (Shanghai) Management Limited v. Vinall

[5] In assessing the evidence, I have appreciated that caution should be

Page 6

exercised in determining the chronology of events in reliance on the dates and times

shown on the emails in evidence, due to the different time zones from which they

originate.

The Plaintiffs and Other Sateri Companies

[6]

The Sateri organization is an international conglomerate consisting of several

corporations. It has three main components to its business. One of its chief

undertakings is the production of dissolving wood pulp, including a specialty acetate

grade. Dissolving wood pulp is a natural raw material that contains cellulose and is

used in the production of viscose staple fibre (rayon), an ingredient found in a wide

range of everyday items, such as baby wipes, sunglass frames, food items,

pharmaceuticals and industrial products. In 2009, Sateri was ranked as one of the

largest manufacturers of wood-based dissolving pulp in the world. At the material

time, the dissolving pulp business represented a substantial component of the

EBITDA, (essentially a cash-flow metric meaning, earnings before interest, taxes,

depreciation and amortization), of the Sateri organization.

[7]

In the industry, the manufacture of dissolving wood pulp is known as the

“upstream” business, and the conversion of that pulp into the various end-products is

known as the “downstream” operation. The case at hand concerns the upstream

business facilitated by a dissolving pulp mill (the “Bahia Mill”) and a eucalyptus

plantation that harvests the wood supplied to that mill. Both are located in Brazil.

The downstream side of the enterprise is carried on in plants in Asia.

[8]

The two other primary business endeavours of the Sateri group of companies

are employee management and human resources and services, and buying and

selling products.

[9]

A schematic depiction of the corporate relationship among the Sateri

companies is shown in Appendix “A” to my Reasons. Of the eight corporations

shown, only three of them are plaintiffs in this action.

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[10] The nature of the plaintiffs’ particular business operations and their practical

and business-related connections with each other and with the five remaining Sateri

companies (beyond their share ownership) received cursory attention at trial.

[11] Positioned at the top of the Sateri structure is the plaintiff, Bracell International

Co. Ltd. At the material times, it was known by its former name, Sateri International

Co. Ltd., and I will refer to it as “Sateri International Co.” in my Reasons.

[12] Sateri International Co., is primarily a holding company and owns 100% of the

shares in the following corporations:

- the plaintiff, Sateri International (Singapore) Pte. Ltd. (“Sateri Singapore”);

- Sateri Specialty Cellulose Limited (“Sateri Cellulose”); and

- Sateri Copener Limited (“Sateri Copener”).

[13] The plaintiff, Sateri Singapore (being a wholly owned subsidiary of Sateri

International Co.), owns 100% of the third plaintiff, Sateri (Shanghai) Management

Limited (“Sateri Shanghai”). Sateri Shanghai and Sateri Singapore provide

management and human resources services to the other corporate entities within

the Sateri enterprise. In essence, they “hold” and manage the Sateri employees

who are allocated to one or the other of them.

[14] Sateri Cellulose owns DP Marketing International Limited (“DP Marketing”)

and Sateri Bacell Limited (“Sateri Bacell”). DP Marketing is a trading company that

buys and sells products used in the specialty cellulose business. Sateri Bacell owns

the shares of Bahia Specialty Cellulose S.A. (“Bahia Specialty”). Beyond that, the

evidence did not shed light on the business purpose of Sateri Bacell. Bahia

Specialty, in turn, owns the Bahia Mill and, along with Sateri Copener, owns the

shares of Norcell S.A. (“Norcell”). Norcell owns the eucalyptus plantation that grows

the trees that are converted into dissolving wood pulp at the Bahia Mill.

[15] The companies under the Sateri umbrella were incorporated in various

jurisdictions throughout the world. Sateri International Co., Sateri Copener, Sateri

Sateri (Shanghai) Management Limited v. Vinall

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Bacell and DP Marketing were set up in the British Virgin Islands. Sateri Singapore

is a Singaporean company; Sateri Shanghai was formed in China; and Sateri

Cellulose was incorporated in the Cayman Islands. Bahia Specialty and Norcell

were established in Brazil.

[16] Although not shown on Appendix “A”, the Sateri corporations are part of, and

receive management services of some kind from, companies within a massive

corporate network referred to as Royal Golden Eagle (the “RGE Group”). The RGE

Group (previously known as RGM) is involved in the palm oil business, the oil and

gas sector, and in the pulp and paper industry. It also provides management

services to APRIL, which is an acronym for Asia Pacific for Resources International

Limited. APRIL is a conventional pulp and paper company and is said to be a

“sister” company to the Sateri corporations. It owns plantations, manufacturing

facilities that convert wood into pulp and pulp into commodity paper, and a trading

group that sells and distributes the end-product.

[17] At the apex of this vast empire in the relevant timeline sat members of the

Tanoto family, headed by its patriarch, Sukanto Tanoto. Mr. Tanoto enjoyed the

highest level of authority at the RGE Group as its Chairman and majority

shareholder. He also wielded the ultimate authority as the controlling shareholder of

the Sateri assembly of companies, including the plaintiffs, and of APRIL.

[18] Mr. Tanoto was also the majority shareholder of Toba Pulp Lestari (“Toba”),

which owned a swing mill (producing both pulp and dissolving pulp) in Indonesia (the

“Toba Mill”). Toba was a separate company that, technically speaking, did not form

part of the RGE Group, APRIL or the Sateri organization.

[19] Throughout the course of trial, counsel and many witnesses frequently

referred to one or more of the companies in the Sateri organization, either

individually or collectively, as “Sateri”, the “Sateri group”, the “Sateri International

group” and/or “Sateri International”. Depending on the context in which those

references were used, it appeared that, at various times, they were intended to

Sateri (Shanghai) Management Limited v. Vinall

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encompass one or more of the plaintiffs, one or other of the non-plaintiff Sateri

corporations, or an unspecified combination of those discrete groupings.

[20] The indiscriminate use of such untidy terminology in submissions and in the

evidence posed a challenge to the analysis of key issues.

[21] In my Reasons, I have used the designation “Sateri” where the evidence as a

whole did not reliably clarify the particular company or companies within the Sateri

collection that were being referenced.

The Defendant, Peter Vinall

[22] Peter Vinall is an Australian-trained mechanical and electrical engineer. He

also holds a Master of Business Administration from Tulane University in New

Orleans. Mr. Vinall has accumulated many years of experience in and extensive

knowledge about the global pulp and paper industry, including the manufacture of

dissolving pulp and the conversion of a conventional mill to a dissolving pulp facility.

[23] The Aditya Birla Group (“Birla”) originates from India and is the largest

producer of rayon from dissolving pulp in the world. Starting in about 1998, Birla

entered into various joint ventures with Tembec, a large Canadian forest company.

One of their shared undertakings in 2005 was the acquisition and turnaround of a

bankrupt mill in Nackawic located in southern New Brunswick.

[24] At the commencement of the relevant time period, Mr. Vinall was the

President and CEO of Birla’s Canadian operations. One of his primary

responsibilities was to revive the Nackawic mill and convert it into a dissolving pulp

plant.

Chadwick Wasilenkoff

[25] Chadwick Wasilenkoff is a successful contrarian investor, meaning that he

purchases distressed business assets, often in declining or unpopular markets, at a

bargain and uses them to establish new businesses. The acquisitions are usually

made through a corporate vehicle.

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[26] Mr. Wasilenkoff keeps current about potential opportunities and

market/business trends through his daily routine of reading several newspapers and

magazines across a diverse array of subject areas, and by reviewing a variety of

news feeds that report on the forestry industry in North America, Europe and

elsewhere. Adhering to his unconventional investment model, Mr. Wasilenkoff has

bought, built and sold between 12 and 20 companies in diverse market sectors, such

as mining, oil and gas, copper and plastics manufacturing. It is typical for

Mr. Wasilenkoff to pursue several potential business prospects at any given time.

The Defendant, Fortress Paper Ltd.

[27] Fortress Paper Ltd. (“Fortress Paper”) is not a conventional pulp and paper

company. It manufactures specialty pulp used to make paper products such as

currency, passports, visas and other government documentation.

[28] In 2006, the newly incorporated Fortress Paper purchased and restructured a

facility in Switzerland that made specialty paper for banknotes (the “Landqart Mill”)

and a mill in Germany that produced specialty-grade wallpaper (the “Dresden Mill”).

Those repurposed mills thrived under Fortress Paper and proved to be extremely

financially successful. At that time, Mr. Wasilenkoff was the single largest

shareholder of Fortress Paper.

Preliminary Remarks about Credibility

[29] As I have previously observed, assessing the credibility and reliability of a

witness is fundamental to the judicial task, and yet is notoriously difficult. It has been

acknowledged that the determination is not a purely intellectual exercise, and is

more an art than a science. The factors involved can be challenging to verbalize:

R. v. R.E.M., 2008 SCC 51 at para. 49.

[30] A clarifying passage summarizing the factors to be considered in the art of

the assessment is found in Bradshaw v. Stenner, 2010 BCSC 1398 at para. 186:

Credibility involves an assessment of the trustworthiness of a witness’

testimony based upon the veracity or sincerity of a witness and the accuracy

of the evidence that the witness provides (Raymond v. Bosanquet (Township)

Sateri (Shanghai) Management Limited v. Vinall

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(1919), 59 S.C.R. 452, 50 D.L.R. 560 (S.C.C.)). The art of assessment

involves examination of various factors such as the ability and opportunity to

observe events, the firmness of his memory, the ability to resist the influence

of interest to modify his recollection, whether the witness’ evidence

harmonizes with independent evidence that has been accepted, whether the

witness changes his testimony during direct and cross-examination, whether

the witness’ testimony seems unreasonable, impossible, or unlikely, whether

a witness has a motive to lie, and the demeanour of a witness generally

(Wallace v. Davis, [1926] 31 O.W.N. 202 (Ont. H.C.); Faryna v. Chorny,

[1952] 2 D.L.R. 152 (B.C.C.A.) ...; R. v. S.(R.D.), [1997] 3 S.C.R. 484 at

para. 128 (S.C.C.)). Ultimately, the validity of the evidence depends on

whether the evidence is consistent with the probabilities affecting the case as

a whole and shown to be in existence at the time (Faryna at para. 356).

[31] A witness may sincerely believe that she is telling the truth, but lack the

sufficient memory, perspective, cognitive ability or narrative capacity to give reliable

testimony. Alternatively, a witness “may unconsciously indulge in the human

tendency to reconstruct and distort history in a manner that favours the desired

outcome”: Hardychuk v. Johnstone, 2012 BCSC 1359 at para. 10. There is also

always the possibility that a witness may simply choose to lie about certain matters

out of self-interest, to protect others or for any host of reasons.

[32] Consistency is often an important factor in assessing credibility. However,

some inconsistency is expected given the inherent frailty of memory. An individual’s

memory may be stimulated by other evidence which may also assist a witness to

recall an event or details of it that he or she had seemingly forgotten.

[33] The plaintiffs waged an all-fronts attack on the credibility of Messrs. Vinall and

Wasilenkoff. They assert that their testimony on disputed matters was variously

implausible, inconsistent and, at its core, was wholly untruthful. The plaintiffs’

approach in cross-examination was to attempt to reveal those individuals as deeply

flawed witnesses who thought little of pitching concocted stories to the Court to try to

portray their deceptive actions as relatively benign events.

[34] The plaintiffs contend that Mr. Vinall selectively destroyed documents that

were not helpful to his position and that would have augmented the evidence of the

secret dealings between himself and Mr. Wasilenkoff. They likewise accuse the

Fortress defendants of failing to produce all relevant emails and other documents

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and of mingling their emails with the documents of another, making it virtually

impossible to confidently single out the documents that were in the possession of the

former at any given time. Although the plaintiffs are dissatisfied with

Mr. Wasilenkoff’s explanation for the absence of emails sent and received by the

Fortress defendants in critical time periods, they concede that there is insufficient

evidence to find an intentional destruction of evidence on the part of the Fortress

defendants. Even so, the plaintiffs say that the defendants’ failure to produce a full

documentary picture of their secret dealings is to be taken into account in weighing

the testimony of Messrs. Vinall and Wasilenkoff on all controversial matters.

[35] The plaintiffs also urge the Court to regard Messrs. Vinall and Wasilenkoff as

witnesses of bad character and to discount their evidence unless corroborated by

reliable independent testimony or cogent documentary evidence.

[36] I share the plaintiffs’ view that the credibility of each of Mr. Vinall and

Mr. Wasilenkoff was impeached in some important factual areas. I will not stop here

to detail examples of the instances of tainted credibility, preferring instead to address

them throughout my Reasons in the context in which they arise chronologically or by

subject matter. At the same time, however, I found each of them to be truthful and

their evidence reliable as it concerned other significant contentious points. There

were many instances where their disputed evidence was supported by the weight of

other probative evidence.

[37] Although cumulatively my concerns compel me to approach the testimony of

Messrs. Vinall and Wasilenkoff with extra caution and scepticism, assessment of

their credibility is not an all or nothing proposition. Despite my misgivings about

some aspects of their evidence, I am not prepared to conclude that either one of

them is a fundamentally discreditable witness unworthy of belief entirely. Nor do I

require there to be corroborative documentary evidence in order to accept their

testimony on all matters of controversy.

Sateri (Shanghai) Management Limited v. Vinall

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Early Dealings between Vinall and Wasilenkoff

[38] In late summer 2006, Mr. Wasilenkoff was looking to hire a president/CEO to

run Fortress Paper’s operations.

[39] Mr. Vinall was recommended as a potential candidate. Mr. Wasilenkoff took

introductory steps and Mr. Vinall was receptive. Over the next few months, they

discussed the opportunity on the telephone, in person and over dinner with their

spouses. Their conversations moved along positively and they eventually launched

into a series of more pointed negotiations, ultimately reaching agreement about the

key terms of Mr. Vinall’s employment. I find that it was during these discussions that

Mr. Wasilenkoff’s attention was first drawn to the business of dissolving pulp in a

general way.

[40] Shortly before Mr. Vinall’s employment agreement was finalized,

Mr. Wasilenkoff informed him that the bankers behind Fortress Paper’s initial public

offering were insisting that Mr. Wasilenkoff personally take the helm.

[41] This unwelcome turn of events was disappointing. Messrs. Vinall and

Wasilenkoff nonetheless remained on good terms and stayed in touch by

periodically communicating about business topics of shared interest in the forestry

and pulp industries.

Communications between Vinall and Wasilenkoff in 2007 and 2008

[42] On June 16, 2007, Mr. Vinall sent Mr. Wasilenkoff an email in which he raised

two business opportunities related to Birla’s desire to increase its supply of

dissolving pulp. One prospect concerned the possibility of a joint venture between

Birla and Fortress Paper in relation to Skeena, a pulp mill in northern British

Columbia. The second related to a pulp and ground wood mill called Edmunston

located in New Brunswick. Edmunston’s sister paper mill, Madawaska, was situated

over the river in the state of Maine. Because the Madawaska mill was in the

business of making paper, it occurred to Mr. Vinall that Fortress Paper might have

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Page 14

an interest in acquiring it. His joint venture concept envisioned that Birla would buy

the Edmunston mill and Fortress Paper would take the Madawaska plant.

[43] The Edmunston and Madawaska mills were owned by Fraser Papers. Fraser

Papers also owned a kraft pulp mill located in Quebec (the “Thurso Mill”), which is

the centerpiece of this litigation.

[44] In his email to Mr. Wasilenkoff, Mr. Vinall explained that Fraser Papers was

experiencing financial difficulties with the Edmunston and Madawaska mills. He

noted that the Edmunston facility could be converted to a dissolving pulp mill more

quickly and for less cost than a kraft plant, such as Skeena or Nackawic.

Mr. Wasilenkoff expressed interest in Mr. Vinall’s proposition and asked him to

supply more information about the products those mills manufactured.

[45] Later that June, Mr. Vinall forwarded Mr. Wasilenkoff a press release issued

by Fraser Papers concerning its upgrade and optimization plan for the

Edmunston/Madawaska mills. Mr. Wasilenkoff asked that Mr. Vinall keep him

posted.

[46] A day or so later, Fortress Paper announced that it had raised $40 million as

a result of its initial public offering. I accept Mr. Wasilenkoff’s testimony, as reflected

in the press release, that a strong feature of Fortress Paper’s public offering was its

stated intention to expand via more niche-type forestry acquisitions.

[47] By email dated June 29, 2007, Mr. Vinall congratulated Mr. Wasilenkoff on

Fortress Paper’s successful launch. Among other things, he reported that he had

approached the CEO and the CFO of Fraser Papers for a general introductory

discussion and learned that Fraser Papers was trying to “ride out the storm” for a

while. He mentioned the price of dissolving pulp in China and the fact that Birla was

balking at the Skeena mill. I am satisfied that within this general timeframe

Mr. Wasilenkoff pursued his own lines of inquiry into the viability of the Skeena mill

as a candidate to convert to dissolving pulp and was discouraged by the problems

associated with its unreliable wood supply.

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[48] Jaakko Poyry (“Poyry”) is a major international consulting firm that services

several business sectors, including pulp and paper. Appreciating that Fortress

Paper was in an acquisition mode after the success of its initial public offering, on

August 3, 2007 Mr. Vinall emailed Mr. Wasilenkoff the name of Poyry’s London

contact with whom Mr. Vinall had discussed acquisition opportunities in the past. He

advised that the contact could provide Mr. Wasilenkoff with a “solid list of potential

targets as well as a process of establishing criteria for assessing potential on a

number of dimensions”.

[49] Mr. Wasilenkoff followed up with the Poyry contact. In the meantime,

Mr. Vinall sent him a copy of Birla’s press release announcing its expansion plans

for the production of its dissolving pulp operations in New Brunswick.

[50] I find that Mr. Wasilenkoff also undertook his own research about the

Edmunston/Madawaska mills. He reviewed the publicly available information about

Fraser Papers and spoke to various analysts he knew in the field, together with

members of the operational teams at the Dresden Mill and Landqart Mill.

Mr. Wasilenkoff formed the view that while the Edmunston mill was a good

conversion candidate, it was not the most obvious choice because it came saddled

with the Madawaska plant. He explained that one of the negatives of Madawaska

was that it was merely one of a number of commodity paper mills that were losing

money, whereas Fortress Paper was a specialty paper company.

[51] In his March 4, 2008 email, Mr. Wasilenkoff told Mr. Vinall that some analysts

had informed him that the Edmunston/Madawaska mills would have a tough time

turning a decent financial return. Wishing to better ascertain the level of

Mr. Wasilenkoff’s interest in pooling resources with respect to the

Edmunston/Madawaska venture, Mr. Vinall told him that he had “heard a whisper”

that Fraser Papers was looking for a buyer.

[52] On May 14, 2008, Mr. Wasilenkoff forwarded Mr. Vinall an email he had

received from his contact at PricewaterhouseCoopers Inc. who specialized in

companies that are bankrupt or under creditor protection. The contact reported that

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an interim receiver of Pope & Talbot, a failing forest products company, was

soliciting offers in respect of the assets of its mills in British Columbia. In his cover

email Mr. Wasilenkoff asked Mr. Vinall, “Do you know much about these mills?

Wanna start a pulp company?” Mr. Wasilenkoff testified, and I accept, that he had

no desire to buy the sawmill assets in receivership; he was interested in Mr. Vinall’s

thoughts on whether the mills were solid dissolving pulp conversion candidates.

[53] Mr. Vinall promptly replied, “for starting up a pulp company I am definitely

your man”. His response was serious in the sense that he was always on the

lookout for new employment prospects. Mr. Vinall identified the Harmac mill, an

asset of Pope & Talbot located on Vancouver Island, as the only option because it

could be converted to a dissolving pulp mill. Mr. Vinall offered an update on the

status of the Skeena mill and investments in wood assets generally, and told

Mr. Wasilenkoff he would think some more about pulp opportunities. Significantly,

he also disclosed that Birla had commissioned Poyry to perform an evaluation of

opportunities in the pulp industry worldwide and that its report had yielded some very

interesting analyses.

[54] In addition to the opportunities in dissolving pulp conversion that were

surfacing in early 2008, Mr. Vinall gathered information about a biodiesel plantation

in the Philippines that Mr. Wasilenkoff had spoken about as a potential business

target. In or around that time period, Messrs. Vinall and Wasilenkoff also

re-canvassed the prospect of Mr. Vinall joining Fortress Paper.

The 2008 Poyry Report

[55] Poyry was a relative newcomer to the dissolving pulp industry. As noted, in

April 2008 Poyry prepared an extensive report on dissolving pulp outlining global

opportunities for converting paper pulp mills into dissolving pulp facilities as part of

Birla’s wider study (the “2008 Poyry Report”). It was this report that Mr. Vinall had

alerted Mr. Wasilenkoff to in their email exchange of May 14.

[56] The 2008 Poyry Report contained a detailed analysis of pulp mills located

around the world that might be candidates for conversion to dissolving pulp facilities.

Sateri (Shanghai) Management Limited v. Vinall

Page 17

Edmunston and the Thurso Mill were among the many prospective mills identified.

After applying select screening criteria, the 2008 Poyry Report identified the Thurso

Mill among the mills with low wood costs and stated:

Thurso mill is believed to be available at very low investments. It is estimated

to have cost-cutting potential, and conversion project is estimated to be

profitable as such. Cost cutting potential decisive.

[57] When he initially reviewed the 2008 Poyry Report, Mr. Vinall made

checkmarks next to statements it contained with which he agreed. He also wrote

comments about points he disagreed with or queried and added criteria to

supplement certain of Poyry’s content based on his own knowledge and experience.

Specifically, he circled the reference to the Thurso Mill and wrote the following

notation next to it, “Also may be opportunity to consolidate wood supply”.

Solicitation of Investors in the Thurso Mill

[58] By June 2008 or sooner, Fraser Papers was actively looking for investors in

relation to the conversion of its Thurso Mill to a dissolving pulp facility. In July 2008,

as part of its mandate to try to partner with a third party on that project, Fraser

Papers prepared a presentation outlining the Thurso Mill opportunity and made it

available to prospective investors. To that end, Fraser Papers, through its general

manager of pulp sales at the Thurso Mill, directly solicited Saiccor Sappi (“Sappi”), a

global leader in the production of dissolving pulp. Some degree of communication

among representatives of the two companies ensued, including a teleconference in

early September 2008. Evidently, nothing concrete came of those discussions.

[59] In July 2008, as Birla was completing the conversation at the Nackawic mill,

Mr. Vinall emailed Mr. Wasilenkoff hinting that he would be looking for new

employment in a few months. Mr. Wasilenkoff responded that he was still working

on numerous potential acquisition fronts but that the projects were mostly

European-based, with a possible opportunity in North America months down the

road. In this series of emails, Mr. Vinall ended one of his with, “Would be good to

catch up sometime for a beer”.

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Page 18

Sateri’s Recruitment of Vinall – Summer/Fall 2008

[60] Coinciding with the near completion of the Nackawic mill in the late summer

or early fall of 2008, Mr. Vinall was contacted by Keith Anderson with Russell

Reynolds Associates, an international head-hunter firm, to gauge his interest in

joining a Sateri company. Early on in their discussions, Mr. Anderson provided

Mr. Vinall with a detailed written outline of the specifications of the position being

offered. The title was said to be, “President Upstream – Sateri International Group

RGM International”.

[61] In the outline supplied to Mr. Vinall, Russell Reynolds referred to the

prospective employer interchangeably as Sateri International Group and Sateri

International and described it as:

… one of several operating companies that are part of RGM International, a

global group of highly successful, socially responsible companies operating in

the resources development area including oil and gas; engineering,

construction and procurement; agriculture; and pulp, paper and fiber.

[62] Russell Reynolds specified that the position included “full P & L responsibility

for all aspects of operations in China, Brazil and Indonesia” and would require

Mr. Vinall to lead:

…development and execution of a strategy to increase company EBITDA

significantly, initially through the expansion of production capacity and then

through strategic management of product mix and pricing.

[63] Mr. Vinall testified, and I find, that “full P & L responsibility” meant complete

responsibility for the profit and loss of the entire upstream business, including

forestry and mill operations, sales and marketing, research and development, staff

positions and technical roles.

[64] The overture piqued Mr. Vinall’s interest. The interview process involved

multiple meetings up the chain of command, including meetings with the head of

APRIL, members of the management team in the human resources division of the

Sateri organization, Will Hoon and Mr. Tanoto himself. This is a convenient place to

note that the evidence lacked clarity about Mr. Hoon’s position in the Sateri

Sateri (Shanghai) Management Limited v. Vinall

Page 19

enterprise. Some evidence pointed to him being the acting CEO of Sateri

International Co. Other evidence, primarily in the form of the testimony of Sammie Li

Xue Mei, a long-time analyst in Sateri’s strategic planning department, indicated he

was the CEO of Sateri Singapore. The probabilities of the evidence support the

finding that Mr. Hoon was the acting CEO of Sateri International Co.

[65] I find that despite being actively engaged in negotiations with Sateri,

Mr. Vinall had not given up on the notion of orchestrating a joint undertaking

between Birla and Fortress Paper or otherwise becoming involved in one of

Mr. Wasilenkoff’s business endeavours. For that reason, he maintained periodic

contact with Mr. Wasilenkoff.

Wings and Beer Meeting – October 2008

[66] In early September 2008, Don Roberts provided Mr. Wasilenkoff with a copy

of a report by CIBC World Markets titled, “Future Opportunities for the Forest

Products Industry in New Brunswick”. Mr. Roberts was a corporate finance banker

who supplied market reports to Mr. Wasilenkoff on a regular basis. I accept

Mr. Wasilenkoff’s testimony that he understood this report to conclude that the

dissolving pulp sector was the best and most valuable use of forestry opportunities

in New Brunswick and that he discussed its contents with Mr. Roberts.

[67] Mr. Wasilenkoff forwarded Mr. Roberts’ email to Mr. Vinall. Mr. Vinall was

aware of the report and in his reply portrayed himself to Mr. Wasilenkoff as having

been “heavily consulted” in relation to it. At trial, Mr. Vinall admitted that he had

inflated the depth of his involvement in the report as a means of trying to impress

Mr. Wasilenkoff. As I will return to later in my Reasons, Mr. Vinall was prone to

embellishment of his abilities and/or credentials in several of his writings in evidence.

[68] Over the next couple of days, Messrs. Vinall and Wasilenkoff traded emails

about arranging a face-to-face meeting in Vancouver in early October. Both men

claim that in October 2008, they met at a restaurant/pub in Vancouver where they

ate chicken wings and drank beer as they caught up on each other’s family and work

lives. They testified that the meeting spanned several hours and that they discussed

Sateri (Shanghai) Management Limited v. Vinall

Page 20

a range of potential business opportunities, most prominently, the dissolving pulp

industry generally and the Edmunston/Madawaska mills specifically.

[69] Mr. Vinall attested that when he met Mr. Wasilenkoff on this occasion, he

brought along his copy of the 2008 Poyry Report, or the pertinent pages of it

showing the notations he had made on his initial review, and a second clean copy in

hand. Mr. Wasilenkoff recalled that Mr. Vinall handed him a full copy of the 2008

Poyry Report at the meeting and also remembered having seen handwritten

comments on Mr. Vinall’s copy. Both men testified that they pored over the 2008

Poyry Report and discussed it in great detail. Mr. Wasilenkoff stated that, in the

process, he received an intense “crash course” about the dissolving pulp business.

He confirmed that Mr. Vinall’s focus continued to be on the Edmunston/Madawaska

opportunity.

[70] Mr. Wasilenkoff testified that during the meeting he made his own comments

and highlighted portions of the 2008 Poyry Report in several spots. In particular, he

emphasized the references to the Edmunston mill on a number of pages, noting that

it was a batch digester mill. Mr. Wasilenkoff did not mark any references to the

Thurso Mill. Like Edmunston, the Thurso Mill was a batch digester mill. It is not

controversial that it is more cost-effective to convert a batch digester mill to a

dissolving pulp facility than the more modern digester type mill.

[71] Even though the Edmunston mill had not made it to the short list of desirable

candidates in the 2008 Poyry Report, Mr. Wasilenkoff noticed that the report

supported what Mr. Vinall had been telling him about the viability of Edmunston and

dissolving pulp conversion at large.

[72] The plaintiffs dispute that this get-together between Messrs. Vinall and

Wasilenkoff, which has been dubbed the “wings and beer meeting” in this litigation,

ever occurred. If it did, they say it is simply untrue that Mr. Vinall shared the 2008

Poyry Report with Mr. Wasilenkoff at that time. To that latter point, the plaintiffs

contend that it was not until October or November the following year, long after

Mr. Vinall was hired by Sateri Shanghai and when Sateri was considering the Thurso

Sateri (Shanghai) Management Limited v. Vinall

Page 21

Mill as a potential acquisition, that he showed Mr. Wasilenkoff a copy of the 2008

Poyry Report. For convenience of analysis, I will resolve this factual dispute in the

context of determining the matters discussed by Messrs. Vinall and Wasilenkoff

during their telephone conversation in October 2009.

Vinall’s Acceptance of Employment with Sateri Shanghai

[73] Mr. Vinall credibly testified that as he progressed through the interviewing

stages at Sateri, significant differences emerged between the job duties set out in

the Russell Reynolds’ outline and Sateri’s expectations of his function being

presented through drafts of his proposed employment contract. The primary

discrepancy was that by cycle two or three of the draft contract, Sateri’s written

conception of his role lacked particularization beyond conferring the title of

“President – Upstream”, and seemed to be formulated along the lines that Mr. Vinall

was generally expected to perform whatever functions and assignments may be

determined by management from time to time. The expansive profit and loss

responsibilities initially detailed by Russell Reynolds were not reflected.

[74] Mr. Vinall was troubled by the omissions. He voiced his concern and

disappointment both to Mr. Anderson and to members of Sateri management and

pushed hard for adjustments to be made to his contract. Mr. Anderson also lobbied

for greater specification on Mr. Vinall’s behalf. Despite those efforts, no changes

were forthcoming.

[75] According to Mr. Vinall, one or more of Sateri’s management told him he

would assume the high-level management functions described in Russell Reynolds’

proposal even though they had not been particularized in his employment

agreement. He was left with the impression that he ought not to be troubled by the

general, even vague, description of his role in his employment contract, as it simply

reflected standard Sateri practice. Mr. Vinall testified that Sateri management told

him that he would be required to concentrate his efforts on the Bahia Mill for the first

six months of his employment only, and after that he would relocate to the head

office in Shanghai and take on the complete profit and loss role. Based on those

Sateri (Shanghai) Management Limited v. Vinall

Page 22

assurances, he accepted the offer of employment. I accept Mr. Vinall’s evidence on

these matters.

[76] On December 2, 2008, Mr. Vinall entered into an employment agreement with

Sateri Shanghai (the “Sateri Employment Contract”). His commencement date was

January 12, 2009.

Overview of Vinall’s Sateri Employment Contract

[77] The Sateri Employment Contract contained several provisions of importance.

It incorporated a separate declaration made by Mr. Vinall (the “Declaration”) and the

provisions of the Sateri staff handbook that was said to form an integral part of the

contract, but was not tendered into evidence.

[78] The Sateri Employment Contract is explicit that Mr. Vinall’s employer was

Sateri Shanghai and that his term of employment was for three years, unless

extended by mutual agreement. At the time, the Sateri head office was located in

Shanghai and Sateri Shanghai employed most of the management employees who,

like Mr. Vinall, were located outside of Singapore.

[79] Clause I.1 of the Sateri Employment Contract entitled “Position of Work &

Reporting Relationship”, described Mr. Vinall’s title as the “President Upstream

(Director Level) reporting to the Acting CEO, Sateri”. It stipulated that his “…job

description and specific assignments will be decided and communicated by” his

superior. Another interesting feature was the entitlement of Sateri Shanghai to

assign Mr. Vinall to work for any of its subsidiaries, associated or affiliated

companies, which are collectively defined in the agreement as the “Group”. It

provided that, from time to time, Mr. Vinall would be assigned “to work for or be

seconded to any of the [Group] in a position compatible with his skills and

experience, whether on a project or term basis and in countries where the Group’s

businesses are located”.

Sateri (Shanghai) Management Limited v. Vinall

Page 23

[80] Mr. Vinall’s obligations in that regard were expanded upon under the heading,

“Performance of Duties” in clause XV, which reiterated that he was required to carry

out:

…such duties and responsibilities as may be assigned by [Sateri Shanghai]

and/or the Group including, without limitation:

(i)

carrying out the duties of his/her appointment on behalf of any

company within the Group;

(ii)

acting as a director of any company within the Group or hold any

other appointments or office as nominee or representative of [Sateri

Shanghai] or any company within the Group; and

(iii)

carrying out such duties and the duties attendant on any such

appointment as if they were duties to be performed by him/her on behalf of

the company and/or the Group. [Mr. Vinall] shall at all times faithfully and

diligently attend to these in compliance with policy and procedures and will

endeavour, at all times, and to the best of his/her ability, to protect the

interests of [Sateri Shanghai].

[Underlining added]

[81] The Sateri Employment Contract clarified that, notwithstanding Mr. Vinall’s

secondment to another company within the Group, he “shall at all material times”

remain under the employment of Sateri Shanghai and be subject to the terms and

conditions of the Sateri Employment Contract and the applicable corporate policies.

[82] The Sateri Employment Contract allowed for changes to Mr. Vinall’s position,

assignments and reporting requirements upon mutual agreement. Such changes

were not to affect the terms and conditions of his employment unless the parties

agreed they would. There were also detailed provisions concerning Mr. Vinall’s duty

of confidentiality and prohibiting his competition and participation in activities of other

entities, which I discuss later. The Declaration likewise contained provisions

pertaining to those matters and provided that its terms were to prevail over the terms

of the Sateri Employment Contract to the extent of any conflict.

[83] An addendum to the Sateri Employment Contract outlined the criteria to be

applied in assessing Mr. Vinall’s entitlement to an annual performance bonus. His

bonus was dependent on the evaluation of key performance indicators, referred to

as “KPIs”, across four business quadrants pertaining to the Bahia Mill and plantation.

Sateri (Shanghai) Management Limited v. Vinall

Page 24

It was contemplated that, by the second month of Mr. Vinall’s employment, he and

Sateri Shanghai would set and agree upon the critical KPIs. I accept Mr. Vinall’s

evidence that when he commenced his employment his KPIs for 2009 had already

been fixed without his input and he had simply inherited them.

[84] Very soon into the job it became plain to Mr. Vinall that the goals embedded

in the applicable KPIs were likely unattainable.

Life at the Bahia Mill

[85] Mr. Vinall and his wife decided that he alone would move to Brazil where, as

he understood it, and the Sateri Employment Contract stipulated, he would be

stationed for the initial six-month period of his employment. It was intended that

Mrs. Vinall and the younger children would remain in New Brunswick for that

duration and after Mr. Vinall’s stint on the ground in Brazil, which coincided with the

end of the school year, he and his family would relocate to Shanghai. Aiming to

maximize time spent with his family, Mr. Vinall did his best to travel to his home base

in New Brunswick every fourth week or so.

[86] Before Mr. Vinall’s arrival, the Bahia Mill had undergone a significant

expansion at the cost of approximately $1.2 billion to install a second production line

equipped to produce a specialty acetate pulp. The operation was in an overall weak

state when Mr. Vinall came aboard. The project had experienced a rough start-up

and had significantly overrun its budget. The existing team was just emerging from

a very demanding year and the employees were fatigued.

[87] When he joined Sateri, Mr. Vinall’s paramount work tasks were to stabilize the

operations of the newly upgraded Bahia Mill and ensure that the product being

manufactured matched customer expectations so that sales would flourish. In

addition, but secondary to those dual priorities, he was to work on improvements of

mill efficiencies and output, especially of the very high-grade specialty acetate pulp,

and to ensure that the product was transported to a Sateri downstream location

(essentially, an internal customer) in a timely and cost-effective way.

Sateri (Shanghai) Management Limited v. Vinall

Page 25

[88] Mr. Vinall undertook no other work assignments at Sateri during that crucial

six-month period. Little by little, operations at the Bahia Mill began to streamline and

improve incrementally. However, progress was achieved at a much slower pace

than had been envisioned.

Mr. Hoon and Mr. Goh

[89] As the acting CEO of Sateri International Co., Mr. Hoon managed the Sateri

budgeting process and delegated work assignments to a large number of

subordinate management personnel, including Mr. Vinall. He was stationed in

Singapore and was not directly active in the ground operations.

[90] Lin Piao Goh was a member of upper management of the RGE Group.

Mr. Goh explained that senior executives within the RGE Group were occasionally

temporarily assigned to select projects for different companies within Mr. Tanoto’s

larger corporate enterprise, including APRIL and the Sateri network. In the fall of

2009, being several months into Mr. Vinall’s employment, Mr. Goh was seconded to

Sateri International Co. as the “acting group executive director”. He reported to

Mr. Hoon.

[91] The primary reason for Mr. Goh’s secondment to Sateri International Co., and

his chief mandate while there, was to prepare it for listing on the stock exchange.

Attaining that key goal required that Mr. Goh hire staff and evaluate and optimize

performance throughout the enterprise as a whole, including the procurement of

materials and services along the supply chain of the Sateri businesses, such as the

Bahia Mill. He completed his secondment and returned to the RGE Group at the

end of December 2010 after Sateri International Co. became a publicly traded

company.

[92] Mr. Hoon did not testify at trial. Mr. Goh was the most senior employee of the

Sateri organization to give evidence.

[93] Mr. Goh testified that the line of command was organized so that subordinate

management and/or business heads reported to Mr. Hoon or to him, depending

Sateri (Shanghai) Management Limited v. Vinall

Page 26

upon the particular area in which the employee worked. With respect to Mr. Vinall,

for example, he mainly reported directly to Mr. Hoon but was also required to report

to Mr. Goh in relation to the functions for which Mr. Goh was chiefly responsible.

Tragedy Strikes the Vinall Family

[94] In May 2009, Mr. Vinall and his wife were in the process of finalizing the sale

of their home in New Brunswick in preparation of the family relocating to the Sateri

head office. The telephone rang in the middle of the night with the news that

Mr. Vinall’s stepson, M., was in intensive care. M. lived in Vancouver with his older

sister.

[95] Mr. and Mrs. Vinall and their three younger children flew to Vancouver on the

first available flight. They learned that M. had been involved in an altercation with

two other males who were subsequently charged with manslaughter. By the time

they arrived at the hospital, M. was on life support and soon died. He was 21 years

old. The family was devastated.

[96] Mr. Vinall remained in Vancouver for a few weeks to support his family and to

make arrangements concerning M. His initial reaction was that it would not be

possible to go forward with the family’s planned move and pondered what steps he

might take with respect to his future. As the weeks passed, he and his wife

reassessed the situation and came to the decision that the new environment offered

by the move could prove a welcome distraction for the family. Some practical

considerations also favoured relocation: the Vinalls had already sold their home and

vehicles in anticipation of the move and Mr. Vinall needed to continue to earn an

income.

[97] In or around this time, the head office shifted from Shanghai to Singapore. As

far as Mr. Vinall was concerned, Singapore was a far more attractive destination for

the family. At no time had Mr. Vinall worked out of the Shanghai head office.

[98] The Vinalls took the plunge and moved their household to Singapore in about

July 2009. Mr. Vinall’s stepdaughter remained in Vancouver.

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Page 27

Vinall’s Secondment/Transfer to Sateri Singapore

[99]

By letter written on letterhead titled, “Sateri International Group”, Mr. Vinall’s

transfer from Sateri Shanghai to Sateri Singapore was confirmed to be effective on

August 1, 2009. It had been prepared at Mr. Vinall’s request as confirmation that his

remuneration, other benefits and employment terms would not be altered.

[100] The letter described Mr. Vinall’s designation as the “President Specialty

Cellulose” and indicated his internal level was as “director”. It referred to his transfer

as being “in pursuance of the Management’s decisions”, and characterized it as a

“new assignment”. The letter confirmed that Mr. Vinall’s transport and housing

allowances, salary and the other terms and conditions of the Sateri Employment

Contract would remain unchanged.

[101] My impression was of a consensus among the parties that this letter denoted

that Mr. Vinall actually left the employ of Sateri Shanghai and had become an

employee of Sateri Singapore. However, when read in conjunction with the Sateri

Employment Contract and Declaration and interpreted in light of the surrounding

circumstances, the letter readily admits of another view. That is, Mr. Vinall was

being temporarily seconded to Sateri Singapore, an occurrence that was expressly

envisaged in his Sateri Employment Contract, and that Sateri Shanghai remained

his employer. Either way, nothing of significance turns on this point.

[102] After his family took up residence in Singapore, Mr. Vinall continued to work

primarily at the Bahia Mill. He did his best to keep up his pattern of returning home

from Brazil approximately every fourth week.

[103] Mr. Vinall recalled that he was at the Singapore office on twelve occasions, at

most, throughout his entire employment. While there, he was expected to continue

to direct substantially all of his effort and attention to the operations of the Bahia Mill,

and he did so. Mr. Vinall convincingly testified that when Mr. Tanoto spotted him at

the Singapore office, he would grill him about the Bahia Mill operations and then

would instruct him to “get on a plane and go back to Brazil”, declaring that he

“shouldn’t be” at the head office.

Sateri (Shanghai) Management Limited v. Vinall

Page 28

[104] Mr. Vinall began to doubt whether his executive management position at head

office was going to materialize.

Fraser Papers under Creditor Protection

[105] In June 2009, Fraser Papers filed for creditor protection in Canada and

bankruptcy in the United States. Its dire financial situation was covered in the

general media and the news feeds about the forest industry that Mr. Wasilenkoff

regularly received.

[106] Fraser Papers’ monitor in bankruptcy, PricewaterhouseCoopers Inc., openly

marketed the Thurso Mill as an acquisition opportunity. In a news release, the

monitor reported that Fraser Papers was prepared to either sell the Thurso Mill or its

assets. It offered to make the Thurso Mill business plan available to interested third

parties on the execution of a confidentiality agreement.

[107] The numerous confidentiality agreements in evidence between Fraser Papers

and various third parties speak to the fact that the Thurso Mill opportunity became

widely known throughout the industry.

[108] Mr. Wasilenkoff testified he had been keeping an eye on Fraser Papers’

decline. He became aware it had come under creditor protection around the time

that it occurred and the monitor began to solicit interest in the Thurso Mill. He

considered that event to be a game-changer in terms of the acquisition opportunities

it presented because it meant that the assets of Fraser Papers could be broken up

and sold separately, free from crushing pension liabilities. Given the convincing

evidence that Mr. Wasilenkoff was seeking to acquire forestry-related assets for

Fortress Paper, I find his testimony entirely plausible.

Wasilenkoff’s Discussions with Sappi

[109] In early June 2009, Mr. Wasilenkoff visited Sappi’s headquarters in South

Africa. He met with high-level Sappi representatives to pursue discussions that had

commenced some months earlier about a potential business collaboration between

Fortress Paper’s Landqart Mill and Sappi to manufacture banknote paper. Other

Sateri (Shanghai) Management Limited v. Vinall

Page 29

meetings with Sappi had also taken place at the Landqart Mill and the discussions

were ongoing.

[110] Mr. Wasilenkoff testified that, in the course of his exchanges with Sappi

executives, they talked about opportunities in the dissolving pulp business. He

recalled having had a tour of Sappi’s research and development facility where its

breakthrough testing of dissolving pulp was on display.

[111] Mr. Wasilenkoff, on behalf of the Landqart Mill, and Sappi entered into a

confidentiality agreement dated June 3, 2009 in relation to their communications (the

“Sappi Confidentiality Agreement”). With some exceptions, the Sappi Confidentiality

Agreement provided that the confidentiality obligations would endure until

December 31, 2014.

[112] Mr. Wasilenkoff claimed that while visiting Sappi’s headquarters in June 2009,

and in the context of a more general conversation about the dissolving pulp sector,

he raised the financial troubles of Fraser Papers and asked whether Sappi had ever

looked at the Edmunston mill. He testified that the Sappi people answered that they

had not, but disclosed that they had considered the Thurso Mill and proceeded to

share their thoughts on its suitability for conversion to a dissolving pulp facility.

[113] The veracity of Mr. Wasilenkoff’s evidence on this latter point was challenged

by the plaintiffs. For logical convenience, I will resolve this factual dispute later in my

Reasons in the context of determining the matters that Messrs. Vinall and

Wasilenkoff discussed during their telephone conversation in October 2009.

Vinall’s Trips to Mills in Asia

[114] In early fall 2009 or thereabouts, Mr. Vinall was directed to review the Toba

Mill in Indonesia with a view on how to debottleneck its operations. I find that

Mr. Vinall spent no more than one day at the Toba Mill to complete his review and to

compose a short report of his technical suggestions. So far as Mr. Vinall was aware,

nothing came of his report.

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Page 30

[115] At a later date, Mr. Vinall was asked to accompany a group of individuals,

which included Mr. Tanoto, to APRIL’s mill in Sumatra. Mr. Vinall spent a full day at

that facility where he was introduced to members of the APRIL team and observed a

performance review. No follow-up tasks were assigned to him as a result of that

meeting. Evidently, in conjunction with this trip, Mr. Vinall travelled to the Toba Mill a

second time.

Identifying Mill Candidates for Conversion to Dissolving Pulp

[116] Mr. Goh explained that in contemplation of becoming a public company,

Sateri International Co. was looking to expand its operations. One mode of growth

was to buy a closed mill at a reasonable price and convert it to a dissolving pulp

facility.

[117] Members of the strategic planning divisions of the RGE Group, Sateri and

APRIL tended to work collaboratively. On about October 5, 2009, Mr. Tanoto

instructed Wanyan Shaohua, who was the department head of strategic planning at

APRIL, to provide a list of pulp mills that had closed within the preceding three

years. Mr. Shaohua completed his assignment the same day and reported to

Mr. Tanoto by email, copied to the president of APRIL, the CFO of APRIL and

others.

[118] In Mr. Tanoto’s email reply to Mr. Shaohua the next day, he added Sammie Li

Xue Mei (whom I will refer to as Ms. Li), Mr. Hoon and Mr. Goh as recipients to the

string. In that email, Mr. Tanoto instructed Mr. Shaohua and Ms. Li to place the mills

Mr. Shaohua had identified “in the Canada and [Country] map” and to check each

mill’s processing and digester information.

[119] As stated earlier, Ms. Li was an in-house strategic planning analyst for Sateri

based in the Singapore office. She was not as senior as Mr. Vinall or Mr. Shaohua.

Her function was to collect and analyze data that was publicly available or provided

by industry consultants for use on discrete work assignments. Some of those

industry consultants included Poyry, RISI and Hawkins Wright (also known as HW).

Sateri (Shanghai) Management Limited v. Vinall

Page 31

[120] Ms. Li understood that Sateri was considering increasing its upstream

capacity by purchasing and converting an existing dissolving pulp facility or by

building a new one. Working together, she and Mr. Shaohua compiled one map

showing the closed pulp mills in North America and another indicating closures

throughout Europe, as had been requested. On each map, they colour-coded mills

that Rick Van Lee, then the technical director of APRIL, determined had the potential

for conversion and were in close proximity to seaports. The separate list naming the

closed mills also highlighted the mills that Mr. Van Lee considered to be potential

conversion targets. Although the Thurso Mill was shown as a mill candidate on both

the list and the map, it had not been highlighted by Mr. Van Lee as having either

attribute. On October 6, the list and maps were sent to the expanded email group;

another version with immaterial revisions was forwarded on October 7.

[121] Although Mr. Vinall was not a recipient of that email chain, more or less

contemporaneously, Mr. Hoon enlisted his assistance to compile information about

recent mill closures in North America. Mr. Vinall happened to be in the Singapore

office at the time and recalled this task as one of his few work assignments that was

unrelated to the Bahia Mill.

[122] In accordance with Mr. Hoon’s instructions, on October 6, 2009 Mr. Vinall

sent Ms. Li an email informing her about his assignment and asking that they meet

to review whatever helpful background materials she may have to contribute. Ms. Li

informed Mr. Vinall that Mr. Tanoto had already made a similar request of her and

that he was looking at a mill in Spain and some other pulp mills that had recently

closed. It was common practice for Mr. Tanoto to assign different employees with

the same tasks to see how their results would compare.

[123] Mr. Vinall and Ms. Li met in the office and discussed the assignment in

general terms. Mr. Vinall learned then that Mr. Shaohua had also been tasked with

the same assignment. He mentioned to Ms. Li that, while at Birla, he had engaged

in an analysis of acquisitions and knew of target mills in North America.

Sateri (Shanghai) Management Limited v. Vinall

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[124] As a matter of routine for close to a decade, Mr. Vinall had maintained a

comprehensive inventory of electronic files in which he stored materials, articles and

other data regarding the commodity and specialty pulp industries. He testified that

he typically obtained the information from industry reports and publicly available

sources, and that it was neither confidential nor proprietary. From time to time he

drew on his extensive catalogue of information to create charts and perform various

analyses respecting the paper pulp and dissolving pulp industries. As I will return to,

Ms. Li maintained her own database containing publicly accessible information and

industry reports.

[125] After meeting with Ms. Li, Mr. Vinall emailed her and Mr. Hoon some of the

content from his data files. Included were extracts of the 2008 Poyry Report

enumerating the evaluative factors Poyry had developed and applied to the

surveyed mills, the comments he had added to the report when he first reviewed it,

along with a summary of enhanced criteria that he had formulated at Birla.

Mr. Vinall’s summary named the mills that had made it to the final list in the 2008

Poyry Report, together with four additional mills that Mr. Vinall thought warranted

consideration. The Thurso Mill was one of the four. The evidence indicated that, by

this point in time, the assessment criteria endorsed by Poyry regarding mill

conversion to the manufacture of dissolving pulp were fairly well-known in the pulp

sector.

[126] With respect to the Thurso Mill, Mr. Vinall had made a notation that its “wood

supply overlaps with SSCC Pontiac”, and “if can consolidate wood supply would be

positive”. At trial, Mr. Vinall explained that his comments addressed the fact that the

Thurso Mill and the Pontiac mill were essentially in competition for the same wood

supply and that, at some future point, one of them would have to close. His belief

was that because the economics of the Thurso Mill were superior to Pontiac’s, it

would survive in the end and, therefore, had the future potential for a lower cost

wood supply.

Sateri (Shanghai) Management Limited v. Vinall

Page 33

[127] In the same email, Mr. Vinall requested an opportunity to discuss the focus of

his assignment with Mr. Hoon and raised additional factors for consideration. I

accept Mr. Vinall’s testimony that he was never provided with a framework for how

the expansion project by way of purchase and conversion was envisioned to

proceed. Nor had he yet been given the list of mill closures and accompanying

maps prepared by Ms. Li and Mr. Shaohua.

[128] From the information that Ms. Li received from Mr. Vinall and Mr. Shaohua,

but based predominately on her discussion with Mr. Vinall, she narrowed the North

American candidates appearing on Mr. Shaohua’s list to three Canadian mills and

created a one-page chart comparing their respective features. The three mills were:

Crofton in British Columbia and Pontiac and the Thurso Mill, both in Quebec.

Ms. Li’s understanding was that Mr. Vinall was leaning in favour of the two east

coast mills. The chart showed three sources for the information: RISI, HW, and a

2007 report by Poyry. At trial, Ms. Li clarified that she had relied on the 2008 Poyry

Report provided to her by Mr. Vinall, and that she had mistakenly referred to the

year as 2007. On a separate document, Ms. Li pinpointed the location of the mills

on a map of Canada.

[129] Mr. Vinall reviewed Ms. Li’s chart, altered some of the information it contained

and added data that he considered germane to the assessment. More particularly,

he noted that the Quebec government would be financially supportive of conversion

of the Thurso Mill and the Pontiac mill. He based that assertion on his knowledge

that the Quebec government endorsed jobs in the forestry sector and had a history

of assisting provincial mills that were not competitive. Along the way, a fourth

candidate was included in the chart, namely the Harmac mill, located on the west

coast of Canada. Mr. Vinall emailed his supplemented version to Ms. Li.

[130] On October 7, someone casually mentioned to Mr. Vinall that the Canadian

mill candidates were going to be discussed at an upcoming meeting. That was

quickly followed by Mr. Hoon’s formal request that Mr. Vinall make a presentation at

that meeting scheduled for the next day.

Sateri (Shanghai) Management Limited v. Vinall

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[131] Meanwhile, the family turmoil created by M.’s death remained fresh.

Mr. Vinall’s wife was becoming increasingly depressed and his stepdaughter was

struggling on her own in Vancouver. Overlaying the grief and deterioration on the

home front was Mr. Vinall’s emerging dissatisfaction with his job. The time spent in

Brazil had far exceeded the initial six months anticipated and the distance had posed

increasing difficulty for Mr. Vinall and his family after M.’s death. He had not

expected the working conditions and work culture at the Sateri organization to be so

unpalatable. Also fueling his disenchantment was his growing concern that his

ascension to the profit and loss function in upper executive management might ever

come about. He was interested in returning to Canada and found the possibility of

the Sateri organization expanding via the acquisition and conversion of a Canadian

mill an exciting prospect.

October 8, 2009 Meeting

[132] Mr. Goh explained that the annual budgeting/strategic planning process for

the Sateri companies was divided into three phases. At the first stage, the focus

was on growth and the strategic direction to be taken in the coming year(s). It was

commonplace for Mr. Tanoto to take an active role in this phase.

[133] During the next stage, detailed budget numbers were circulated and

discussed. Mr. Tanoto did not ordinarily involve himself in this step. He did,

however, participate directly in the third phase, where the board proposed strategic

initiatives and addressed most of the corresponding budget numbers.

[134] Phase one of the 2010 budget process took place at a meeting in Singapore

on October 8, 2009 (the “October 8 Meeting”). Among those present were:

Mr. Tanoto; his wife; Mr. Hoon; Mr. Goh; Ms. Li; Mr. Vinall; Mr. Sia (the CFO of the

RGE Group); a person who worked for Mr. Sia; another member of the strategic

planning team of APRIL or the RGE Group; a member of the RGE Group who was

“focused on Sateri”; and an independent individual experienced in sales and the

market in China with specialization in the downstream business. It was not made

clear on the evidence whether this was an actual meeting of board members or not.

Sateri (Shanghai) Management Limited v. Vinall

Page 35

[135] By this time, Mr. Vinall was about nine months into the job. He had not

previously attended a meeting of this kind. He understood that he was expected to

explain the materials that he and Ms. Li each had a hand in compiling with respect to

potential Canadian mill acquisition opportunities. At this juncture, Mr. Vinall was still

in the dark about the list of mills and maps compiled by Ms. Li and Mr. Shaohua.

[136] Minutes of the October 8 Meeting in evidence record, and Mr. Goh confirmed,

that Mr. Tanoto lead the meeting by providing an overview of the Sateri organization

and a forecast of its future. Concentrating his remarks on the downstream side of

the enterprise, Mr. Tanoto spoke about the burgeoning rayon market in China and

commented on things like how to hedge against the risks that may arise in the

marketplace. Mr. Tanoto also addressed the main strategic objectives of the Sateri

companies. In the context of that discussion, nine matters were identified as

requiring some post-meeting follow up.

[137] The final item raised was “M & A opportunities in America Presented by

[Mr. Vinall]”. The minutes record Mr. Vinall’s presentation, in relevant part, this way:

precondition to convert from BKP to [dissolving pulp] is “Batch Digester”

–

West Coast opportunities recommended by [Mr. Vinall]:

1.→Crofton Mill (400 kt integrated) located in Vancouver island,

Soft-wood fiber, having additional capacity […] which can increase the

yield of [dissolving pulp], wood cost around C$50/m3

2.→Harmac mill (400 kt) located in Vancouver island, Soft-wood fiber,

old assets. Competing wood supply with Crofton

–

East Coast opportunities recommended by [Mr. Vinall]:

Thurso mill (250 kt) and Pontiac mill (232 kt), both Hard-wood fiber

Thurso has a batch digester, government supported. Production cost

might be lower than West Coast mills but with higher logistic cost.

[138] Mr. Goh testified that the minutes accurately summarize Mr. Vinall’s

presentation. The evidence as a whole, including Mr. Vinall’s testimony, satisfies me

that Mr. Goh has a poor recollection of the event, and that the minutes were

incomplete as they concerned Mr. Tanoto’s reaction to Mr. Vinall’s subject.

Sateri (Shanghai) Management Limited v. Vinall

Page 36

[139] Mr. Vinall recounted that he opened his topic by addressing the mill

conversion opportunities on the east coast of Canada. In discussing the Thurso Mill,

I accept that he started to canvass the bullet points on the chart he and Ms. Li. had

prepared showing the four Canadian mill targets. He also explained the wood

supply issue and reported, as a positive feature, that the owner of the Thurso Mill

(Fraser Papers) was in bankruptcy, which he had discovered in carrying out his

assignment.

[140] Mr. Vinall persuasively testified that before he was able to finish his remarks

about the two Quebec prospects, Mr. Tanoto interrupted him and exclaimed that he

was not interested in mills in Quebec and that no one ever made money there. He

then pounded the table with his hand for emphasis. Mr. Vinall recalled that after

Mr. Tanoto’s outburst, no one in the room said anything about the east coast mills.

As far as Mr. Vinall was concerned, Mr. Tanoto’s forceful message left no room for

doubt that he was not willing to do business in Quebec.

[141] Mr. Vinall claimed that, in light of Mr. Tanoto’s unequivocally negative position

about the candidates in Quebec, he skipped forward in his remarks and discussed

the two west coast mills. He recalled there being little reaction to his comments.

After he fielded a couple of questions, he and Mr. Shaohua were instructed to take

some straightforward action in follow-up.

[142] Mr. Vinall explained, and the minutes of the October 8 Meeting reflect, that

Mr. Shaohua’s task was to ascertain the identity of the bankers for the west coast

mills and determine whether they were concerned about their investment for use as

leverage in a possible acquisition. He was not instructed to do likewise with regard

to the Quebec mills. Mr. Vinall was directed to check with Craig Barker, who was in

Sateri management on the downstream side, about whether he had a preference for

wood pulp from hardwood or softwood and what wood type would fit with production

at the Sateri viscose mill in China. There were no further directions from Mr. Tanoto

or any other attendee at the meeting regarding the mill acquisition item.

Sateri (Shanghai) Management Limited v. Vinall

Page 37

[143] Mr. Goh did not remember much about the discussion that took place at the

October 8 Meeting or what Mr. Vinall had said about the Thurso Mill or any details

about Mr. Tanoto’s comments or conduct.

[144] Ms. Li kept her own notes of the meeting. She stated that at the end of

Mr. Vinall’s presentation, Mr. Tanoto said he had always thought that the West

Coast was better because its superior proximity to Asia meant that delivery of the

product to the downstream mills would be more cost-effective and timely. According

to her, Mr. Tanoto indicated that Mr. Vinall’s presentation as it pertained to the east

coast mills “was not strong enough” and that he would need to do “more studies” to

convince Mr. Tanoto that they were better than the west coast targets. Much of

Ms. Li’s testimony on this point was compatible with Mr. Vinall’s evidence that at the

October 8 Meeting Mr. Tanoto rejected the east coast mills out of hand. To the

extent, however, that she intended to suggest that Mr. Tanoto wanted Mr. Vinall to

perform further “studies” or investigations about the Quebec mills or that he was

possibly receptive to east coast targets, I do not accept it. There was no suggestion

in the minutes, Ms. Li’s notes or any other document that Mr. Vinall, or anyone, was

to take further steps along those lines.

[145] Ms. Li added that she had not seen Mr. Tanoto pound the table during this or

any other business meeting she had attended. I find that Ms. Li had either forgotten

Mr. Tanoto’s gesticulation during the October 8 Meeting, or as a current employee of

his corporate empire, felt too constrained to recount it to the Court. Moreover, and

despite Mr. Vinall’s obvious self-interest, his description about Mr. Tanoto’s

response to his presentation concerning the mills in Quebec was persuasive.

[146] Mr. Vinall testified to the effect that at the end of the October 8 Meeting, he

was not clear about what was to happen next with respect to the potential mill

conversion matter, other than Mr. Hoon would be making a presentation to the board

about it at the next meeting. I do not interpret Mr. Vinall’s evidence on this discrete

point to imply that after the October 8 Meeting he was uncertain about whether the

Thurso Mill was still under consideration as a candidate for conversion by Sateri, as

Sateri (Shanghai) Management Limited v. Vinall

Page 38

plaintiffs’ counsel submitted in closing argument. Mr. Vinall was consistent in his

testimony that the Thurso Mill was categorically rejected out of hand as an

expansion by Mr. Tanoto at the October 8 Meeting.

[147] In cross-examination, Mr. Vinall candidly acknowledged that it was within the

realm of possibility that Sateri could change its mind about conversion of the Thurso

Mill at some future point. His acknowledgement of the existence of such a possibility

was intended in the general sense, namely that such an event - like any number of

future happenings - could not be said to be wholly impossible. I attach no probative

value to that piece of evidence.

[148] Mr. Vinall testified that at no time after the October 8 Meeting was the subject

of the Thurso Mill or the possible acquisition of the Quebec candidates more

generally, raised with him by Ms. Li, Mr. Hoon, Mr. Goh, Mr. Tanoto or any other

person at Sateri, the RGE Group or APRIL. The exception to this is the telephone

and email communications that touched on the matter in early March 2010. As I will

discuss, those communications supported Mr. Vinall’s testimony about Mr. Tanoto’s

rejection of the Thurso Mill.

[149] The preponderance of the evidence satisfies me that on the heels of the

October 8 Meeting (and not before), Ms. Li forwarded to Mr. Vinall, the emails written

between October 5 and October 7, 2009 that had been circulated variously among

her, Mr. Tanoto, Mr. Shaohua, and others. Mr. Vinall had not previously received

that email string. When he received it and saw the map, he immediately noticed that

the Thurso Mill was shown as an inland plant. To his mind, that depiction was

inaccurate because the Thurso Mill was located only 100 kilometres from Montreal,

the largest eastern port in Canada. He promptly advised Ms. Li of the oversight by

way of email the following day, which was shortly before the meeting of the board

was set to convene in Shanghai on October 16, 2009. As it happened, that meeting

was rescheduled to the following week (the “Second October Meeting”).

Sateri (Shanghai) Management Limited v. Vinall

Page 39

Telephone Discussion between Vinall and Wasilenkoff – October 2009

[150] On or about October 17, 2009, Mr. Vinall sent a cryptic email to

Mr. Wasilenkoff in which he stated, “It would be good to have a quick call as I see an

interesting opportunity”. At some point between October 20 and October 22,

Messrs. Vinall and Wasilenkoff chatted over the telephone (the “October 2009 Call”).

The “interesting opportunity” that Mr. Vinall referred to and the content of the

October 2009 Call is intensely contentious.

[151] The plaintiffs asserted that the “interesting opportunity” was the prospect of

purchasing the Thurso Mill for conversion to dissolving pulp. Mr. Vinall insisted that

was not the case. He instead professed that the “interesting opportunity” was the

bankruptcy of Fraser Papers, which he believed might re-ignite Mr. Wasilenkoff’s

interest in the Edmunston/Madawaska project.

[152] Mr. Wasilenkoff gave corroborating testimony that during the October 2009

Call, Mr. Vinall reported on Fraser Papers’ creditor protection status and again

raised the Edmunston/Madawaska takeover. He testified that he told Mr. Vinall that

he was already aware of Fraser Papers’ financial decline and that it had not revived

his interest in Edmunston/Madawaska because he foresaw too many problems

inherent in that venture. According to Mr. Wasilenkoff, he then shared the idea that

the Thurso Mill might be a worthwhile prospect in light of Fraser Papers’ downturn

and disclosed to Mr. Vinall the discussions he claimed to have had about the Thurso

Mill with Sappi in June 2009. He said he asked Mr. Vinall, in a somewhat

tongue-in-cheek manner, whether he would be interested in returning to Canada.

With that, says Mr. Wasilenkoff, Mr. Vinall’s excitement level increased materially; it

seemed to be what Mr. Vinall had been hoping to hear.

[153] At trial, Mr. Vinall said he was “shocked” when Mr. Wasilenkoff mentioned the

Thurso Mill possibility. He maintained that it was only after Mr. Wasilenkoff brought

up the Thurso Mill that he informed him that Sateri had passed on it as a possible

conversion candidate because it was situated in Quebec. Mr. Wasilenkoff said he

Sateri (Shanghai) Management Limited v. Vinall

Page 40

did not find Sateri’s reported stance to be unusual because Quebec was widely

perceived as a uniquely challenging place to do business on several fronts.

[154] In order to determine what it was that Mr. Vinall and Mr. Wasilenkoff

discussed during their October 2009 Call, it is helpful to resolve two factual disputes.

First, whether the wings and beer meeting took place in October 2008 and, if it did,

whether Mr. Vinall supplied Mr. Wasilenkoff with a copy of the 2008 Poyry Report at

that time or soon afterward. Second, whether Mr. Wasilenkoff and representatives

of Sappi discussed the Thurso Mill in June 2009 or otherwise before the

October 2009 Call.

 When did Wasilenkoff receive a copy of the 2008 Poyry

Report?

[155] The combined evidence of Messrs. Vinall and Wasilenkoff and their

communications by email in July and September 2008 satisfy me that they met in

Vancouver for wings and beer in October 2008.

[156] As referenced earlier, the plaintiffs assert that Mr. Vinall first furnished a copy

of the 2008 Poyry Report to Mr. Wasilenkoff after the October 2009 Call in which

they say Mr. Vinall alerted Mr. Wasilenkoff to the Thurso Mill opportunity. In support

of their theory of events, the plaintiffs emphasized that Mr. Vinall’s evidence about

what he provided to Mr. Wasilenkoff at the wings and beer meeting was internally

inconsistent and incompatible with Mr. Wasilenkoff’s own recollection. I agree there

were some mild inconsistencies.

[157] Mr. Vinall initially testified that he had brought along a second clean copy of

the 2008 Poyry Report and handed it to Mr. Wasilenkoff at the wings and beer get-

together in October 2008. Then, in cross-examination, he said he may have only

brought a clean copy of the pages of that report that dealt with the dissolving pulp

industry. Still later in cross-examination, Mr. Vinall allowed that he may not have

brought a clean copy or clean pages with him after all, and that he and

Mr. Wasilenkoff may have together reviewed his one marked-up copy. Purporting to

expand on that recollection, Mr. Vinall said he believed that days or weeks after the

Sateri (Shanghai) Management Limited v. Vinall

Page 41

meeting, he sent Mr. Wasilenkoff a clean copy of the 2008 Poyry Report, together

with the pages containing his commentary. When it was pointed out that he had not

produced an email showing the transmission of those documents (and nor had

Mr. Wasilenkoff), he answered that he suspected that he or his secretary had simply

photocopied the pages and mailed them to Mr. Wasilenkoff. While Mr. Vinall agreed

it was possible that he had scanned and emailed the 2008 Poyry Report and pages

containing his handwritten remarks to Mr. Wasilenkoff, he was “pretty sure”, that

they had been sent by regular mail.

[158] Mr. Wasilenkoff testified that Mr. Vinall had supplied him with a separate copy

of the 2008 Poyry Report at the wings and beer meeting. He confirmed that he was

also given the pages with Mr. Vinall’s handwritten comments, although he did not

seem to pinpoint when it was that he received them (i.e. during or after the wings

and beer meeting).

[159] To fortify their position, the plaintiffs also point to an email from

Mr. Wasilenkoff to Mr. Vinall dated November 3, 2009 (the “November 3 Email”):

I have not had a chance to review the material yet. Please feel free to make

the introduction to your QC guy. I can be the “front guy”. We should come

up with a framework or structure for our group relatively soon.

[160] It is the plaintiffs’ contention that the “material” being referred to was the 2008

Poyry Report along with the pages showing Mr. Vinall’s handwritten notes, which

they say Mr. Vinall provided to Mr. Wasilenkoff for the first time shortly after the

October 2009 Call. There is no dispute that the “QC guy” Mr. Wasilenkoff mentioned

was Pierre Monahan. Mr. Monahan had been a CEO of a forest products company

in Quebec and he would come to figure prominently in the ultimate acquisition of the

Thurso Mill by the corporate defendants.

[161] Mr. Vinall could not remember specifically what “material” Mr. Wasilenkoff

was speaking of, but denied that it was the 2008 Poyry Report, maintaining that he

had given it to Mr. Wasilenkoff when they met for wings and beer a year earlier. At

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Page 42

the same time, Mr. Vinall agreed, as did Mr. Wasilenkoff, that the material being

referred to probably in some way related to the Thurso Mill and I find that it did.

[162] Periodically over the years, Messrs. Vinall and Wasilenkoff had talked about

working together in a venture in the pulp and/or pulp and paper industry. In 2006,

Mr. Wasilenkoff backed Mr. Vinall as the President and future CEO of Fortress

Paper and, but for the intervention of third party bankers, Mr. Vinall would have likely

assumed that position. Since mid-2007 or so, they had discussed the possibility of

doing a shared project involving the Edmunston/Madawaska mills and had several

communications about the dissolving pulp business. At the time of the wings and

beer meeting, Fortress Paper was well into acquisition mode and dissolving pulp had

been gaining Mr. Wasilenkoff’s interest as a niche business possibility.

[163] Mr. Wasilenkoff’s actions were consistent with his emerging interest. Quite

independently of Mr. Vinall, he had made his own enquiries regarding the viability for

conversion of the Skeena mill and the Edmunston/Madawaska mills. He had also

gathered information about Fraser Papers and, on Mr. Vinall’s recommendation,

communicated with the Poyry London contact to discuss potential acquisition

targets. Shortly before they met for wings and beer, he had discussed Mr. Roberts’

report on dissolving pulp with Mr. Vinall.

[164] The evidence leaves the strong impression that, of the two men, Mr. Vinall’s

desire for a business collaboration of some kind was greater than Mr. Wasilenkoff’s

corresponding interest, and that he kept a lookout for opportunities that might bring

that association about. Mr. Vinall had previously let Mr. Wasilenkoff know that he

was looking to leave Birla (which he ultimately did a few months later). At the time of

their wings and beer meeting, Mr. Vinall was motivated to inform Mr. Wasilenkoff

more fully about the opportunities in dissolving pulp in the hope that a job

opportunity might materialize. Mr. Vinall had received the 2008 Poyry Report that

contained a comprehensive analysis of dissolving pulp on a global scale and had

mentioned it to Mr. Wasilenkoff during one of their email exchanges several months

earlier. For many reasons favourable to Mr. Vinall’s interests, the 2008 Poyry

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Page 43

Report was an obvious document to share with Mr. Wasilenkoff at the wings and

beer meeting in October 2008.

[165] In weighing the evidence, including Mr. Vinall’s testimonial inconsistencies,

I conclude that the wings and beer get-together occurred in early October 2008. I

find that most probable scenario was either that Mr. Vinall handed Mr. Wasilenkoff a

full copy of the 2008 Poyry Report during that meeting and supplied him with the

pages showing Mr. Vinall’s handwritten notations at the same time or shortly

afterward; or reviewed his copy of the 2008 Poyry Report and his handwritten

comments with Mr. Wasilenkoff and not long afterwards gave him copies. The

bottom line is that Mr. Vinall provided Mr. Wasilenkoff with a copy of the 2008 Poyry

Report along with the pages showing his notations in about October 2008,

approximately one year before the October 2009 Call took place.

[166] The preponderance of the evidence further indicates that Mr. Wasilenkoff

came away from the wings and beer meeting in 2008 with a greater knowledge of

the dissolving pulp industry and an elevated interest in it as a niche opportunity for

Fortress Paper.

 Did Sappi and Wasilenkoff discuss the Thurso Mill in 2009?

[167] The conversion of a conventional mill to a dissolving pulp plant as a future

business endeavor for Fortress Paper had been percolating in Mr. Wasilenkoff’s

mind for some time before he met with the representatives of Sappi in June 2009.

By then, he had reviewed the 2008 Poyry Report, engaged in several dialogues with

Mr. Vinall about the dissolving pulp industry, received information on dissolving pulp

from business advisors and analysts, made his own inquiries about the dissolving

pulp business and specific mills, and had seen Birla’s press release outlining its

expansion plans for dissolving pulp operations. He was also aware that Fraser

Papers had been teetering on the brink of significant financial failure for some time,

and that it was about to enter, or had recently come under, creditor protection

proceedings.

Sateri (Shanghai) Management Limited v. Vinall

Page 44

[168] This backdrop combined with the important fact that Sappi was the largest

dissolving pulp manufacturer in the world, favours a high probability that dissolving

pulp was among the topics canvassed by Mr. Wasilenkoff and the representatives of

Sappi during their discussions in June 2009. I find this to be so even though the

centrepiece of their business relationship was the banknotes venture. That said,

Mr. Wasilenkoff’s assertion that they talked about the Thurso Mill specifically, gives

me significant pause.

[169] At his first examination for discovery on May 31, 2013, Mr. Wasilenkoff was

questioned about the conversations he had with the Sappi people in around

June 2009. Mr. Wasilenkoff answered that by then he was looking at the Thurso Mill

and, although it was not a top priority, he would not have revealed his interest to a

direct competitor like Sappi. He characterized his communications with Sappi in

June 2009 as “not relevant” to the case at bar and said “it was a different type of

discussion”. Mr. Wasilenkoff elaborated that he was not at liberty to say whether he

had partaken in discussions with Sappi respecting the conversion of an existing

conventional mill to a dissolving pulp facility due to the constraints of the Sappi

Confidentiality Agreement.

[170] When confronted with the discrepancies between his evidence on this point at

trial compared to his first examination for discovery, Mr. Wasilenkoff attempted to

explain them away by saying that at his discovery he had been constrained by the

Sappi Confidentiality Agreement, which was no longer in effect at the time of the

trial. However, the Sappi Confidentiality Agreement clearly does not purport to

classify discussions on the subject of dissolving pulp as confidential and to prohibit

their disclosure. Challenged on that point, Mr. Wasilenkoff claimed to have not

reminded himself of the ambit of the Sappi Confidentiality Agreement in advance of

his discovery and to have simply presumed that it forbade disclosure of

conversations that he said were embarked upon concerning dissolving pulp. He

stated that when he subsequently reviewed the Sappi Confidentiality Agreement a

couple of weeks before trial, he realized that it did not restrain communications

about dissolving pulp. I do not find that plausible. It is in Mr. Wasilenkoff’s nature to

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Page 45

be accurately attuned to the details of his possible business pursuits and I find he

would have readily recalled the parameters of any agreed suppression of his

freedom to discuss business prospects.

[171] On August 6 and 7, 2009, Fortress Paper held a board meeting at the

Landqart Mill. The Fortress defendants advised by way of answers to requests

made of Mr. Wasilenkoff at his examination for discovery, that the minutes of this

board meeting did not contain any relevant information and, therefore, would not be

produced in the action. Counsel later had a change of mind and disclosed the

minutes partway through Mr. Wasilenkoff’s evidence in-chief. They record that at

the meeting Mr. Wasilenkoff reported on various growth strategies for Fortress

Paper, including Sappi. There is nothing in the minutes with respect to the Thurso

Mill, dissolving pulp or any discussions with Sappi beyond reference to the potential

combined endeavour concerning banknotes. If Mr. Wasilenkoff had discussed the

Thurso Mill opportunity with Sappi in June 2009, it is difficult to understand his

steadfast position that the board minutes were irrelevant given that they reflect that

he provided an update on Sappi at that time.

[172] During his evidence in-chief, Mr. Wasilenkoff, for the first time, professed to

have relayed Sappi’s analysis of the Thurso Mill to Mr. Vinall during the

October 2009 Call. No time while testifying about that conversation during his

examinations for discovery, did he suggest he had done so. It remains to add that,

while on the one hand Mr. Wasilenkoff cited the Sappi Confidentiality Agreement as

the reason he had not given more fulsome answers at his May 31, 2013 discovery

concerning the content of his discussions with Sappi, on his own evidence he had no

compunction sharing that information to Mr. Vinall during the October 2009 Call.

Also informative is that in Mr. Vinall’s detailed account of the October 2009 Call, he

said nothing about Mr. Wasilenkoff relaying any prior discussion he may have had

with Sappi respecting the Thurso Mill.

[173] All things considered, I do not accept Mr. Wasilenkoff’s evidence that he

discussed the Thurso Mill with Sappi prior to the October 2009 Call. It follows that

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he was also untruthful when he testified that he had disclosed Sappi’s observations

about the suitability of the Thurso Mill conversion with Mr. Vinall during their

discussion. None of that happened.

 Summary of the Content of the October 2009 Call

[174] I return now to the discussion between Messrs. Vinall and Wasilenkoff during

the October 2009 Call.

[175] In reviewing the potential mill targets for Sateri, Mr. Vinall had been

somewhat bullish on the two candidates in Quebec, one of which was the Thurso

Mill. His assessment of the Thurso Mill as a favourable acquisition was partly

informed by the fact that Fraser Papers was under creditor protection. It is unlikely

that Mr. Vinall would have used Fraser Papers’ creditor protection status, an event

that by then was more than four months old, as a springboard to communicate with

Mr. Wasilenkoff and segue into yet another discussion about the

Edmunston/Madawaska prospect. Mr. Vinall was sufficiently acquainted with

Mr. Wasilenkoff’s business acumen to know that he would have been aware of

Fraser Papers’ status around the time it happened.

[176] Mr. Vinall also knew that Mr. Wasilenkoff had been cultivating an interest in

the dissolving pulp business. Indeed, Mr. Vinall had been actively promoting it for

some time. The potential involvement of Fortress Paper in a dissolving pulp

conversion underlay many of their communications in 2007 and 2008. They had

several times exchanged thoughts on the topic when they spoke about the Skeena

mill and the prospect of an Edmunston/Madawaska venture, shared written

information about dissolving pulp and talked about that industry at length when they

reviewed the 2008 Poyry Report together in the fall of 2008.

[177] I am satisfied that Mr. Vinall genuinely and correctly believed that Mr. Tanoto

and, hence Sateri, had vetoed the very idea of pursuing a mill in Quebec. He had a

personal interest in finding a bridge back to Canada due to his mounting family crisis

and growing discontentment with his current job, and foresaw that the conversion of

the Thurso Mill might pave his return. In his own self-interest, Mr. Vinall reached out

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to Mr. Wasilenkoff to that end. That is not to say that further discussion about a

possible venture involving Edmunston was necessarily off the table. However, the

Thurso Mill prospect was at the forefront and was indeed the interesting opportunity

that Mr. Vinall wished to raise with Mr. Wasilenkoff and the reason he arranged the

October 2009 Call.

[178] Mr. Wasilenkoff was well aware of the Thurso Mill as a dissolving pulp target

and had not discounted it as a potential acquisition for Fortress Paper. I find that all

of Fraser Papers’ forestry assets, including the Thurso Mill, became of greater

interest to Mr. Wasilenkoff when Fraser Papers entered into creditor protection

proceedings in June 2009. However, I do not accept Mr. Wasilenkoff’s testimony

that he was actively working on the pursuit of the Thurso Mill at the time of the

October 2009 Call. What I do find is that he was interested in the Thurso Mill and,

on this occasion, Mr. Vinall’s timing was right. The fact that Mr. Vinall indicated a

potential willingness to make himself available to lead the technical side of the

conversion was appealing to Mr. Wasilenkoff, elevating his degree of interest and

focusing his attention.

[179] I find that during the October 2009 Call, Mr. Wasilenkoff indicated his interest

in giving the Thurso Mill a closer and serious look, while at the same time cautioning

Mr. Vinall that these were very preliminary days and many unsettled pieces would

have to come together in order to formulate a preliminary plan sufficient to secure

Fortress Paper’s involvement. That was understood by Mr. Vinall. Mr. Wasilenkoff

went on to float the idea that if Fortress Paper were to decline the venture, it may be

attractive enough for him to consider pursuing through another corporate entity.

[180] Reflecting that he had given some thought to the pulp mill business climate in

Quebec, Mr. Wasilenkoff suggested that it may be preferable to approach the

Quebec government with a proposal before involving Fraser Papers’ monitor.

Mr. Vinall told Mr. Wasilenkoff about a senior executive he knew who was well-

connected with the Quebec government and experienced in the forest industry. He

offered to contact him in confidence. Mr. Wasilenkoff was keen to have the

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involvement of someone who understood the “lay of the land” and who could help

make inroads to the government.

[181] Mr. Vinall did not tell Mr. Wasilenkoff that the executive he referred to was

Pierre Monahan. I find that he chose not to divulge Mr. Monahan’s name at that

time because he was playing his cards close to his vest in the hope that

Mr. Wasilenkoff would perceive his continued involvement to be of value.

[182] In this time frame, Mr. Vinall had also been eliciting input from others about a

potential Thurso Mill deal. Before the October 2009 Call, he sent an email to his

close friend in which he said, “good talking and scheming will let you know how my

calls pan out…”. After the October 2009 Call, Mr. Vinall updated his friend that,

“[Mr. Wasilenkoff] is in – so we are on first base… Spoke briefly with [Mr. Monahan]

and he is interested as well but we didn’t get to any specifics yet”.

[183] Mr. Vinall gave unconvincing testimony that when he emailed his friend he

and Mr. Wasilenkoff were still contemplating the possibility of a venture involving the

Edmunston/Madawaska mills. The content and timing of Mr. Vinall’s emails to his

friend, and particularly his reference in one of them to Mr. Monahan, further

bolstered the inference that the Thurso Mill was the “interesting opportunity” that

Mr. Vinall explored with Mr. Wasilenkoff during the October 2009 Call.

Second October 2009 Meeting

[184] Messrs. Tanoto, Hoon and Goh were among those present at the Second

October Meeting. Mr. Vinall had not been asked to attend and did not do so.

[185] One of the documents placed before those in attendance was a one page

summary titled “Strategic Focus + Main Objectives for 2010” which was divided into

eight subtopics, one of which was headed “Growth”. Three options for growth of the

upstream arm of the business were identified as:

(i)

Debottleneck the Bahia Mill;

(ii) Debottleneck the Toba Mill in Indonesia; and

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(iii) Acquire paper pulp mill in North America or Europe for conversion to

producing rayon-grade pulp.

[186] Mr. Goh confirmed that those options were the critical strategic points that the

board was trying to reach consensus on for the coming year. Curiously, he was

unable to provide any useful evidence about the discussions that ensued on those

topics.

[187] During the Second October Meeting, Mr. Hoon presented slides that showed

the potential mill candidates. Although Ms. Li claimed to have rectified the map to

reflect Mr. Vinall’s clarification about the proximity of the Thurso Mill to a seaport, it

was unclear when she did so. More to the point, the preponderance of the evidence

established that the materials reviewed at the Second October Meeting contained

Mr. Van Lee’s uncorrected version of the map that did not identify the Thurso Mill as

being close to a port or as a mill that could be converted to produce dissolving pulp.

Here, I would add, that except for Mr. Vinall’s correction concerning the location of

the Thurso Mill, there was no evidence that Mr. Van Lee’s technical assessment of

the suitability of the identified mills (and the unsuitability of the Thurso Mill) was ever

changed or challenged.

[188] Mr. Goh professed a vague recollection that there had been some discussion

surrounding the handouts prepared by Ms. Li and Mr. Shaohua about the potential

mill targets at the Second October Meeting. He could not recall any of the specifics

and provided no evidence as to whether the Thurso Mill was raised for discussion

and, if it was, what was said. Remarkably, given that Mr. Goh was the most senior

ranking executive in the Sateri organization to testify, he had no recollection as to

whether any decision about purchasing a mill was reached at that meeting or at any

time thereafter. The plaintiffs called no other attendee of the Second October

Meeting as a witness and did not tender the minutes of that meeting.

[189] Mr. Vinall was curious about the outcome of the Second October Meeting as

it concerned the mill acquisitions and asked Mr. Hoon about it. He testified that

Mr. Hoon replied with words to the effect, “Let’s just keep looking”. In my view,

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Mr. Hoon’s response was equivocal. On the one hand, it is capable of being

interpreted as discrediting Mr. Vinall’s assertion that Mr. Tanoto, and thus Sateri,

had already dismissed the Thurso Mill as a contender at the October 8 Meeting. On

the other, it may be construed as confirming that the plaintiffs’ plan to expand by

converting an existing mill to a dissolving pulp plant continued to be a live strategy,

and, because a suitable target had not yet been found, scouting for a candidate

would continue. This interpretation is consistent with Mr. Vinall’s testimony that

Mr. Tanoto vetoed only the Quebec prospects at the October 8 Meeting. After all,

Mr. Tanoto had not abandoned the entire strategic model; he had only rejected mills,

like Thurso, located in Quebec. I prefer the latter interpretation of Mr. Hoon’s

remarks.

[190] The Second October Meeting was held just days before the performance

review of the Bahia Mill got underway in Brazil, as discussed below.

Performance Reviews at the Bahia Mill – October 2009

[191] Mr. Tanoto was not a mere figurehead of his business empire. It is common

ground that no strategic decision of any consequence concerning the Sateri

organization, the RGE Group, APRIL or Toba was made without his knowledge and

approval. Mr. Goh testified to the effect that, unlike strategic matters, Mr. Tanoto

typically did not involve himself in the operational side of the Sateri businesses. I do

not accept his evidence as it concerns the granular nature of Mr. Tanoto’s

participation relative to the Bahia Mill.

[192] Mr. Tanoto travelled to Brazil in the spring of 2009 and again in late

October that year to hold performance review meetings. On each occasion, the

meetings took place at the Bahia Mill and in rooms booked at a local hotel over a

period of approximately four days. Mr. Tanoto was normally accompanied by his

personal bodyguards, Mr. Hoon, an analyst and/or other assistants, an employee

from the corporate finance department of Sateri International Co. Mr. Goh was part

of the entourage at the October 2009 review.

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[193] Mr. Vinall credibly recounted that Mr. Tanoto ran these review meetings in a

demanding manner. The manager from each department was required to make a

formal presentation summarizing the departmental achievements year-to-date and

formulating steps to be taken to improve performance. Mr. Tanoto was detail-

oriented and would spend a few hours with members of each department,

questioning them about the operations they were in charge of and why KPIs were

not being attained. Mr. Vinall, who was present throughout, claimed that in the

course of those exchanges, Mr. Tanoto would frequently berate Mr. Vinall and others

for perceived inadequacies. He would sometimes signal his displeasure by folding

his arms across his chest and turning away from the participants and/or by pounding

the table. Occasionally, he screamed at Mr. Vinall, calling him a dumb Australian.

[194] By the end of those marathon meetings, Mr. Tanoto would have unilaterally

stretched the performance goals and altered certain of the KPIs in a way that

Mr. Vinall considered to be even more unrealistic.

[195] Mr. Vinall convincingly testified that, in addition to his observations regarding

Mr. Tanoto’s punishing review style at the Bahia Mill, he witnessed him ridicule and

degrade other employees of his larger business enterprise, including the president of

APRIL.

[196] Mr. Vinall understood Mr. Tanoto to be a rags-to-riches figure who had

become one of the wealthiest industrialists in Indonesia, and who was a very

powerful man. He claimed that Mr. Tanoto had a reputation for being a bully who

insisted on unflinching personal loyalty from all who worked for him. I am not

making a finding as to the truth of whether Mr. Tanoto possessed these attributes or

of his character in general. I do conclude, however, that Mr. Vinall truthfully testified

about his genuinely-held beliefs about Mr. Tanoto. I am also satisfied that despite

his awareness of Mr. Tanoto’s unfavorable reputation, Mr. Vinall was not prepared

for and was unaccustomed to his grueling management approach.

[197] As I will discuss in a later section, Mr. Vinall’s negative perception of

Mr. Tanoto very much influenced the secretive manner in which he comported

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himself while assisting Mr. Wasilenkoff with Fortress Paper’s pursuit of the

acquisition of the Thurso Mill.

[198] Minutes of the April/May performance review of the Bahia Mill were not

tendered; however, those kept of the October review were in evidence. They are the

plaintiffs’ documents. The October minutes comprise 19 typewritten pages and

record Mr. Tanoto’s detailed interest and involvement in a wide array of operational

matters of the Bahia Mill. The minutes state that he obtained information about, and

gave instructions and directions pertaining to, sales, marketing, wood supply,

research and development, improvements to the specialty pulp grade being

produced at the Bahia Mill and other technical subjects. Mr. Vinall credibly testified

that at no time over the course of those days and meetings in October did

Mr. Tanoto or any other participant raise the topic of the Thurso Mill, and it was not

mentioned in the detailed minutes.

[199] At the material time, Mr. Tanoto was keeping a close eye on and control over

the operations of the billion dollar Bahia Mill. I am satisfied that he also travelled to

other mills, such as the Toba Mill, to participate in managerial performance reviews

that entailed a similar degree of operational and strategic detail.

Carrying out the Actions Assigned at the October 8 Meeting

[200] In accordance with the instructions he received at the October 8 Meeting,

Mr. Vinall contacted Mr. Barker, who did not express a strong preference for either

softwood or hardwood. Mr. Vinall remembered reporting on their discussion to the

larger group, and I find that he did so in a timely way.

[201] Pursuant to the follow-up action assigned to Mr. Shaohua at the same

meeting, on October 21, 2009 he emailed an overview of the ownership of the

Crofton and Harmac mills to several recipients, including Mr. Tanoto, Ms. Li,

Mr. Hoon and Mr. Goh. Ms. Li, in turn, forwarded his email to Mr. Vinall.

[202] The next day, Mr. Vinall emailed Mr. Shaohua, copied to Ms. Li, asking that

he run a “Cornerstone model” and provide him with projected costs and flow sheets

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for five mills including, Thurso and Edmunston/Madawaska. Ms. Li credibly

explained that the Cornerstone model is a method of detailed financial analysis that

was developed by RISI. In her view, the information that such an analysis would

yield was “totally different” from the scope of the follow-up tasks that Mr. Vinall had

been assigned at the October 8 Meeting. I am persuaded of that. I find that the

information Mr. Vinall asked Mr. Shaohua to collect was unrelated to the actions

Mr. Vinall was tasked with at the conclusion of the October 8 Meeting.

[203] Although the Cornerstone data Mr. Vinall sought may have had an ancillary

usefulness for him in his position at Sateri, his primary motivation at that stage was

to have it made available for his use in the pursuit of the Thurso Mill possibility.

Fraser Papers’ News Release

[204] On November 2, 2009, Fraser Papers’ monitor circulated a news release

announcing that enough funding had been obtained from the Quebec government to

maintain the Thurso Mill until February 1, 2010.

[205] Mr. Wasilenkoff read this release around the time that it was issued. The

February 1, 2010 deadline signalled to him that the Thurso Mill had been given a

very short financial lifeline. In this regard, Mr. Wasilenkoff explained that once the

cost of keeping the lights on at the Thurso Mill was no longer covered, the final leg of

the mill shutdown would occur, and at that point it would be too costly to turn things

around. If he was going to go forward with a proposal to acquire the Thurso Mill, he

would have to act quickly. He needed to meet with the members of his board.

Fortress Paper Board Meeting – November 5 and 6, 2009

[206] The directors of Fortress Paper convened a meeting on November 5 and 6,

2009. Mr. Vinall and Mr. Wasilenkoff traded emails in the hope of arranging a

telephone call in advance of the meeting, but were unable to connect.

[207] The minutes of the November meeting record that Mr. Wasilenkoff gave

updates about several possible growth strategies. One of them was in reference to

Sappi although, once again, there were no particulars of that update noted in the

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minutes. He also introduced “a new potential dissolving pulp project in Quebec”,

which was the prospective purchase and conversion of the Thurso Mill.

[208] Mr. Wasilenkoff walked the board through aspects of the Thurso Mill

opportunity and relevant surrounding information, such as the background he had

compiled on Fraser Papers and highlights of the 2008 Poyry Report. At his

discovery, Mr. Wasilenkoff did not recollect whether he told the board about

Mr. Vinall’s involvement specifically. At trial, he recalled that he had informed the

board about Mr. Vinall’s breadth of knowledge in the dissolving pulp field and his

desire to be the operational leader of the project. It is not an unusual occurrence for

a witness to have an improved recall on matters of marginal significance after being

steeped in trial preparation. That was Mr. Wasilenkoff’s explanation for his

discrepancy in recalling this small point, and I accept it.

[209] Mr. Wasilenkoff was interested in obtaining guidance and input about the

Thurso Mill idea from his fellow directors, who were experienced in a range of

businesses. One of the directors in particular, Per Gundersby, was an engineer and

the former chair and CEO of Poyry Worldwide. He was knowledgeable in the pulp

and paper sectors and, coincidentally, had been involved in some capacity in the

dissolving pulp conversion at the Bahia Mill.

[210] While the board favoured Mr. Wasilenkoff continuing to pursue the

opportunity, the transaction was considered to be too premature in its development

for Fortress Paper to make a firm commitment.

Inquiries about the Kemijarvi Mill Equipment

[211] In October 2009, Mr. Van Lee obtained information about the sale of used

pumps, digesters and other assets by the inactive Kemijarvi mill in Finland. Like the

Thurso Mill, Kemijarvi was a batch digester plant. On October 30, 2009, Mr. Van

Lee emailed his findings to Mr. Tanoto and copied Mr. Vinall and Marcelo Leite.

Mr. Leite led the technical team at the Bahia Mill.

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[212] I find Mr. Van Lee included Messrs. Vinall and Leite in his email report to

Mr. Tanoto to inform them of the availability of the Kemijarvi equipment so they could

determine whether any of it might be useful at the Bahia Mill.

[213] Soon after he received Mr. Van Lee’s email, Mr. Vinall passed it along to

Mr. Wasilenkoff. The probabilities of the evidence suggest that the contents of

Mr. Van Lee’s October 30 email to Mr. Vinall, forwarded to Mr. Wasilenkoff, may

have been the “material” referred to by Mr. Wasilenkoff in the November 3 Email.

Most likely when they spoke on November 5, Messrs. Vinall and Wasilenkoff

discussed the used mill equipment that might be desirable to purchase for the

Thurso Mill and the kinds of questions that should be asked of the Kemijarvi contact.

[214] In mid-November, Mr. Vinall separately initiated communication with

Mr. Leite. He advised that Sateri was “confidentially” looking at the possibility of

acquiring and converting a conventional mill to a dissolving pulp facility and asked

him questions about the compatibility for conversion of some of the Kemijarvi

equipment. As a second possibility, Mr. Vinall raised the notion that the Kemijarvi

digesters might be suitable for the Bahia Mill and the rest of its equipment could be

used at the Toba Mill. Between November 18 and 19, Mr. Vinall and Mr. Leite

exchanged additional emails on the topic. Mr. Leite raised an issue concerning

wood density to which Mr. Vinall replied that a possible wood supply would be

eastern hardwood like maple. That was the wood type used at the Thurso Mill.

[215] Almost to the day, Mr. Wasilenkoff also made inquiries of the Kemijarvi

project manager about the Kemijarvi equipment. According to Mr. Wasilenkoff,

Mr. Gundersby had drawn his attention to the equipment sell-off and had provided

him with the contact information. By email dated November 18, 2009,

Mr. Wasilenkoff offered to purchase a list of super batch equipment from Kemijarvi.

[216] Mr. Wasilenkoff maintained that Messrs. Gundersby and Monahan had

assisted him in creating a list of the desirable Kemijarvi equipment that could be

compatible with the conversion of the Thurso Mill, which formed the foundation of his

offer. While I accept that is accurate, it does not tell the full story.

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[217] A feature of Mr. Wasilenkoff’s demonstrated business success was his ability

to surround himself with people knowledgeable in areas that he knew little about,

and to delegate tasks to them within their field of expertise. Mr. Vinall’s expertise

was on the technical side of converting a conventional mill to a dissolving pulp mill

and operating such a facility. He was the person best positioned in

Mr. Wasilenkoff’s circle to know what equipment at Kemijarvi might be suitable for

the Thurso Mill. I find that Mr. Vinall was instrumental in arming Mr. Wasilenkoff with

the information he required to present Kemijarvi with an offer to purchase on

November 18.

[218] I have not overlooked that in Mr. Wasilenkoff’s November 18 offer to

purchase, he explicitly contemplated that he may have to discuss the purchase of

other equipment with his “technical experts”. I do not construe his statement as

indicating that he had not already discussed the sell-off with Mr. Vinall. I find it

supports the opposite conclusion and affirms that Mr. Wasilenkoff was aware that he

may need to have further discussions with Mr. Vinall (and, possibly, Messrs.

Gundersby and/or Monahan) once Mr. Leite had answered the follow-up questions

or it came to light that there was other equipment not reflected in the offer they may

wish to obtain.

[219] According to Mr. Vinall, the inquiries he made of Mr. Leite about the utility of

the used Kemijarvi assets were for Sateri’s business purposes. He denied that he

was attempting to obtain information from Mr. Leite to further his interests to bring

about a venture with Mr. Wasilenkoff in relation to the Thurso Mill. Mr. Vinall’s denial

is not believable when weighed against the evidence of the surrounding events.

Mr. Wasilenkoff’s communications with the Kemijarvi contact within this same

window of time, which Mr. Wasilenkoff agreed were “more than a coincidence”,

further impugned Mr. Vinall’s testimony on the matter.

[220] I find that Mr. Vinall’s communications with Mr. Leite about the Kemijarvi

equipment were legitimately in Sateri’s interests to a narrow extent only and

subordinate to his paramount aim. In the big picture, Mr. Vinall was using Sateri’s

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resources to assist Fortress in its pursuit of the Thurso Mill and in furtherance of his

personal desire to return to work in Canada.

[221] Continuing throughout the ensuing months and into 2010, Mr. Wasilenkoff

periodically followed up on his offer with his contact at the Kemijarvi mill.

Other Events in November 2009

[222] In his November 3 Email, Mr. Wasilenkoff had suggested that he and

Mr. Vinall come up with a framework or structure for “our group” relatively soon. In

his reply on November 5, Mr. Vinall proposed corporate structures that might be

used to facilitate the acquisition of the Thurso Mill. Each option allowed for

Mr. Vinall to take an equity position in the new enterprise. To Mr. Wasilenkoff, none

of the scenarios envisioned by Mr. Vinall were realistic from a commercial

perspective. In any event, as far as he was concerned, far too many variables were

in flux at that time to warrant delving into much detail.

[223] By this stage, Mr. Vinall had set up the new email address of “Mr. Bio”, which

had no personal identifiers. He used this anonymized address in his

communications about the Thurso Mill project and, in those email exchanges, began

to refer to himself by his middle name, John.

[224] Mr. Vinall’s desire to move cautiously and to preserve his privacy in relation to

the steps he was taking did not surprise Mr. Wasilenkoff. He credibly testified that in

his experience, it was fairly standard for an employee in Mr. Vinall’s shoes, namely

seeking to leave his current employer, to correspond by way of a non-work email

address. Mr. Vinall’s protective email measures seemed especially prudent to

Mr. Wasilenkoff given his understanding of Mr. Tanoto’s dark reputation in the

industry. That said, he regarded Mr. Vinall referring to himself as John as somewhat

juvenile.

[225] It was apparent to Mr. Wasilenkoff from the outset that the Quebec

government would have a major say in who would be the new owner of the Thurso

Mill. He also recognized the potential for the government to provide financing to

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support the substantial capital investments required to transform the mill and

preserve assets and jobs. Put simply, financing and approval from the Quebec

government was crucial to a successful acquisition.

[226] Appreciating that reality, in or about mid-November 2009 Messrs. Wasilenkoff

and Monahan started to brainstorm effective acquisition strategies. Mr. Monahan’s

past experience and connections with the Quebec government gave him special

insight about the preferable approach to take in terms of a favourable political

platform. He was also indispensable in identifying the governmental departments

from whom funding could be sought, developing a position on securing the wood

supply on Crown land, ensuring that the relevant parties were represented at the

table in the negotiations and formulating how and when to bring Fraser Papers’

monitor into the loop.

December 4, 2009 Meeting

[227] Another phase of Sateri’s budget meeting was held on December 4, 2009.

None of Mr. Vinall, Ms. Li or Mr. Shaohua was in attendance.

[228] Behind the scenes, Mr. Goh and others at the executive level in the Sateri

organization were concentrating their efforts on ensuring that appropriate steps were

being taken to have Sateri International Co. listed on the Hong Kong Stock

Exchange. Achieving that goal was of the utmost importance to the entire

enterprise. To that end, a number of new directors had recently been appointed to

the board of Sateri International Co. and were in attendance at this budget meeting

(and possibly at the preceding one).

[229] At that time, Mr. Goh’s primary responsibility was to familiarize the new

directors with the Sateri businesses and the organization as a whole. Once again,

he was not able to recall any discussions around the Thurso Mill during that meeting

or reliably say whether any decisions were made about it then or at any subsequent

time. No minutes were placed into evidence.

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Incorporation of Fortress Specialty and Terminology

[230] Mr. Wasilenkoff incorporated Fortress Specialty Cellulose Inc. (“Fortress

Specialty”) on December 16, 2009. Initially, he was its sole shareholder.

[231] In the remainder of my Reasons, I will use “Fortress” to refer to Fortress

Paper and Fortress Specialty as one.

Presentation to the Quebec Government – December 2009

[232] A slide presentation entitled “AcCELLerate Quebec” (accentuating the word,

cellulose), was a vital part of Fortress’s introduction to the Quebec government of its

proposed acquisition of the Thurso Mill. Chris Holland, with Fortress Paper, took the

lead in composing the PowerPoint slides. At Mr. Wasilenkoff’s request, Mr. Vinall

also provided input to some of the slides, largely on the technical aspects. Several

other individuals including Mr. Wasilenkoff, Mr. Monahan and Kurt Loewen, the chief

financial officer of Fortress Paper, had a hand in composing the slides.

[233] The extent of Mr. Vinall’s involvement in the preparation of the slides is

contentious. In addition to the plaintiffs’ assertion that he played a significant role in

composing them while still in their employ, they allege that he wrongfully lifted

content from their confidential materials and other internal data, and reproduced it in

some of those slides. I will examine these allegations more closely when I address

the applicable claims.

[234] The December 2009 version of the AcCELLerate PowerPoint included a slide

of key personnel that recited the credentials and accomplishments of Messrs.

Wasilenkoff and Monahan. Another slide headed “Undisclosed Future Operational

Leader” was about Mr. Vinall, although he was not identified by name. It was based

on information that Mr. Vinall had furnished. One of the bullet points on that slide

described him as “the President of a global multi-mill specialty pulp company”. That

was a significant exaggeration of his actual designation and role in the Sateri

organization.

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[235] An early iteration of the PowerPoint also contained an executive summary. It

described Fortress Specialty as a new company formed “… as a partnership

between [Mr. Wasilenkoff], the owner of Fortress Paper, a highly successful

specialty paper company, and a seasoned industry partner with specific experience

in transforming these kinds of assets”. Mr. Vinall was the unnamed industry partner

who was said to be expected to take the leadership role in driving the transformation

and operating the Thurso Mill on the conclusion of the transaction. He was also one

of the unnamed dissolving pulp technical experts referred to in the slides.

[236] Mr. Wasilenkoff and Mr. Monahan met with between six and eight

representatives of the Quebec government in mid-to-late December 2009 to

introduce the proposal. As part of their presentation, they took the attendees

through the AcCELLerate PowerPoint. Mr. Vinall was not present.

Appointment of Vinall as a Director of Sateri Companies

[237] In the short space between December 26 and 29, 2009, Mr. Vinall signed

documents by which he consented to act as a director of two of the plaintiffs, namely

Sateri Singapore and Sateri International Co., and in respect of other companies in

the Sateri group: Sateri Bacell; Sateri Copener; DP Marketing; and Sateri Cellulose.

[238] The statutory book records of Norcell and Bahia Specialty indicate that

Mr. Vinall was probably appointed as a director of those companies effective

November 17, 2009, although his written consents to act as such were not in

evidence.

[239] In addition to signing the consents, between December 29 and 31, 2009,

Mr. Vinall signed eight directors’ resolutions in relation to four of the Sateri

companies: Sateri International Co., D.P. Marketing, Sateri Cellulose and Sateri

Singapore. On their face, the subject matter of most of those resolutions appeared

to concern the approval of the transfer and/or exchange of certain shares,

particularly as between Sateri International Co. and Sateri Cellulose, as part of an

internal corporate reorganization. Aside from that, one resolution confirmed and

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approved Sateri Cellulose’s annual return and another accepted the resignation of

certain directors.

[240] The only resolution in evidence signed by Mr. Vinall beyond this

December timeline was that of Sateri Cellulose, dated March 22, 2010, by which its

financial statements were presented and approved.

Events in January 2010

[241] In December 2009 or early January 2010, Fortress Paper’s proposal

regarding the Thurso Mill project obtained qualified support from the Quebec

government.

[242] Unbeknownst to Mr. Wasilenkoff, at some point after Fortress had presented

the AcCELLerate PowerPoint, Fraser Papers’ monitor instructed Marco Veilleux, the

former mill manager of the Thurso Mill, to contact 14 other strategic pulp companies

and four biofuel companies as potential buyers of the Thurso Mill. There was no

evidence that Sateri was among those approached, or that Sateri had made any

overture to Fraser Papers or its monitor.

[243] In mid-January 2010, Fortress Specialty entered into a letter of intent relating

to the Thurso Mill acquisition. Mr. Wasilenkoff solicited input from Mr. Vinall and

others in relation to the contents of the letter.

[244] As an essential adjunct to the negotiations, Fortress also executed a series of

confidentiality and non-disclosure agreements with ministers of various

governmental departments and third parties. Those third parties included the firm

mandated by the Quebec government to evaluate Fortress Specialty’s business

plan, and the engineering company engaged to undertake an analysis of the

potential conversion. Substantially all communications with the government

representatives were directed to be made primarily through Mr. Wasilenkoff and

secondarily through Mr. Monahan.

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[245] At the same time that Fraser Papers entered into a confidentiality agreement

with Fortress, it also signed a virtually identical confidentiality agreement with

another interested party.

[246] With these agreements in place, Mr. Wasilenkoff was able to access

previously unavailable and detailed data about the Thurso Mill, such as its cost

structures, maintenance schedules, flow rates and a full internal evaluation about the

conversion. The information also shed light on a co-generation plan that the Thurso

Mill employees wanted. The concept was that, in addition to converting the plant to

a dissolving pulp facility, a co-generation power plant would be constructed on the

site to provide the Thurso Mill with electricity at a preferred rate. Mr. Veilleux was a

strong proponent of the co-generation element.

[247] Relatively soon into the process, the parameters of the project expanded to

incorporate the co-generation feature. In response to a request by a government

representative, on January 20, 2010 Mr. Wasilenkoff asked Messrs. Vinall and

Veilleux to modify the plan to include the co-generation component. A quick

turnaround was essential. In Mr. Wasilenkoff’s words to Messrs. Vinall and Veilleux:

... You need to quickly build a new model and finalize the expected costs of

our new combined business plan. All conversion costs. All expected working

capital requirements. Start talking about candidates to fill management gaps.

Wood supply requirements. And most important what money is required as a

minimum so that I know what to use in a potential new structure. Then we

can re ask the government with more firm numbers that has combined

dissolving and [co-generation].

Also any thoughts or requirements to utilize all the federal grants and credits

so that we can ensure we are structured properly to qualify.

[248] Mr. Wasilenkoff’s request spawned a flurry of emails about the revised

business plan variously among himself and Messrs. Vinall, Veilleux, and Monahan.

The PowerPoint was modified along the way to incorporate Mr. Veilleux’s input on

the co-generation component. Slides and/or a separate document were prepared to

reflect the newly formulated combined business model and were used in subsequent

meetings primarily as an investor tool.

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[249] Jeffery MacHan was the Regional Director for Quebec’s Ministére de

L’Economie del’Innovation et des Exportations at the material time. He explained

that it was important to the Quebec government that Fortress have in-house

expertise relating to the conversion and business of dissolving pulp. Based on

pronouncements made by Messrs. Wasilenkoff and Monahan, Mr. MacHan was

satisfied that Fortress had the requisite technical experience, largely in the form of

an expert advisor called “John”. Mr. MacHan confirmed that the man he knew

initially as John turned out to be Mr. Vinall. He was under the impression that “John”

was involved on behalf of Fortress.

[250] I find that representations made on the part of Fortress to the effect that a

person possessing Mr. Vinall’s technical know-how and experience would be part of

the project, was an important factor in securing a green light from the Quebec

government to move forward with the next stages of the transaction.

[251] While the parties worked toward putting a deal together, the government

agreed to continue to fund the cost of heating the Thurso plant and extended the

February 1 shutdown deadline to March 1, 2010. Fortress agreed that, if a binding

agreement was achieved, it would cover the post-February maintenance costs,

estimated to be in the range of $2.4 million.

Fortress Paper Board Meeting – January 25, 2010

[252] A special board meeting of Fortress Paper was called on January 25, 2010

exclusively to discuss the Thurso Mill opportunity. Mr. Wasilenkoff took the board

through a version of the AcCELLerate PowerPoint either slide-by-slide or discussed

their contents in a more general way.

[253] The board gave its approval to proceed with the project and authorized the

dispatch of a due diligence team to Quebec. Mr. Vinall was not part of that team.

[254] As mentioned, the shares in Fortress Specialty had originally been issued to

Mr. Wasilenkoff personally. On Mr. Wasilenkoff’s motion at the meeting, legal title to

the shares was transferred to Fortress Paper.

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Events in February 2010

[255] The Thurso Mill acquisition continued to take shape throughout February.

Ongoing discussions culminated in the signing of one or more amended letters of

intent. By no measure, however, was the transaction yet a fait accompli.

[256] The evidence establishes that on operational and technical aspects of the

proposed transaction, Mr. Wasilenkoff generally deferred to the experience of

Messrs. Vinall and Veilleux and others. However, several weighty matters fell

squarely onto Mr. Wasilenkoff’s shoulders and to persons other than Mr. Vinall.

Those matters included orchestrating the entire financial underpinnings of the

transaction and the ultimate structure of the deal as a whole, negotiating with the

Ministry of Natural Resources for access to Crown-allocated lands and taking other

steps to ensure access to an adequate wood supply, negotiating with the three

affected unions, overseeing completion of the substantive due diligence, and

obtaining final approval by the Quebec government, Fraser Papers’ monitor and by

the Court.

[257] At the Fortress Paper board meeting on February 11 and 12, 2010,

Mr. Wasilenkoff provided a progress update of the project.

[258] At about this time, Mr. Vinall’s involvement behind the scenes began to

heighten and, according to Mr. Wasilenkoff, he was becoming increasingly important

in the general scheme of things, particularly assisting the technical team at Fortress.

This resulted in Mr. Vinall being included in more email communications with

Messrs. Wasilenkoff, Monahan and Veilleux and being consulted to help

troubleshoot technical and operational issues with greater regularity. He also

exchanged a number of emails with Mr. Veilleux about a range of other matters that

had bearing on the Thurso Mill project.

[259] The evidence shows that throughout the course of the negotiations, Mr. Vinall

did not attend any of the actual meetings with government officials or any other

stakeholders. However, he did participate as “John” in one or two telephone

conferences to address technical features of the project.

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[260] Mr. Vinall had made it known to Mr. Wasilenkoff at the start that he was

hoping for some shares in Fortress. That expectation had been reflected in the

descriptions about him in all versions of the AcCELLerate PowerPoints in evidence.

[261] From Mr. Wasilenkoff’s standpoint, once Fortress Paper assumed ownership

of the shares in Fortress Specialty the door closed to the possibility that Mr. Vinall

would become a shareholder. The remuneration and equity position that Mr. Vinall

was seeking were not in line with the acceptable commercial terms that Fortress

Paper had to adhere to as a public company. Although Mr. Wasilenkoff wanted

Mr. Vinall to take on a formal role in the project, he was not able to give his blessing

to the compensation package that Mr. Vinall had in mind.

[262] Responsibility for negotiating Mr. Vinall’s compensation was handed off to

Harjit Sangra, counsel for Fortress. Mr. Sangra responded very negatively to

Mr. Vinall’s notion that he be allotted an equity interest, informing him by email of

February 12, 2010 that it was:

…so far off base on the economics as not to be of much help. Fortress

needs to ensure a market deal for a North American public company in the

forest products space. This [is] nowhere near that standard”.

[263] Mr. Vinall responded with a lengthy email lauding the value he professed to

bring to the project, which he asserted distinguished him from an ordinary employee.

In a particularly self-praising portrayal conveyed by email dated February 15, 2010,

he stated, in part:

The concept I took to the Quebec government was that [Mr. Wasilenkoff] and

I were full partners in creating this opportunity. The notion of me as an

employee was secondary as I had created the concept, I had done all the

work preparing and have the unique industry network to attract the required

people.

…

What I bring is a unique access to this marketplace as I am responsible for

the single largest “spot” operator in the business… and I have an extensive

network of both salespeople and customers. With this knowledge we will

build our own sales team over the next 12 months. I have people ready and

have already forged a contact with China’s leading viscose maker who is

interested in pursuing a take-off.

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[264] Several of Mr. Vinall’s other emails had a similar boastful thrust.

[265] Mr. Vinall insisted that he deliberately overplayed his credentials and inflated

the importance of his involvement in the project to persuade Mr. Sangra of the value

of his expertise and thereby enhance his bargaining position on remuneration.

There is truth to that. But it is not the whole truth. Puffery to the side, there was

some accuracy to Mr. Vinall’s conceit.

[266] Mr. Sangra continued to push back in the negotiations. At one point he

somehow led Mr. Vinall to believe that Mr. Wasilenkoff had already cleared the

Thurso transaction with the Quebec government without Mr. Vinall’s knowledge or

involvement. Mr. Vinall blasted Mr. Wasilenkoff in an email of February 24, 2010

accusing him of stealing “our deal” and saying he felt “totally screwed”.

Mr. Wasilenkoff told Mr. Vinall that there had been a misunderstanding and that he

had done nothing to exclude him from the project. Although Mr. Vinall derived some

comfort from Mr. Wasilenkoff’s assurance and the belief that Mr. Sangra was bluffing

as a negotiation tactic, he felt disadvantaged in continuing to negotiate directly with

Mr. Sangra and retained his own counsel to do so on his behalf.

[267] Within this time period, Mr. Veilleux sent Mr. Wasilenkoff a draft

organizational chart. An earlier chart had left the CEO position blank. On this

rendition, Mr. Wasilenkoff was shown as holding that office. I accept

Mr. Wasilenkoff’s evidence that his name was inserted because the employment

negotiations with Mr. Vinall had not been going well. As much as Mr. Wasilenkoff

strongly preferred that Mr. Vinall remain involved, it was not looking certain that

would come about. Once Mr. Vinall had his own counsel, his expectations about

compensation shifted to better align with Mr. Wasilenkoff’s perception of commercial

reality. The negotiations continued.

Events in March 2010

[268] At a special meeting of the directors of Fortress Paper convened on

March 5, 2010, Mr. Wasilenkoff reviewed the key terms of the draft purchase

agreement of the Thurso Mill. Time was of the essence because it was anticipated

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that the transaction would close in mid-March. Although the board approved the

terms of the draft purchase agreement in all material respects, some loose ends

persisted even at this late date. One of them was an unexpected request that

Fraser Specialty assume a landfill site with possible environmental implications as

part of the deal.

[269] As the agreement had been approved in principle, Mr. Wasilenkoff was eager

to get the word out to investors. He instructed Mr. Holland to be ready to post news

of the acquisition on Fortress Paper’s website and to prepare slides for that purpose

by amending the existing AcCELLerate presentation. He also asked Mr. Vinall to

cast his eyes over the slides and confirm certain numbers.

[270] Mr. Wasilenkoff persuasively explained that everything Fortress Paper

released into the public domain was first scrutinized by its legal team to ensure that

the information was properly sourced and that the requisite approvals had been

obtained. Because the original AcCELLerate PowerPoint had been prepared for the

Quebec government and was not intended for the public’s eyes, it had not been

reviewed by Fortress’s legal counsel. However, its legal counsel reviewed the

version of the slides that were being modified for circulation to investors and had not

expressed any concerns about the contents. Mr. Vinall, on the other hand, “freaked

out” when he saw the slides and immediately fired off this warning to Mr. Wasilenkoff

via an email of March 6, 2010:

There is just no way we can put out a presentation anything like this particular

one in the public domain. I would say 40% to 50% will need to be heavily

modified as there are concepts and material that is very similar to what my

company has used internally. I will be dead meat immediately and this will

naturally flow to Fortress quickly as my company will then have a strong case

that you have taken their plan. I took a hell of a risk sharing some of this with

parties under CA’s. Public domain is entirely different there are ways to avoid

this and get what you need – let’s discuss today.

[271] At trial, Mr. Vinall professed to have deliberately exaggerated the urgency of

the situation and used extreme language in his email in order to “spook”

Mr. Wasilenkoff into paying attention. He testified that he also was trying to leverage

the situation to exert pressure to have his compensation package finalized in his

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favour. Mr. Vinall went on to say that, although he did not believe he had divulged

any information confidential to Sateri, he recognized there may be some grey areas

and was concerned about the similarities in content between some of the

AcCELLerate slides and certain charts internal to Sateri. He claimed that his “dead

meat” description pertained to his fear that if the PowerPoint was circulated without

amendment, members of Sateri management, and ultimately Mr. Tanoto might see

and recognize some of the contents and discover that he was planning to leave. He

did not want his position at Sateri to be compromised before he was ready to resign

on the off-chance his intended alliance with Fortress did not materialize.

[272] I accept Mr. Vinall’s explanation as far as it goes. But there was more to it

than that. I find that he voiced his concern to Mr. Wasilenkoff because he was

worried about his entitlement to use certain graphs, charts and other information,

some of which he had lifted directly from Sateri’s documents. As I will return to,

what Mr. Vinall did not appreciate in the moment was that, for the most part, the

body of information he was likely concerned about was not confidential to the

plaintiffs in any event.

[273] I am satisfied that Mr. Vinall had never indicated to Mr. Wasilenkoff that he

may have used some of Sateri’s internal and/or confidential information or work

product in any of the AcCELLerate slides that he prepared or helped to compose.

I find that Mr. Wasilenkoff’s receipt of this email was when he first became aware of

the possibility that some portion of the slides based on information supplied by

Mr. Vinall, might contain Sateri’s internal information. In Mr. Wasilenkoff’s email

response, he expressed relief that he had checked with Mr. Vinall and instructed that

any offending content be changed. He was not prepared to forge ahead in light of

Mr. Vinall’s concerns.

[274] Meanwhile, the criminal case against the two youths accused of killing M. was

moving along, and Mr. Vinall’s family situation had continued to deteriorate. His

stepdaughter had uttered some “suicidal things” and his wife’s well-being was

progressively worsening. Mr. Vinall convincingly testified to his realization that, in

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light of this, he may have little choice but to resign from Sateri even without having

the security of a binding employment agreement with Fortress. He decided to take

matters into his own hands. On March 7, 2010, Mr. Vinall emailed Mr. Wasilenkoff

directly. He complained that he could not leave Sateri without an agreement in

place with Fortress, but that the negotiations had stagnated. He proposed that he

would tell Sateri that he had to deal with a family crisis in Canada, which he

described as “not stretching the truth far”. Mr. Vinall proposed that Mrs. Vinall would

join him in Vancouver and a day or two later he would tender his resignation “citing

family challenges etc”. He continued:

This story is much more likely to hold up if I act now and as you know I have

been planting the seeds for this plan with my company for some time so it

won’t be a complete shock. I must avoid a confrontation with Sateri at all

costs as if I am exposed then the risk for Fortress escalates as well.

[275] The remainder of Mr. Vinall’s email reiterated his proposed terms of

employment.

[276] Mr. Vinall was asked to clarify the nature of the risk facing Fortress referred to

in his email. As I understand his answer, he believed that if he did not become an

employee of Fortress and thus was not assisting with the Thurso Mill project,

Fortress was at risk because it may not be in a position to successfully implement

the dissolving pulp conversion without him. Mr. Vinall’s explanation did not logically

mesh with the tenor of his caution to Mr. Wasilenkoff. That was not the risk that

worried him. Rather, the evidence as a whole indicated that what was troubling

Mr. Vinall was his appreciation that he had likely overstepped the bounds of what he

was permitted to do in terms of assisting Mr. Wasilenkoff and/or Fortress with the

Thurso Mill proposal while still employed at Sateri. As mentioned earlier, he also

had misgivings about his liberal use of some of the information he had taken from

documents composed by Sateri for its internal use.

[277] Messrs. Vinall and Wasilenkoff exchanged emails on March 9, 2010. It is

clear that Mr. Vinall’s remuneration had still not been settled to his satisfaction at

that time. Mr. Vinall itemized the outstanding issues and, without the involvement of

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lawyers, he and Mr. Wasilenkoff came to an agreement in principle about his

compensation package, subject to approval by Fortress’s compensation committee

and its board.

[278] It was around this time that Mr. Wasilenkoff reminded Mr. Vinall that he

needed an acceptable PowerPoint presentation for the website and investors and

asked him to bear in mind that legal counsel had now approved the last version and

would need to do so again if any major changes were made.

Mr. Tanoto’s Inquiry – March 2010

[279] On March 8, 2010, Mr. Hoon called Mr. Vinall to relay that Mr. Tanoto wanted

him to start looking at mills in Canada again. Mr. Vinall’s verbal response to

Mr. Hoon was accurately captured in his reporting email to Mr. Hoon sent the next

day. It read, in relevant part:

[...]

Since our last discussion with [Mr. Tanoto] I believe October, I spent some

time looking at West Coast Canada opportunities as you recall, [Mr. Tanoto]

made it clear he has no interest in Eastern Canada.

[280] Mr. Vinall included a summary of the mills in British Columbia that had been

considered with a short analysis and possible next steps relating to each.

[281] Mr. Hoon forwarded Mr. Vinall’s email to Mr. Tanoto. Mr. Tanoto’s response

consisted of a brief instruction to Mr. Hoon to, “Pls. check with [A.J. Devanesan],

who recent [sic] we hire some manager from BC to Rizhao mill”. As noted,

Mr. Devanesan was the president of APRIL and the Rizhao mill was APRIL’s new

pulp mill in China. Mr. Tanoto copied his email directly to Mr. Vinall, Mr. Devanesan

and another individual.

[282] Mr. Vinall apprised Mr. Wasilenkoff of these exchanges by email the next day:

[…]

I had a call from my boss yesterday saying [Mr. Tanoto] wants me to start

looking at Canadian mills again as viscose is looking even tighter now. I was

a bit spooked as you were telling me at the same time there was a leak…

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I told my boss that I had looked at West Coast mills only as [Mr. Tanoto]

wanted nothing to do with the Eastern mills. He agreed that [Mr. Tanoto] was

clear on that and asked me for a note giving an update. I had sent the note

and in the note – to test – I confirmed that [Mr. Tanoto] had no interest in the

East plus gave an update on West Coast mills.

My boss forwarded the note to [Mr. Tanoto]…and he replied directly – saying

that I should talk to a new hire at APRIL from BC.

This exchange is powerful reinforcement that [Mr. Tanoto] has passed on

Thurso and other eastern mills and if the issue ever comes up this is perfect

evidence.

I have copied you on the email exchange in strictest confidence.

You may want to pass on to Winston.

[283] “Winston” referred to Winston Yee, one of Mr. Sangra’s colleagues.

[284] I accept Mr. Vinall’s evidence that he followed up with Mr. Devanesan, who

advised that the manager from B.C. referred to by Mr. Tanoto had no detailed

knowledge of any of the west coast mills mentioned in Mr. Vinall’s email.

[285] The evidence indicates that nothing further came of Mr. Tanoto’s inquiries.

Ms. Li and Mr. Goh were not even made aware of them and the issue was not

broached with Mr. Vinall again.

Completion of the Thurso Mill Transaction

[286] The agreement between Fortress and Fraser Papers (as well as a co-vendor)

in the form of an asset purchase transaction was sealed on March 18, 2010. The

agreement received court approval on April 13, 2010 and the transaction closed at

the end of that month.

[287] The final purchase price paid for Thurso Mill’s assets was $3 million, net of

certain amounts. The Quebec government advanced a secured loan in the amount

of $102.4 million for the conversion.

Vinall’s Resignation

[288] In mid-March 2010, Mr. Vinall made a pre-arranged trip to Vancouver where

he joined his wife and stepdaughter and attended a memorial for M. He remained in

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Vancouver with his family for close to two weeks. On March 18, while Mr. Vinall was

still in Vancouver, Fortress issued a press release announcing the Thurso Mill

transaction.

[289] News of the deal travelled quickly throughout the industry. On the same day,

a salesperson with a Sateri company sent an email to Mr. Hoon, Mr. Vinall, Ms. Li

and others attaching information about a “new project”. The attachment was not in

evidence but the probabilities indicate that it pertained to the freshly inked Thurso

Mill acquisition. There was no evidence that any of Messrs. Tanoto, Hoon, Goh,

Shaohua or Ms. Li was taken aback by the news, discussed it among themselves or

had any reaction to it one way or another. Certainly, none of them raised the topic

with Mr. Vinall.

[290] Feigning ignorance, Mr. Vinall responded to the email by professing that the

news was a “bit of a surprise”. He could see it was neither personally nor

professionally sustainable for him to stay with the Sateri enterprise any longer.

[291] Mr. Vinall’s employment contract with Fortress Specialty was still unsigned

and in draft form as of March 26, 2010. However, he had secured a non-binding

employment term sheet. Although not ideal in Mr. Vinall’s estimation, particularly

given that the other job offer he had received from Mr. Wasilenkoff had fallen apart

at the last minute, it gave him enough confidence to sever his employment with

Sateri Shanghai.

[292] By email dated March 26, 2010, Mr. Vinall provided his formal letter of

resignation to Mr. Hoon. In the letter, Mr. Vinall cited as the reason for his

resignation, the hard toll taken on him and his family by M.’s murder and the need

for him to relocate to Canada for the sake of his family and his marriage. He

represented that the “imminent” murder trial made it essential that he focus all his

efforts on supporting his family. Mr. Vinall stated that his resignation was to be

effective immediately, and asked that the company treat his three weeks of owed

vacation time as his abbreviated notice period. The criminal trial was hardly

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imminent when Mr. Vinall tendered his resignation. While a pre-trial conference was

on the near horizon, the actual trial was not set to start until several months later.

[293] Mr. Goh made some inquiries to try to come up with an arrangement that

would allow Mr. Vinall to use Canada as his work base for an extended period to

allow him to support his family, while maintaining his employment with Sateri.

Mr. Vinall was not receptive.

[294] The Sateri Employment Contract provided that Mr. Vinall was to give six

months’ notice of termination or pay in lieu. Clearly, he did not do so. There was no

evidence that the plaintiffs insisted that he comply with the payment in lieu of notice

stipulation. Instead, in light of the Vinalls’ family circumstances, Mr. Goh and others

at Sateri were trying to obtain special permission that Mr. Vinall be paid his bonus,

despite the fact that the Bahia Mill had not achieved all of its targets.

Events in the Aftermath of Vinall’s Resignation

[295] The evidence shows that Mr. Vinall spent approximately the last three weeks

of April 2010 in Ottawa and at the Thurso Mill. In this period and into May, he

continued to be in contact with various individuals in the Sateri organization,

including Mr. Goh, to tidy up matters that lingered after his departure. Some of the

communications concerned the logistics of Mr. Vinall returning his access cards,

phone and company laptop to head office. In early May 2010, Mr. Vinall stopped

through Singapore on a flight to or from Australia and left his laptop and access

cards at his former apartment. He informed Mr. Goh he had done so and proposed

that he arrange for their delivery by courier to head office. Mr. Goh confirmed “that

would work”.

[296] Letters of resignation of his appointment as a director also required his

signature. Not all of them were in evidence. Oddly, on two of the resignations in

evidence, the name and signature that purported to be made by Mr. Vinall were not

his. That hinted that someone at Sateri had the authority to sign on Mr. Vinall’s

behalf. However, no evidence on the matter was elicited and I have drawn no

inference.

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Fabricated Email Exchange

[297] Mr. Vinall testified that although he believed he had applied an appropriate

confidentiality filter with respect to Sateri’s internal information, he felt a nagging

discomfort that Mr. Tanoto might react irrationally to his departure. Mr. Vinall

claimed it was for that reason that he composed false email correspondence to

make it appear as though he had initiated contact with Mr. Wasilenkoff after he had

returned to Canada in March in the hope of obtaining a position with Fortress. At

Mr. Vinall’s request, Mr. Wasilenkoff went along with the scheme and wrote back a

phoney email reply.

[298] Mr. Vinall perpetuated the deceit about the nature and timing of his

involvement with Fortress in an email to Mr. Goh of May 9, 2010. In it, he wrote that

he had been focusing his time developing employment options in Vancouver and

that Fortress had approached him after becoming aware of his “situation recently”

and that he had “just taken” a suitable position with that company. In

cross-examination, Mr. Vinall testified that his statement about trying to develop

employment options in Vancouver was accurate and insisted that he had spoken to

employment recruiters during that time. His evidence was wholly implausible when

examined in light of his actions and those of others in the surrounding

circumstances. Another taint to his credibility.

[299] At trial, Messrs. Vinall and Wasilenkoff both expressed regret about

orchestrating such a charade and agreed it had been foolish. Their dishonest

conduct and willingness to manufacture documents to protect their interests cast a

negative light on their character and, as I have said, served to compromise the

trustworthiness of their evidence. But it did not have the effect of discrediting their

testimony across the board as the plaintiffs advocated it should.

Involvement of Tecbiz

[300] Alarm bells sounded when Mr. Goh learned that Mr. Vinall had joined a

company that Mr. Goh understood was a dissolving pulp competitor. Following his

instinct, Mr. Goh notified Alex Tiong in the internal audit department of the RGE

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Group. Mr. Tiong, on behalf of the RGE Group, retained Tecbiz, an expert forensic

computer company, to perform a forensic evaluation of Mr. Vinall’s laptop. The RGE

Group frequently used Tecbiz to conduct computer forensics of that kind.

[301] On about June 8, 2010, Tecbiz provided a computer forensic examination

report and an analysis for the RGE Group.

[302] The defendants objected to the admissibility of the Tecbiz documents on the

footing that they contained opinion evidence of which the defendants had not

received proper notice, and also because the author was not being called as a

witness. Plaintiffs’ counsel confirmed they were not purporting to tender the

documents for the truth of their contents, and clarified that their relevance was

confined to explain the actions taken by Mr. Goh after he received it. The

documents were admitted for that limited evidentiary purpose. For sake of clarity,

they were not admitted into evidence for the truth about what Tecbiz may have

located or not located from its evaluation of Mr. Vinall’s laptop.

Vinall’s Fortress Employment Contract

[303] An employment agreement between Mr. Vinall and Fortress Specialty was

signed effective June 3, 2010 (the “Fortress Employment Contract”). In overview,

Mr. Vinall’s compensation was comprised of:

(i) A one-time relocation allowance of a maximum of $30,000;

(ii) An annual base salary of $350,000;

(iii) An annual discretionary cash bonus not to exceed 50% of his base salary;

(iv)

A participation bonus based upon Fortress Specialty achieving certain

financial targets generated from the Thurso Mill after completion of the

conversion, with a cumulative cap of $12 million in the first five years and

a call option in favour of the company;

(v)

Issuance to Mr. Vinall of 75,000 restricted share units (“RSUs”) in Fortress

Paper, of which 12,500 vested immediately. The vesting of the balance

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was tied either to the occurrence of a date or of a milestone achievement;

and

(vi)

Pension benefits and like perquisites.

[304] Although the Fortress Employment Contract was not approved by the

Fortress board until late May 2010 and not signed until the first week of June, it is

clear from the totality of the evidence that Mr. Vinall’s employment with Fortress

Specialty began before then. That Mr. Vinall visited the Kemijarvi mill where he

inspected the digesters and pumps that Mr. Wasilenkoff had previously offered to

buy, and finalized the purchase of them for Fortress Specialty near the end of

April 2010, is reflective of that finding. He also sought reimbursement of expenses

that he incurred between March 12 and May 1, 2010 on Fortress’s behalf. The

majority of the expenses, which totalled close to $21,000, related to the cost of

airline tickets, accommodation, meals, vehicle rentals and fuel, spent mostly on

behalf of Mr. Vinall, and exceptionally for members of his family. Based on some

kind of a side arrangement, Fortress Specialty reimbursed Mr. Vinall for the

expenses he incurred from April 1 onward. Additionally, by early May, Mr. Vinall had

established and was using a Fortress Specialty email address. Most telling is that

effective May 7, 2010, Mr. Vinall was appointed as the President and CEO of

Fortress Specialty.

[305] I find that by about April 13, 2010, coinciding with the receipt of court approval

of the transaction, Mr. Vinall had become an employee of Fortress Specialty for all

intents and purposes. After that date, the execution of the Fortress Employment

Contract was a mere formality.

Operations at the Thurso Mill after Acquisition

[306] Fortress’s intention was to convert the Thurso Mill into a commercially viable

facility. The end date for completion of the dissolving pulp conversion was originally

forecasted as May 2011. However, unanticipated factors delayed the production of

dissolving pulp until December 2011. Exacerbating the fallout caused by the delay,

was that certain building block assumptions contained in Fortress’s business plan for

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the Thurso Mill did not materialize as anticipated. For example, Fortress had

projected cash costs of $536 per air-dried metric tonne (ADMT) of pulp by

September 2011; however, the actual cost in the fourth quarter of 2014 was

significantly more at $808 per ADMT. Another major unforeseen obstacle was

China’s introduction of an interim anti-dumping duty applied to Canadian, American

and Brazilian companies.

[307] Problems, such as the unavailability of the equipment that had initially been

earmarked for the facility, also plagued the co-generation side of the Thurso Mill,

significantly delaying its operation.

[308] I accept Mr. Wasilenkoff’s testimony that the confluence of these factors

“nearly bankrupted the company”, and effectively compelled Fortress Paper to sell

certain assets, including its Dresden Mill and the farmland and co-generation facility

at the Landqart Mill, to keep the Thurso Mill afloat. Fortress Paper flowed those sale

proceeds through to Fortress Specialty by way of loans.

[309] Until production of dissolving pulp finally started in December 2011, the

revenue attributable to the Thurso Mill came from the manufacture and sale of

non-bleached hardwood pulp. I find that, except in 2010 when it was producing and

selling only that hardwood pulp, the Thurso Mill suffered substantial operating

losses. After December 2011, the Thurso Mill operated as a swing mill,

manufacturing both dissolving pulp and the hardwood pulp.

[310] Due to the significant delays in production and cost overruns, some of the

terms of Mr. Vinall’s Fortress Employment Contract were renegotiated.

[311] In December 2014, when it was apparent that Fortress would not be able to

repay the loan from the Quebec government that was about to mature, it

renegotiated the debt. The maturity date was extended until December 31, 2026.

As at December 31, 2014, more than $106 million remained owing under that loan.

[312] The recent financial evidence indicated that Fortress Specialty expended

approximately $294 million on its capital assets. Including the significant debt it

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owes to Fortress Paper as a result of its ongoing cash injections, it is carrying

long-term debt of more than $415 million.

[313] The plaintiffs did not meaningfully challenge the validity of the above figures

or the dismal financial performance of the Thurso Mill on the dissolving pulp side.

Indeed, as will be seen, their argument for an accounting and disgorgement of gain

inherently recognizes that no actual profits attributable to the dissolving pulp arm of

the Thurso Mill were realized in those years.

Disposition of Vinall’s Restricted Share Units

[314] As mentioned, Mr. Vinall received an immediate vesting of 12,500 RSUs as a

signing bonus when he joined Fortress Specialty. He described them as a

“complete disaster” to his personal financial picture. Mr. Vinall elaborated that for

significant blocks of time Fortress Paper was engaged in various corporate activities

that resulted in blackout periods that prevented the sale of his RSUs. Despite these

outside constraints on his ability to sell, within a short time after each grouping of

RSUs vested he was deemed to have disposed of them at a set value and was

required to pay the corresponding income taxes. Mr. Vinall’s predicament was

significantly worsened by the fact that the market value of the RSUs started to

decline and then fell precipitously. He attested that although he was able to sell

some of his RSUs to pay some of his taxes, he still had to borrow to cover his tax

indebtedness. According to Mr. Vinall, at the end of the day the value of the RSUs

he was allocated was nowhere close to the amount of tax he paid, and that the net

result to him was a whopping loss of close to $800,000.

[315] While it would have been preferable to have documentary back-up of

Mr. Vinall’s testimony on this matter, his evidence was plausible and was not

weakened in cross-examination. I accept that he gained no overall benefit from the

receipt of is RSUs.

[316] Mr. Vinall’s employment with Fortress Specialty was terminated effective

March 27, 2013. There was not much evidence about his termination or the

circumstances giving rise to it, except that more or less contemporaneously,

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Fortress Specialty retained the services of Mr. Vinall’s company as a consultant on a

contract basis.

DISCUSSION

The Thurso Mill “Opportunity”

[317] The plaintiffs maintain they have not brought a claim for the misappropriation

of the Thurso Mill opportunity in its conventional doctrinal form. Yet, the nub of their

complaint is that Mr. Vinall’s knowledge about the Thurso Mill as a possible

conversion candidate came to him as a fiduciary and was recommended by him to

Sateri in that capacity and in breach of the duties of his high office, he assisted

Fortress acquire that opportunity. In so doing, the plaintiffs say that Mr. Vinall placed

himself in an impermissible conflict between his personal interest and the fiduciary

obligations he owed to them and must account.

[318] Despite the plaintiffs’ disavowal of advancing a traditional claim of

appropriation of corporate opportunity, their complaint is a classic averment of the

corporate opportunity doctrine. As well, a considerable amount of the evidence at

trial was elicited to fit that evolving legal paradigm. Further, a recurring connective

theme of the plaintiffs’ submissions is the characterization of the Thurso Mill as a

Sateri “opportunity” that Mr. Vinall wrongfully disclosed to Fortress and that all

defendants seized upon for their mutual benefit.

[319] The corporate opportunity ethic is demanded of corporate and employee

fiduciaries. It does not extend to non-fiduciary employees who, for example, may

have breached their implied contractual duties of fidelity and loyalty. While there

may be an overlap of the factual circumstances that trigger disputes concerning

alleged breaches of duty by fiduciary and non-fiduciary employees, they are properly

determined by the engagement of different principles.

[320] For sound reasons given the rationale and application of the doctrine, the

majority of the plaintiffs’ submissions impugning the defendants’ involvement in

relation to the Thurso Mill were constructed on the premise that Mr. Vinall owed

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them fiduciary obligations. In the next section of my Reasons I conclude that

Mr. Vinall was not in a fiduciary relationship with any of the plaintiffs and did not owe

them any fiduciary duties.

[321] In light of my determination that Mr. Vinall lacks fiduciary standing, it would

ordinarily be unnecessary to determine whether the Thurso Mill was an opportunity

taken and wrongfully exploited by him. That said, because some of the plaintiffs’

accusations of wrongful conduct against the defendants vis-à-vis the Thurso Mill

“opportunity” were expressed in propositions that are not dependent on Mr. Vinall’s

status as a fiduciary, and the relief sought implicates the doctrine, it is appropriate

that the Court make a determination. Accordingly, for thoroughness, I will briefly

overview the legal principles of the corporate opportunity doctrine and summarize

my factual findings with respect to what can only be fairly described as the passing

glance paid by the plaintiffs to the Thurso Mill.

 Overview of Legal Framework

[322] The corporate opportunity doctrine is a simple label for a complex construct.

It derives from the evolvement of the fiduciary’s duty to avoid conflicts of interest and

not to profit from the fiduciary office. The gravamen of the wrong and the

fundamental basis of liability under the corporate opportunity rubric is that the

fiduciary has permitted self-interest for profit to collide with the heightened duties

owed by virtue of his or her fiduciary stature: Canadian Aero v. O’Malley, [1974]

SCR 592 [Canaero]

[323] The leading authority on the modern articulation is Canaero. Disapproving of

the narrow scope of the test found in its earlier decision in Peso Silver Mines Ltd. v.

Cropper, [1966] S.C.R. 673, relied upon by Mr. Vinall, the Supreme Court of Canada

in Canaero revived a strict adherence to the cornerstone duties of good faith, loyalty

and trust that define the fiduciary office.

[324] Canaero held that a corporate fiduciary was forbidden to usurp for personal

use or divert to another with whom the fiduciary was associated, a maturing

business opportunity that the company was actively pursuing. Speaking for the

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Court, Laskin J. cautioned that attempting to lay down a rigid test of the doctrine

would be reckless and repugnant to the fluid and expansive nature of the fiduciary

concept. Instead, his Lordship preferred, as a starting point, consideration of a

non-exhaustive list of factors, stating at 620:

... Among them are the factor of position or office held, the nature of the

corporate opportunity, its ripeness, its specificness and the director’s or

managerial officer’s relation to it, the amount of knowledge possessed, the

circumstances in which it was obtained and whether it was special or, indeed,

even private, the factor of time in the continuation of fiduciary duty where the

alleged breach occurs after termination of the relationship with the company,

and the circumstances under which the relationship was terminated, that is

whether by retirement or resignation or discharge.

[325] Thus, the question of whether a fiduciary has appropriated a corporate

opportunity to self or diverted it to another in breach of the no conflict and no profit

rules is evaluated on a case-by-case basis taking into account the Canaero factors

and others pertinent to the particular case at hand.

[326] In Pan Pacific Recycling Inc. v. So, 2006 BCSC 1337 at paras. 174-179 [Pan

Pacific], Sigurdson J. commented that the terminology used in Canaero of a

“maturing business opportunity” that the corporation is “actively pursuing”, and the

phrase, “ripening business opportunity” used in subsequent cases, are probably

misleading insofar as they suggest that fiduciaries are only forbidden from taking

opportunities that the corporation is willing and able to pursue. The doctrine has a

much wider grasp: Pan Pacific at para. 177. At para. 176, Sigurdson J. concluded

that for liability to attach, the corporation does not have to establish that but for the

fiduciary breach it would have pursued the opportunity and would have made the

profit in question. The rigour of the principle referred to by Sigurdson J. was

affirmed by the Court of Appeal in Canadian Metals Exploration Ltd. v. Wiese, 2007

BCCA 318 [Canadian Metals], which held, at para. 19, that a fiduciary may not make

personal use of an opportunity even where the corporation is unable to take it up or

has declined to pursue it: see also, 3464920 Canada Inc. v. Strother, 2007 SCC 24.

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[327] The business opportunity in question does not have to be confidential: First

Majestic Silver Corp. v. Davila, 2013 BCSC 717 at paras. 127 to 127, aff’d 2014

BCCA 214.

[328] The extent to which the business opportunity must have “matured” is

unsettled. In a case that Mr. Vinall relies on, Donor Gateway Inc. v. Passero, 2007

Carswell Ont. 724 at para. 14 (Ont S.C.J.), the court held that the business

opportunity had to be a “prize ready for immediate grasping”. However, in Blue Line

Hockey Acquisition Co. v. Orca Bay Hockey Ltd. Partnership, 2009 BCCA 34 at

para. 61, the Court of Appeal, without deciding the issue, postulated:

If and when the point is ever argued, then, a Canadian court might well take

the view that the appropriation of an opportunity “belonging to” a corporation

by a director or former director merit equitable intervention even where the

opportunity is not a “mature” one.

 Analysis

[329] Mr. Vinall had been aware of the suitability of the Thurso Mill as a potential

conversion mill long before he joined Sateri. In performing his work assignment at

Sateri, he learned that Fraser Papers was under creditor protection, a fact that was

within the public domain. Like Mr. Wasilenkoff, Mr. Vinall regarded Fraser Papers’

financial descent as a significant plus in terms of the attractiveness of acquiring the

Thurso Mill and was one the reasons he recommended the Thurso Mill to Sateri.

[330] It warrants repetition that Mr. Goh was unable to offer much evidence about

the discussions and decisions that occurred within the Sateri organization touching

on the fate of the Thurso Mill. To the extent that he had any recollection, it was

nonspecific. That was perhaps not surprising given that he was concentrating on

preparing the organization for a public offering and had first learned about the

assignment to identify mill candidates more or less when Mr. Vinall did. Indeed,

there was very little evidence of Mr. Goh’s participation in strategic decision-making

regarding Sateri’s expansion options. In the circumstances, I consider it unsafe to

give credit to Mr. Goh’s half-hearted statement that “no decision” was ever made by

the plaintiffs regarding the Thurso Mill.

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[331] Ms. Li’s testimony that suggested the plaintiffs had not ruled out the east

coast mills at or after the October 8 Meeting was meek and unconvincing.

[332] On the whole, the combined evidence of Mr. Goh and Ms. Li was less

probative and persuasive than Mr. Vinall’s forceful testimony on the matter. It was

also at odds with the convincing probabilities of the evidence that go the other way.

[333] By contrast, Mr. Goh’s evidence to the effect that no strategic decision was

ever taken in the Sateri organization without Mr. Tanoto’s prior knowledge and

approval was definite and compatible with other cogent evidence. It is

uncontroversial that the expansion of the upstream business via the conversion of a

conventional kraft pulp mill was a strategic decision.

[334] Mr. Van Lee considered the Thurso Mill to be unsuitable as a target before

Ms. Li and Mr. Vinall even received their assignments. Unaware of Mr. Van Lee’s

assessment, Mr. Vinall had put forward the Thurso Mill, along with others, as a

Canadian mill for consideration. The only evidence of any remarks being made

about the Thurso Mill by Mr. Tanoto, the chief strategic decision-maker, were those

he expressed at the October 8 Meeting. It was not clear on the evidence the

October 8 Meeting was even a meeting of the actual board. Mr. Vinall was

instructed to attend that meeting at the last minute, and not as a decision-maker, but

as someone with stock technical knowledge of mills in Canada.

[335] During the October 8 Meeting, little more than introductory remarks had been

made about the Thurso Mill before Mr. Tanoto halted the discussion by expressing

his unqualified and unchallenged rejection of it. Also significant, is the absence of

evidence to indicate that Mr. Tanoto underwent a change of mind on the matter after

the October 8 Meeting or that the plaintiffs subsequently adopted a different stance.

The very notion of the Thurso Mill as a candidate for conversion by Sateri was

preliminary and superficial; it was essentially over before it began and did not even

rise to the threshold of being the subject matter of a considered discussion.

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[336] The evidence about whether the plaintiffs had reached a decision concerning

the Thurso Mill was not inconclusive as it was in Canadian Metals referred to by the

plaintiffs. Quite the opposite, the totality of the evidence strongly supports the

finding that although the strategy of growth by way of converting an existing mill had

not been discarded by the plaintiffs, any idea of converting a mill located in Quebec

had been scrapped. I find that with Mr. Tanoto’s unequivocal decree of rejection of

the Thurso Mill at the outset, it was not even raised as a possible prospect before

the board at the Second October Meeting, the subsequent board meeting in

December 2009, or ever.

[337] The private assessment made by Mr. Vinall to Mr. Wasilenkoff to the effect

that his communications involving Mr. Tanoto and Mr. Hoon in early March 2010

would be a powerful reinforcement of Mr. Tanoto’s rejection of the Thurso Mill, has

proved to be prescient. That neither Mr. Hoon nor Mr. Tanoto disagreed with

Mr. Vinall’s stated understanding that Mr. Tanoto had indicated disinterest in a mill

located in Eastern Canada, and did not pursue the point further, stands as

compelling confirmatory evidence of Mr. Vinall’s testimony. I do not interpret

Mr. Vinall’s suggestion to Mr. Wasilenkoff to forward that email string to Fortress’s

counsel as evidence of his belief that the Thurso Mill may have been a

misappropriated corporate opportunity that belonged to Sateri. In any event, even

had Mr. Vinall owed the plaintiffs fiduciary duties, under an interpretation of the facts

most generous to them, the Thurso Mill was not their corporate opportunity within

the meaning of the jurisprudence.

[338] The plaintiffs complained about the paucity of documentation produced by the

defendants concerning communications that might be expected to have been

exchanged among them at crucial events along the timeline. A few of their

grievances have merit; but many others were of no moment or were satisfactorily

explained by evidence of the server malfunction experienced by Fortress in early

2010, Mr. Wasilenkoff’s preferred use of a Blackberry device over email and other

evidence.

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[339] The same criticism can be levied about the dearth of documentary evidence

from the plaintiffs in relation to their internal consideration of the Thurso Mill both

before and after they learned that it had been acquired by a third party, and that

Mr. Vinall had taken up employment with a company that planned to enter the

dissolving pulp business. As a further deficiency in the plaintiffs’ case, the

defendants cite their failure to call witnesses who could have spoken more directly to

what took place at the October 8 Meeting and the Second October Meeting and

afterward, as it relates to the Thurso Mill. Linked to that assertion is the defendants’

submission that this Court ought to draw an adverse inference from the plaintiffs’

failure to call Mr. Tanoto, who was the most obvious choice to speak definitively on

whether the Thurso Mill had been ruled out.

[340] Given the healthy state of the evidence on the issue presented, including my

acceptance of Mr. Vinall’s convincing testimony of Mr. Tanoto’s authoritative veto of

the specter of the Thurso Mill as a possibility, I need not consider whether such an

inference ought to be drawn.

[341] As an aside, I will close this discussion by noting that at the date of trial the

plaintiffs had not purchased a pulp mill for conversion.

The Fiduciary Duty Claim against Vinall

 Overview of Legal Framework

[342] The doctrine of fiduciary duty finds its origin in the classical trust where one

party, the trustee (fiduciary), holds legal title to property on behalf of another, the

beneficiary.

[343] Relationships outside the realm of trust law have been recognized as giving

rise to the duties that equity imposes upon trustees. Relationships that fall within

these other categories include solicitor-client and principal-agent: Lac Minerals Ltd.

v. International Corona Resources Ltd., [1989] 2 S.C.R. 574 at 646 [Lac Minerals].

The director-corporation relationship has also long been classified as a traditional

fiduciary relationship: Lac Minerals at 597; Owen Sound Lumber Co. (Re) (1917), 38

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O.L.R. 414 (Ont. C.A.). These traditional or status-based relationships are

sometimes referred to as per se fiduciary relationships: Lac Minerals at 631, Wilson

J. concurring; Hodgkinson v. Simms, [1994] 3 S.C.R. 377 at 409 [Hodgkinson];

Galambos v. Perez, 2009 SCC 48 at para. 36 [Galambos].

[344] The hallmarks of the conventional trust-beneficiary relationship, being

complete trust, absolute fidelity/loyalty and confidence reposed toward another, form

the pillars of all fiduciary relationships: Hodgkinson at 405, La Forest J., and at 461,

Sopinka J. and McLachlin J. (now C.J.C.). Equity presumes that the inherent

purpose or factual and/or legal incidents attributable to fiduciaries are present in per

se fiduciary relationships.

[345] In Lac Minerals, Sopinka J., writing for the majority on the fiduciary issue,

explained at 597-599 that the establishment of a fiduciary relationship on the basis

of the status of the involved parties is not absolute. His Lordship elaborated that

when the nature and degree of the characteristics accepted as being innate to a

fiduciary relationship are not present in a traditional fiduciary relationship, the

presumption that such a relationship imposes fiduciary obligations may be rebutted.

A related precept is that not every act performed by a fiduciary will carry a fiduciary

obligation. At 597, Sopinka J. expounded on these foundational propositions:

The nature of the relationship may be such that, notwithstanding that it is

usually a fiduciary relationship, in exceptional circumstances it is not.

See J.C. Shepherd, The Law of Fiduciaries at pp. 21-22. Furthermore, not all

obligations existing between the parties to a well-recognized fiduciary

relationship will be fiduciary in nature. Southin J., in Girardet v. Crease & Co.

(1987), 11 B.C.L.R. (2d) 361, observed that the obligation of a solicitor to use

care and skill is the same obligation as that of any person who undertakes to

carry out a task for reward. Failure to do so does not necessarily result in a

breach of fiduciary duty but simply a breach of contract or negligence. She

issued this strong caveat against the overuse of claim for breach of fiduciary

duty (at p. 362):

Counsel for the plaintiff spoke of this case in his opening as one of

breach of fiduciary duty and negligence. It became clear during his

opening that no breach of fiduciary duty is in issue. What is in

issue is whether the defendant was negligent in advising on the

settlement of a claim for injuries suffered in an accident. The word

“fiduciary” is flung around now as if it applied to all breaches of

duty by solicitors, directors of companies and so forth. But

Sateri (Shanghai) Management Limited v. Vinall

‘fiduciary’ comes from the Latin “fiducia” meaning “trust”. Thus, the

Page 87

adjective, “fiduciary” means of or pertaining to a trustee or

trusteeship. That a lawyer can commit a breach of the special duty

of a trustee, e.g., by stealing his client’s money, by entering into a

contract with the client without full disclosure, by sending a client a

bill claiming disbursements never made and so forth is clear. But

to say that simple carelessness in giving advice is such a breach

is a perversion of words. The obligation of a solicitor of care and

skill is the same obligation of any person who undertakes for

reward to carry out a task. One would not assert of an engineer or

physician who had given bad advice and from whom common law

damages were sought that he was guilty of a breach of fiduciary

duty. Why should it be said of a solicitor? I make this point

because an allegation of breach of fiduciary duty carries with it the

stench of dishonesty — if not of deceit, then of constructive fraud.

See Nocton v. Lord Ashburton, [1914] A.C. 932 (H.L.). Those who

draft pleadings should be careful of words that carry such a

connotation.

[346] The extract from J. C. Shepherd’s text referred to approvingly by Sopinka J. in

the above passage states the principle that no identifiable relationship, not even as

between trustee and beneficiary or director and corporation, is necessarily in all

cases fiduciary in nature. Sopinka J. resumed his considered pronouncement of the

law at 598, as follows:

When the Court is dealing with one of the traditional relationships, the

characteristics or criteria for a fiduciary relationship are assumed to exist. In

special circumstances, if they are shown to be absent, the relationship itself

will not suffice.

[347] The law also recognizes that the established categories of fiduciary

relationships, which presume the existence of fiduciary characteristics, are not

exhaustive of the principle: Hodgkinson at 461. Accordingly, relationships that have

not classically been regarded as fiduciary may be found to be so and may attract

fiduciary obligations: Lac Minerals;Hodgkinson; Guerin v. The Queen, [1984] 2

S.C.R. 335 [Guerin].

[348] In her instructive, and now widely-accepted, dissent in Frame v. Smith, [1987]

2 S.C.R. 99 at 136 [Frame], Wilson J. enumerated three characteristics or indicia to

assist the court in identifying fiduciary relationships:

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Relationships in which a fiduciary obligation have been imposed seem to

possess three general characteristics:

(1) The fiduciary has scope for the exercise of some discretion or

power.

(2) The fiduciary can unilaterally exercise that power or discretion

so as to affect the beneficiary’s legal or practical interests.

(3) The beneficiary is peculiarly vulnerable to or at the mercy of

the fiduciary holding the discretion or power.

[349] Wilson J.’s three-part analysis is not intended as an absolute code or to be

applied mechanically as a litmus test to identify fiduciary relationships. Rather, her

conceptual formulation, adopted in Lac Minerals, is a “rough and ready guide” in

determining whether a particular relationship engages the special degree of trust,

selfless loyalty and confidence sufficient to warrant the intervention of equity: Lac

Minerals at 577-578, Sopinka J.; Hodgkinson at 408, La Forest J.

[350] It follows that it is possible for a fiduciary relationship to arise even where not

all of the elements outlined by Wilson J. are present. The converse is also true: the

presence of all criteria will not invariably establish a fiduciary relationship: Lac

Minerals at 599, Sopinka J.

[351] Fundamental to the trustee-beneficiary dynamic and crucial to any fiduciary

relationship, is that the fiduciary has a discretionary power to affect the other’s legal

or practical interests such that the latter is vulnerable to the actions of the former:

Galambos at para. 83, citing Guerin at 384 and 387.

[352] In addressing the essential criteria for a fiduciary relationship, the majority on

the issue of breach of fiduciary duty in Lac Minerals, considered the qualities of

dependency and vulnerability as indispensable. La Forest J. at 662, dissenting on

this issue, placed less emphasis on the vulnerability feature with his observation that

vulnerability is not a necessary ingredient in every fiduciary relationship. At 664, La

Forest J. also noted that power and discretion in this context mean only the ability to

cause harm. He expanded on these remarks in his majority decision in Hodgkinson

at 430 where he noted:

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Vulnerability is nothing more than the corollary of the ability to cause harm,

viz the susceptibility to harm. For this reason, it is undesirable to

overemphasize vulnerability in assessing the existence of a fiduciary

relationship.

[Emphasis in original]

[353] In Hodgkinson at 405, La Forest J. discussed the contours of the element of

vulnerability in relation to the establishment of fiduciary status. He commented that,

from a conceptual standpoint, fiduciary duty was a species of a more generalized

duty by which the law aims to protect vulnerable individuals in transactions with

others. In the same passage, his Lordship noted how the component of vulnerability

is not the hallmark of a fiduciary relationship, describing it instead as “the golden

thread” that unites claims such as breach of fiduciary duty, undue influence,

unconscionability and negligent misrepresentation.

[354] The Supreme Court of Canada in Hodgkinson at 409 and in Galambos at

paras. 66, 71 and 77-78, clarified that essential to the existence of a fiduciary duty in

both per se and ad hoc fiduciary relationships is that the alleged fiduciary has given

an undertaking of responsibility to act utterly selflessly in accordance with the strict

duty of loyalty.

[355] There can be no question but that the presence of vulnerability of one party’s

legal, economic and vital practical interests to the discretionary power held by the

fiduciary remains significant relative to the imposition of fiduciary obligations.

However, vulnerability alone is not enough to sustain a fiduciary claim: Galambos at

para. 67; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 at para. 28

[Elder Advocates].

[356] The settled principles reflect that ultimately it is the attributes of the particular

relationship, and not the label or categorization applied to it, that are determinative:

Hodgkinson at 422, La Forest J.; Galambos at para. 70, citing Guerin at 384.

Accordingly, whether a relationship is of the exacting character classified as fiduciary

is a question of fact to be informed by examining the surrounding circumstances and

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the unique features of the relationship on a case-by-case basis: Frame at 135-136,

Wilson J.; Lac Minerals at 598-599; Elder Advocates at paras. 27-36.

[357] I turn next to discuss more specifically the circumstances in which an

employee, who is not a director of the employer, may be held to owe fiduciary

obligations to his or her employer.

[358] Every employee (fiduciary and non-fiduciary) owes the employer an implied

contractual duty of loyalty, fidelity and good faith, which compels faithful service in

many forms, often with far-reaching implications. In McMahon v. TCG International

Inc., 2007 BCSC 1003 [McMahon], Fisher J. succinctly summarized the content of

the duty:

[51]

The implied duty has been held to include the following:

1. to serve his employer faithfully;

2. not to compete with his employer;

3. not to reveal confidential information;

4. not to conceal from his employer facts which ought to be revealed;

5. to provide full-time service to his employer.

[359] Generally speaking, however, an employee is not a fiduciary and, therefore, is

not held to the exacting duties of that office. There are exceptions to that general

rule. An employee who wields a sufficiently high degree of management control and

authority over the employer’s affairs or is otherwise functionally integral or “key” to

the operations of the business may be impressed with fiduciary obligations.

[360] Canaero is the seminal decision on the characteristics of the

employer-employee relationship that serve to distinguish an ordinary employee from

the category of a “top management” employee who may owe fiduciary duties to the

employer. The top management test formulated in Canaero was subsequently

broadened to encompass “key” employees. Even where an employee is said to be

“key” to the employer, it does not necessarily follow that such key employee and

employer are in a fiduciary relationship: RBC Dominion Securities Inc. v. Merrill

Lynch Canada Inc., 2008 SCC 54 [RBC Dominion Securities].

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[361] In Pan Pacific, Sigurdson J. carefully surveyed Canaero and other appellate

authorities on the approaches taken by the courts in determining whether an

employee owed fiduciary duties to his or her employer:

[72]

In Canadian Aero the court found that “top management” of a

company owed that company a fiduciary duty, even if they were supervised

by officers of the company and did not hold positions in the company, such as

director, that fell within the usual categories of those who had fiduciary duties.

[73]

That said, Canadian Aero has provided useful guidance in

distinguishing “mere employees” or servants from those employees who,

whatever their title, owe a higher duty. Laskin J., as he then was, made the

distinction at p. 381-82 when he wrote:

Like Grant J., the trial judge, I do not think it matters whether

O’Malley and Zarzycki were properly appointed as directors of

Canaero or whether they did or did not act as directors. What is

not in doubt is that they acted respectively as president and

executive vice-president of Canaero for about two years prior to

their resignations. To paraphrase the findings of the trial judge in

this respect, they acted in those positions and their remuneration

and responsibilities verified their status as senior officers of

Canaero. They were “top management” and not mere employees

whose duty to their employer, unless enlarged by contract,

consisted only of respect for trade secrets and for confidentiality of

customer lists. Theirs was a larger, more exacting duty which,

unless modified by statute or by contract (and there is nothing of

this sort here), was similar to that owed to a corporate employer

by its directors. I adopt what is said on this point by Gower,

Principles of Modern Company Law, 3rd ed., 1969, at p. 518 as

follows:

... these duties, except in so far as they depend on

statutory provisions expressly limited to directors, are not

so restricted but apply equally to any officials of the

company who are authorized to act on its behalf, and in

particular to those acting in a managerial capacity.

The distinction taken between agents and servants of an employer

is apt here, and I am unable to appreciate the basis upon which

the Ontario Court of Appeal concluded that O’Malley and Zarzycki

were mere employees, that is servants of Canaero rather than

agents. Although they were subject to supervision of the officers

of the controlling company, their positions as senior officers of a

subsidiary, which was a working organization, charged them with

initiatives and with responsibilities far removed from the obedient

role of servants.

[emphasis added]

[74]

In applying the top management test set out in Canadian Aero, courts

have focused on the powers and functions of the employee. As might be

expected from the emphasis on “initiative and responsibility” in Canadian

Sateri (Shanghai) Management Limited v. Vinall

Page 92

Aero and on the ability of the agent to “alter the principal’s legal position”,

there is, as Ellis notes at 16-8, “some judicial sentiment toward restricting the

interpretation of “top management” to very senior persons exercising a

substantial amount of autonomous power”. Titles, on the other hand, are

almost irrelevant, since the title of “manager” or “vice-president” can have as

many meanings as does “agent”.

[75]

For example, in Empire Stevedores (1973) Ltd. v. Sparringa (1978),

19 O.R. (2d) 610 (H.C.), the plaintiff sought an injunction after the defendant,

who was nominally a vice-president during his final years with the plaintiff, left

the company, purchased another stevedoring company and successfully bid

against Empire for a number of contracts. The court declined to issue the

injunction sought by Empire and noted that, despite his title, the defendant

remained a “walking boss”, whose duties were limited to supervision of the

performance of the plaintiff’s contracts. Among the factors identified by the

court in doubting that he qualified as “top management” were that he was not

able to bid on jobs by himself, did not play a significant role in the planning or

financial side of the plaintiff’s business, and indeed, could not even make

minor variations in equipment contracts and that, as the defendant stated in

his affidavit, he did not have “any known prospects of advancement within

Empire to an off-the-dock post”.

[76]

Our Court of Appeal came to a similar conclusion regarding Paul

Darc, the erstwhile chief operating officer and chief financial officer of the

plaintiff company in 3464920 Canada Inc. v. Strother (2005),38 B.C.L.R. (4th)

159, 2005 BCCA 35. It declined to interfere with the trial judge’s finding that

Mr. Darc was not a fiduciary, citing the following comments from the trial

decision at para. 65:

[Mr. Darc’s] duties related to internal accounting and

administrative matters. He held the title of Chief Financial Officer

and managed a small staff, but he was not a director, he held no

equity, and Monarch was a small company where impressive titles

were readily available. He had no cheque signing authority. He

was not the company’s contact with either the studios from which

production was obtained or its agents who sold its tax shelters to

investors.

[77]

In Valco Cincinnati v. Dibe, [1987] 35 B.L.R. 281, the defendant had

been the branch manager and sole Canadian employee of the plaintiff

American company; the court looked at the ability of the alleged fiduciary to

exercise control and to alter the legal position of the company. Callon J. of

the Ontario High Court of Justice noted that while the defendant solicited

business while employed by the plaintiff, head office retained control over

pricing and credit approval, the selection of products to be made available

and most of the decisions about day to day operation, including the make,

model and features of the company car driven by the defendant. As such,

Dibe was found to be a “mere employee” who did not owe a higher duty,

either by virtue of being top management or as an agent.

[78]

Another way of looking at this test is that “top management” is limited

to those employees who have “the power and the ability to direct and guide

the affairs of the company”: R. W. Hamilton Ltd. v. Aeroquip Corp. (1988), 65

Sateri (Shanghai) Management Limited v. Vinall

Page 93

O.R. (2d) 345 (H.C.J.) In Alberts v. Mountjoy (1977), 16 OR. (2d) 682, the

Ontario High Court found that the defendant Mountjoy had such powers and

ability and was thus top management of the plaintiff insurance business and

did owe it a fiduciary duty. At pp. 685-86, Estey C.J.H.C. (as he then was)

contrasted the duties of Mountjoy with those of his co-defendant Butts:

The defendant Mountjoy was the undoubted general manager or

chief executive of the plaintiff. In fact the plaintiff at all relevant

times until its acquisition by SincLir and Cockburn appears to have

been operated by absentee owners through the defendant

Mountjoy who, in so far as day-to-day operational matters are

concerned, in effect managed the business as a sole

proprietor. That is not to say he had authority to hire and fire or

interfere with the capital assets of the business, but it is clear that

operationally he reported to nobody.

Butt, on the other hand, was a salesman or an account supervisor

whose duties were much less responsible than Mountjoy to whom

he reported. His salary was about one-half that of Mountjoy and

there is no evidence he received anything like the very substantial

year-end bonus paid to Mountjoy.

[79]

Another part of the “top management” test has, as Ellis notes, been

widened to include the adoption of the “key personnel” test. “Key personnel”

looks at the relative role the employee plays in the enterprise as opposed to

the control and authority that come with the position.

[80]

In Barton Insurance Brokers v. Irwin, supra, our Court of Appeal

rejected the argument that the defendant, whose job title was “general office

supervisor”, was a “key employee” and thus barred from soliciting the clients

of her former employer. The court noted that she was on salary, earning

about $36,000 per annum, did not have the power to hire and fire, had never

been a corporate officer, director or shareholder, and required approval from

her superior for any significant expenditure. Hall J.A. considered the decision

in Tree Savers International Ltd. v. Savoy (1991), 81 Alta. L.R. (2d) 325

(Q.B.), aff’d on the “key employee” point at (1992), 84 Alta. L.R. (2d) 384

(C.A.), as well the case of Anderson, Smyth & Kelly Customs Brokers Ltd. v.

World Wide Customs Brokers Ltd., [1996] 7 W.W.R. 736, another decision of

the Alberta Court of Appeal. In that case, the defendant Kelly was an officer,

director and shareholder in Anderson, the plaintiff customs broker, as well as

the manager of its Edmonton office, before jumping ship and joining World

Wide in 1989. The trial judge found that Kelly was “an integral part of the

Plaintiff’s Edmonton operation”, and characterized him as a “key employee”

but declined to find that he owed a fiduciary duty to the company. The

Alberta Court of Appeal held this to be an error and held that as an employee

– quite apart from his position as director and officer – he was a

fiduciary. Among the factors it cited was that he was the manager and only

non-clerical employee of Anderson’s Edmonton operations and was thus in a

position to unilaterally exercise his delegated authority to affect the

appellant’s legal and economic interests. The court summarized the

underlying principles at para. 20:

Sateri (Shanghai) Management Limited v. Vinall

… To put it another way, in his capacity as a director and officer

Page 94

and manager of the Appellant’s Edmonton office, Kelly possessed

the kind of authority typically found in a relationship of

dependency or vulnerability. It was the kind of relationship in

which equity will intervene to protect the dependant or vulnerable

party by acting on the conscience of the fiduciary.

[81]

In other words, while the Court relied on the designation of Kelly as a

“key employee” who could “unilaterally exercise his delegated authority to

affect the Appellant’s legal and economic interests”, its decision was based

not solely on the finding that he fell into that category, but on the same

underlying principles articulated by Wilson J. in Frame v. Smith.

[362] Continuing at para. 82, Sigurdson J. reasoned that there was little substantive

difference between the categorical model applied by both the Canaero and the key

employee line of authorities, and the principled approach outlined in Frame as

endorsed in Lac Minerals and Hodgkinson and their judicial lineage.

[363] In Zoic Studios BC Inc. v. Gannon, 2012 BCSC 1322 at para. 186 [Zoic], rev’d

on other grounds, 2015 BCCA 334 [Zoic CA], Russell J. agreed with Sigurdson J.’s

conclusion and, at para. 112, identified the ability of the employee to control the legal

and/or economic interests of the employer (effectively, the measure of the

employer’s vulnerability) as an important functional characteristic of the fiduciary

under both analyses. The Court of Appeal agreed with Russell J.’s analysis on the

law of fiduciary duty.

[364] There is a danger of engaging in a reverse-engineering type of logic when

assessing whether an employee has fiduciary status in situations where the

employee has acted in a disloyal or self-interested way or has otherwise violated the

implied duties of good faith, loyalty and fidelity expected of all employees. The point

was instructively made by Paul Perrell in his article, “Fiduciary Obligations or is it a

Breach of Fiduciary Duty to Accept an Appointment to the Bench?” (2004) 28 Advoc.

Q. 471 at 479:

...a fallacy may occur in the determination of whether a person should be

classified as a fiduciary. The fallacy is that of determining fiduciary status and

fiduciary duty by reasoning from misbehaviour or from remedy to duty. This

result-driven reasoning process begs to question of whether a person has

fiduciary status by moving from the breach of a duty or the desired remedy to

a finding that the person had a duty. For example, a finding that a person was

Sateri (Shanghai) Management Limited v. Vinall

Page 95

disloyal and that harm was caused may have the tendency to lead to the

fallacious conclusion that the person had a fiduciary’s duty to be loyal.

Although they disagreed about the nature of fiduciary status, both La Forest

J. and Sopinka J. warned against this kind of reasoning in [Lac Minerals]

where La Forest J. said that using the term “fiduciary” as a conclusion to

justify a result “reads equity backwards” and Sopinka J. said: “[T]he presence

of conduct that incurs the censure of a court of equity in the context of a

fiduciary duty cannot itself create the duty.”

 The Parties’ Positions concerning Vinall’s Liability qua

Fiduciary

[365] With reference to the plaintiffs’ pleadings and closing submissions, two bases

are put forth which they submit clothe Mr. Vinall as a fiduciary.

[366] First, the plaintiffs contend that – and this is their primary contention – there is

a per se fiduciary relationship between Mr. Vinall and Sateri Singapore and Sateri

International Co. flowing from his appointment as a director of each. They say it is

irrelevant whether or not Mr. Vinall ever executed his powers as a director because

the law does not differentiate between a “legitimate” director and a “dummy” or a

“nominal” one.

[367] The second ground asserted is that, quite apart from his status as a director,

Mr. Vinall derived his fiduciary obligations from his role as a senior officer and a

member of high-level management in the Sateri enterprise. They submit that

Mr. Vinall qualifies as a fiduciary under the top management and key employee tests

and, by implication, via application of the Frame factors. Mr. Vinall’s duty is said to

be owed to more than merely his direct employer, Sateri Shanghai.

[368] In their notice of civil claim the plaintiffs state that they operate under the

designated trade name of the “Sateri International Group”, which they go on to

define as Sateri International (italicized in this section for clarity). They allege that

the five other non-plaintiff companies within the Sateri organization are “part of or in

affiliation with” Sateri International. In other words, for purposes of the plaintiffs’

pleadings, they and the other Sateri companies are sometimes lumped together as

one by use of the defined designation, Sateri International.

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[369] The plaintiffs allege that, at all material times until his resignation, Mr. Vinall

was employed by Sateri Shanghai. It is difficult to square this averment with their

subsequent allegation that Mr. Vinall was a trusted officer and employee of Sateri

International, which, as I have highlighted, by definition encompasses the plaintiffs

and one, more or all of the other non-plaintiff Sateri companies.

[370] The plaintiffs further allege that Mr. Vinall:

a) was responsible for identifying business opportunities for Sateri

International, as well as for establishing and maintaining relationships

with customers and vendors for the benefit of Sateri International;

b) was empowered to exercise his discretion unilaterally with respect to

which business opportunities to pursue so as to affect Sateri

International’s legal or practical interests, or both, and that Sateri

International was, at all material times, subject to a vulnerability to the

exercise of his discretion that he possessed as an incident of his

position as a director, trusted officer and employee; and

c) by virtue of his position and authority within Sateri International, owed

a fiduciary duty to Sateri International.

[371] To sum up, the plaintiffs plead that Mr. Vinall’s fiduciary obligations are owed

to Sateri International, a term that embodies the plaintiffs as well as the non-plaintiff

companies that are “part of or in affiliation with” Sateri International. In

supplementary closing submissions, the plaintiffs contended, for the first time, that

for purposes of determining Mr. Vinall’s contractual and fiduciary obligations, the

common employer doctrine applied and demonstrated that he had more than one

employer. I will return to that proposition later in my Reasons.

[372] On the premise that Mr. Vinall had fiduciary standing, whether as a director, a

top management/key employee and/or under Frame, the plaintiffs submit that he

owed duties of loyalty, fidelity, honesty and good faith, elements of which include:

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Page 97

a) selflessness: to act exclusively in their best interests and relinquish his

own self-interest in matters concerning the plaintiffs;

b) avoidance of conflicts of interest: not to enter into transactions or

undertakings in which his personal interests or obligations to third parties

might conflict with the best interests of the plaintiffs;

c) not to profit: not to profit from his fiduciary position or from an opportunity

or knowledge resulting from it beyond his agreed remuneration;

d) candour: to make full disclosure of any interests or duties that might

conflict with his duty to act in the plaintiffs’ best interests and to disclose

material matters of relevance to his relationship to them;

e) exclusivity: not to compete with the plaintiffs, and to develop business

opportunities solely for them; and

f) confidentiality: to refrain from using information obtained through his

office for his own benefit or the benefit of third parties.

[373] The plaintiffs argue that Mr. Vinall breached all such fiduciary duties through

his secret relationship with Fortress by:

a) entering that relationship with the aim of setting up a business that would

compete with them;

b) assisting Fortress in establishing a competing business while he was still

employed by them;

c) profiting from the Thurso Mill opportunity that came to his attention by

virtue of his position with them;

d) using their resources, confidential information and work product in

pursuing the Thurso Mill opportunity and providing the same to Fortress;

and

e) withholding material facts from them regarding both his involvement with

Fortress and the nature of the opportunity that he and Fortress were

pursuing.

Sateri (Shanghai) Management Limited v. Vinall

Page 98

[374] Mr. Vinall counters that he was a director of Sateri International Co. and

Sateri Singapore in name only and solely for corporate convenience. His position is

that, as a director of those two plaintiffs, he was a mere signatory to a small number

of resolutions about which he knew virtually nothing, that he attended no director

meetings and possessed none of the characteristics integral to the office of a

fiduciary. More specifically, Mr. Vinall submits that he did not have the ability to

exercise independent discretion, power or authority to direct or guide the plaintiffs’

respective affairs or to affect their legal, economic or vital practical interests in any

manner that rendered them vulnerable to his conduct.

[375] Mr. Vinall’s overarching submission in disputing liability as a director-fiduciary

is that the factual circumstances in this case are of the exceptional kind

contemplated by Sopinka J. in Lac Minerals that serve to rebut the presumption that

he is a fiduciary of the two plaintiffs of which he was appointed a director. His

companion assertion is that it would be wholly inequitable to hold a director who, like

himself, is in all practical reality unable to exercise the basic directorial powers as

the guiding mind of the company, to the fiduciary standard.

[376] In answer to the plaintiffs’ claim that he owes fiduciary obligations by

application of the top management/key employee tests and/or the Frame

guideposts, Mr. Vinall builds upon his argument by which he urged rebuttal of the

presumption that his directorships invested him with the attributes innate to the

fiduciary relationship. While he acknowledged that he held an important position in

managing the operations at the Bahia Mill, he aligned his role to that of a typical mill

manager by North American standards in the sense that his functions were

predominately technical and operational in nature. Expanding on that point,

Mr. Vinall argued that when he was recruited by Sateri it was anticipated that he

would assume the broad scope of high-level management responsibilities

commensurate with a full profit and loss role in the enterprise. As things turned out,

that never came to pass and, according to him, his authority was largely consigned

to the operations of the Bahia Mill. Even then, decisions and actions of

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Page 99

consequence were invariably subject to the control of a higher layer of executive

management.

[377] Mr. Vinall says that if he is found to have owed fiduciary duties to one or more

of the plaintiffs, he performed them honestly, with fidelity and in good faith. He

conceded an exception in two inconsequential instances.

 Application of the Top Management/Key Employee Tests and

the Frame Guidelines

[378] Mr. Vinall was not appointed a director of Sateri Singapore and Sateri

International Co. until he signed consents to act as such effective December 26,

2009. At that time, he had been working at Sateri for close to one year. He was

never appointed a director of his employer, Sateri Shanghai.

[379] By virtue of signing the consent respecting Sateri Singapore, Mr. Vinall

purported to agree that he would abide by the duties, responsibilities and liabilities

specified in the Companies Act of Singapore, and under the any applicable common

law. None of the parties made any submissions or elicited any evidence about this

provision. I take that to mean they do not consider it to be relevant, and I will say no

more about it.

[380] Several of the specific allegations of breach of fiduciary duty against

Mr. Vinall pertain to his alleged misconduct that occurred before his first directorship,

for example, planting the seeds to appropriate the Thurso Mill opportunity and to

secretly compete with his employer. The plaintiffs concede that Mr. Vinall’s

appointments as director did not have any retrospective effect and did not impose

fiduciary obligations in the pre-directorship period. With respect to that period (and

afterward), the plaintiffs rely on Canaero, the key employee test and the Frame

analysis to establish Mr. Vinall’s elevated stature of a fiduciary.

[381] It strikes me as logical to begin the discussion by determining whether

Mr. Vinall owed fiduciary duties to any of the plaintiffs before he entered into a per se

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Page 100

fiduciary relationship with Sateri International Co. and Sateri Singapore as a result of

being appointed a director.

[382] As a matter of helpful backdrop, I am reminded that long before Mr. Vinall

was hired by Sateri Shanghai, he had acquired extensive experience in and

knowledge of the operation of conventional and dissolving pulp mills and of the

conversion of the former to the latter. Indeed, I find that he was recruited by Sateri

because of the breadth of his credentials in those areas.

[383] I accept Mr. Vinall’s evidence that it was his understanding from the interview

process with Sateri that, because the Bahia Mill had gotten off to a faltering start, he

would be required to exert a strong technical and operational focus and be present

at the Brazil site for the first six months. That six month stipulation was contained in

his Sateri Employment Contract. It was anticipated that the operational objectives at

the Bahia Mill would be met within that six-month window. Thereafter, and assuming

that Mr. Vinall passed his probation period, he understood that he would move to the

head office and assume an executive management function by taking charge of the

profit and loss responsibilities for the entire upstream side of the business. I am

satisfied that the expansive profit and loss management responsibilities that

Mr. Vinall discussed with Mr. Tanoto, Mr. Hoon and others in executive management

and that he was expected to assume once the Bahia Mill was sorted out

operationally, were to extend beyond the Bahia Mill and the plantation. I find that

those functions would entail enhanced executive management responsibility and

authority for the mill operations, forestry operations, upstream sales, marketing,

research and development, and strategic initiatives, together with the peripheral

functions related to those duties, in Brazil, Indonesia and possibly China.

[384] Mr. Vinall was aware that he was courting some personal risk in accepting

Sateri’s offer because his Sateri Employment Contract was so vague about the

specific responsibilities attached to his position, and stipulated that his work projects

and assignments were essentially at the discretion of management. Although the

lack of specificity worried him, in weighing it out he felt reasonably confident that

Sateri (Shanghai) Management Limited v. Vinall

Page 101

soon enough he would be exercising the high-level profit and loss authority of the

primary facets of the upstream arm of Sateri’s businesses in Brazil and farther afield,

which he understood to be commensurate with his title of “President of Upstream”.

[385] As it happened, Mr. Vinall’s position in the organization did not unfold in the

manner that he and Sateri executive management had envisaged. He never did

ascend to the upper management role equivalent to full profit and loss responsibility.

This was mainly due to the fact that the effort required to stabilize and improve the

running of the Bahia Mill was considerably more challenging and time-consuming

than had been forecast. For Mr. Vinall, this meant he little choice but to continue to

concentrate on the day-to-day mill operations long after the initial six month period

had elapsed, and even after his family had moved to Singapore and indeed,

throughout the tenure of his employment.

[386] Once the Vinall family relocated to Singapore, Mr. Vinall maintained his

routine of working roughly three weeks of the month at the Bahia Mill and returning

to his family base approximately every fourth week. When he and Mr. Tanoto

crossed paths at head office, Mr. Tanoto would promptly order Mr. Vinall to return to

the Bahia Mill. I find that substantially all of the business he engaged in while at the

Singapore head office pertained to operational issues of the Bahia Mill. There were

less than a small handful of exceptions to this. One of them was the short-lived

assignment he received in early October 2009 to provide input and collaborate with

Ms. Li to identify potential mill candidates for conversion. Another involved his

relatively casual involvement with the Toba Mill, described earlier and below.

[387] Mr. Goh was a credible witness in many areas, but less so in others. He left

the impression that his testimony was tainted with a sense of personal anger and/or

betrayal that he felt over what he believed was Mr. Vinall’s lack of candour about the

reasons for his departure from Sateri, and his clandestine activity with Fortress.

With his negative mindset simmering below the surface, Mr. Goh appeared prone to

skew his evidence and offer sweeping generalizations aimed at portraying Mr. Vinall

in a disadvantageous light. A crucial subject area in which this was displayed was

Sateri (Shanghai) Management Limited v. Vinall

Page 102

Mr. Goh’s embellishment of Mr. Vinall’s functions and authority at the Bahia Mill and

within the Sateri enterprise at large.

[388] I have previously observed that Mr. Goh’s testimony was not entirely reliable

on certain pivotal issues. That observation holds true with respect to his evidence

about the nature and scope of Mr. Vinall’s power and authority in the Sateri

organization. In this regard, I emphasize that Mr. Goh had no involvement in the

hiring of Mr. Vinall, did not join Sateri until September or October 2009 and had no

firsthand knowledge of Mr. Vinall’s responsibilities prior to his arrival. It must also be

kept in mind that the paramount reason for Mr. Goh’s secondment from the RGE

Group was to ensure that Sateri International Co. became listed on the stock

exchange by a fixed deadline. It was a demanding and time-sensitive assignment,

with much riding on his successful attainment. Understandably, his attention and

efforts were primarily directed toward that objective which burdened him with many

responsibilities unconnected to matters that Mr. Vinall reported to him about.

[389] I turn next to a more detailed treatment of the evidence concerning the nature

and parameters of Mr. Vinall’s power, discretion and authority and the plaintiffs’

corresponding vulnerability.

[390] Both Mr. Vinall and Mr. Goh gave evidence about the number of employees

who worked under Mr. Vinall at the Bahia Mill and the plantation. I prefer Mr. Vinall’s

testimony that there were in the range of 450 to 500 employees to Mr. Goh’s higher

estimation. In addition to the reliability and credibility shortcomings of Mr. Goh,

another basis for my preference on this point is that Mr. Vinall’s testimony on the

topic was more precise and detailed, differentiating between staff at the plantation

and those at the Bahia Mill. Additionally, I am satisfied that on account of his nearly

daily presence there, Mr. Vinall was in a better position to calculate the number

accurately and did so. Either way, the bottom line is that a significant number of

employees worked below Mr. Vinall. However, the sheer number of employees at

the Brazilian facilities, as important as it makes Mr. Vinall appear to be, is by no

means conclusive of his fiduciary status.

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[391] Mr. Vinall came within the human resource category of senior employee at

the director level. Seven members of the management team at the Bahia Mill

reported to him directly. They consisted of a production manager, maintenance

manager, mill manager, technical manager, human resources manager, and the

respective heads of forestry as well as research and development. Although the

head of finance was shown on paper as reporting to Mr. Vinall, that individual

actually reported to executive management in Singapore. So too did the on-site

lawyer, Savio Andrade.

[392] Mr. Goh explained that at Sateri a “direct report” management employee, like

Mr. Vinall, was typically the head of a business or the head of certain functions

within a business. He conceded that “direct reports” were not necessarily part of

Sateri’s upper executive management group.

[393] There was little cogent evidence about the nature of Mr. Vinall’s authority over

his managers. Despite the fact that they reported directly to him, he was not allowed

to make any staff changes in respect of them unless he first obtained approval from

head office. He was likewise not entitled to independently hire or terminate other

senior employees at the Bahia Mill, or an employee who worked across jurisdictions.

The ambit of his authority with respect to the hiring and firing of lower-level staff was

also constrained. He was only permitted to fill vacancies at the Bahia Mill in respect

of jobs that ranged from entry-level to mid-management, although not for all

departments. Even then, he was without authority to increase the overall employee

headcount; that decision was reserved for head office management.

[394] All decisions pertaining to the salaries and wages of the employees at the

Bahia Mill and the plantation were set and controlled by human resources in

Shanghai or Singapore, and not by Mr. Vinall. He had no involvement in hiring

senior staff or management level employees to fill positions at head office or outside

the Bahia Mill and plantation.

[395] Mr. Goh thought it likely that Mr. Vinall had been involved in some of the

hiring decisions for positions in sales and/or marketing relative to the Bahia Mill.

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However, he was not able to provide any details in that regard and his meager

evidence on the issue seemed more the product of guesswork than of knowledge.

[396] Mr. Vinall’s authority relative to financial matters pertaining to the Bahia Mill

and the plantation was also circumscribed. There was a puzzling lack of evidence

explaining his entitlement to access bank accounts for the Bahia Mill or the

plantation, or the nature of his signing authority on any such accounts. Mr. Goh’s

evidence was to the effect that Mr. Vinall was not involved in any banking matters or

raising financing with respect to the Bahia Mill or any Sateri company. The financial

side of the Brazilian operations were managed centrally in Singapore and, as noted,

the designated financial employee on the ground at the Bahia Mill did not answer or

report to Mr. Vinall.

[397] Mr. Goh testified that Mr. Vinall had limited authority to commit to capital

expenditures in respect of the Bahia Mill. However, he was unclear about the

restrictions placed on that aspect of Mr. Vinall’s authority. I accept Mr. Vinall’s

evidence that his authority to independently commit to outlays could not exceed the

sum of $30,000 or possibly up to $50,000, without pre-approval from head office. In

the scheme of things, and in light of the substantial value of the Bahia Mill, the

monetary ceiling imposed upon Mr. Vinall’s entitlement to incur capital expenditures

was relatively modest.

[398] Although Mr. Goh could not say precisely what approvals or counter-

signatures Mr. Vinall would have been required to obtain to commit Sateri financially

to capital outlays above his limit, he acknowledged that Mr. Vinall would have to

secure a “matrix of authorizations” in that regard.

[399] The preponderance of the evidence is that Mr. Vinall’s participation in sales

and marketing of the dissolving pulp produced at the Bahia Mill was indirect and very

limited with respect to Sateri’s internal customer base (a captive market). His

involvement had an operational focus that took the form of merely ensuring that the

product yielded by the Bahia Mill met the needs of the customers. He attended

informal sales forecast meetings once in a while.

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[400] Mr. Vinall’s involvement was virtually non-existent with respect to the external

upstream customers. The small role he played in developing a relationship with an

American company as a potential purchaser of a specialty pulp grade was a one-off.

Even then, it amounted to little more than engaging in two or three conference calls

with the technical personnel of that company. Mr. Goh’s testimony by which he

purported to implicate Mr. Vinall in the sales part of the upstream business was

lacking any reasonable semblance of specificity. I find that the sales end of

dissolving pulp, by which I mean contacting, meeting and routinely communicating

with customers and potential customers about their product needs, developing a

new client base and expanding the existing one, was managed predominately from

Shanghai and/or Singapore with little meaningful input from Mr. Vinall. I accept

Mr. Vinall’s evidence that Mr. Tanoto himself was known to take an active interest in

that endeavor.

[401] Mr. Vinall was expected to and did make recommendations to the executive

management echelon concerning operational matters and some business-related

improvements respecting the Bahia Mill and the plantation. For example, he

proposed changing some suppliers of materials and modifying aspects of the

processing line. But he had no unilateral authority to execute his recommendations;

he submitted them to his superiors and they had the final say. His recommendations

were ordinarily accepted provided they did not add any extra cost.

[402] Mr. Vinall did not collaborate in the making of any higher level financial and

economic decisions, for example, how to hedge against marketplace risk relative to

any of the plaintiffs or Sateri’s businesses. He did not play a role of any importance

in the budgetary process in respect of any of the plaintiffs.

[403] Mr. Vinall testified that the strategic processes of the Sateri enterprise at large

were managed by others, like Mr. Hoon, stationed above him in the upper executive

group. He claimed to have no real access to Sateri’s internal files, such as its

research data, strategic plans, business plans and the like because he was not

involved in those processes. He clarified that on a rare occasion he would receive a

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copy of a business plan of some kind by way of email, typically from Ms. Li. There

was no evidence adduced as to the purpose in providing him with those business

plans, what their contents might have been, what he was expected to do with them

or, in fact, did with them.

[404] Mr. Vinall was questioned about his access to a computer portal of a shared

database for sales and marketing that was launched at Sateri in the spring of 2009.

He initially denied that he had access. In cross-examination, he was shown emails

that suggested he was given or could be given access to that database. At that

point, Mr. Vinall agreed that he may have had access to that portal but reiterated

that he had never accessed it because he was not involved in sales and marketing

and, therefore, the data it contained held little interest. There was a lack of evidence

about the nature of the information in the shared files of the portal or who else in the

Sateri organization had access. I found Mr. Vinall’s testimony plausible on this

matter.

[405] I have concluded that Mr. Vinall played a very small role with respect to the

sales and marketing of the upstream business and am persuaded that, although he

may have had access to the sales and marketing portal, there was little need or

advantage to be gained in his accessing its contents and he did not bother to do so.

[406] Mr. Vinall did not participate in any internal discussions of the plaintiffs or of

the other Sateri companies concerning the development of external marketing plans

or business strategies. He did not participate in devising capabilities to expand,

manage or diversify Sateri’s global businesses. It has not been shown that

Mr. Vinall had broad access to financial and strategic confidential information of the

nature and import that, if disclosed, left any of the plaintiffs susceptible to material

harm or had the potential of significantly impairing their competitive advantage.

[407] Mr. Vinall’s participation in the identification of mill candidates for conversion

to dissolving pulp does not stand as an exception. He was not part of

management’s pre-discussions as to whether and why a mill conversion might be a

prudent growth mode for the organization. The strategic decision to explore that

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option as a possibility had already been made by those ranking above Mr. Vinall at

the executive management level of Mr. Hoon and others, and by Mr. Tanoto himself,

before he became aware of the matter and received instructions to carry out his

small part. Mr. Vinall’s assignment was simply to compile a list of recommended mill

targets in collaboration with others and, on short notice, make a presentation at an

early stage of the budgeting process. The assignment was not unique to Mr. Vinall;

Ms. Li, Mr. Shaohua and probably Mr. Van Lee, each had received similar

instructions.

[408] In evidence was a Letter of Appointment dated December 3, 2009 to

Mr. Vinall from the “Management Committee” of an unspecified entity, whose

chairman was noted to be Jet Lee. The Letter of Appointment informed Mr. Vinall

that effective January 1, 2010, he would be appointed as a technical advisor to

support “Toba” (the owner of the Toba Mill). At that time, Toba was being evaluated

as a potential acquisition by Sateri International Co. before it became a public

company. I accept that Mr. Vinall received next to no background information about

that potential purchase, which did not come to pass.

[409] The plaintiffs referred to Mr. Vinall’s appointment to provide technical advice

at the Toba Mill to bolster their assertion that he functioned as a high-level Sateri

executive beyond the bounds of the Bahia Mill. Yet, Mr. Goh admitted to being

unaware of what tasks Mr. Vinall was or might have been called upon to perform in

connection with that work assignment. Moreover, the evidence demonstrated that

Mr. Vinall’s few dealings with Toba, and specifically the Toba Mill, were basically

limited to assisting in two areas. He provided his thoughts on the debottlenecking

issue and input on technical matters as well as the preparation of two brief draft

press releases all in connection with the idea that the Toba Mill might shift to a

permanent production of dissolving pulp. There was no persuasive evidence that

Mr. Vinall even carried out the priorities articulated in the Letter of Appointment,

apart from those matters.

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[410] As is apparent from the discussion at hand, but for a few inconsequential

exceptions, all of the evidence elicited concerning Mr. Vinall’s employment

responsibilities in both the pre- and post-director scenarios, examined his functions

and scope of authority, power and discretion in relation to the Bahia Mill and,

minimally, with respect to the plantation.

[411] The Bahia Mill is not itself a stand-alone corporation and nor is it a plaintiff. It

is a business owned by Bahia Specialty, which is also not a plaintiff. Bahia

Speciality is owned by Sateri Bacell, which is owned by Sateri Cellulose, which is, in

turn, owned by the plaintiff, Sateri International Co. Accordingly, the only plaintiff

with any interest in the entity that owns the Bahia Mill (Bahia Specialty) does not

stand as a parent to its subsidiary; rather, it is three degrees removed and

equivalent to a “great-grandparent” company. With respect to Norcell, which owns

the plantation, Sateri International Co. is both a further step removed as a

great-great-grandparent through Bahia Specialty, and a further step closer as a

grandparent company through Sateri Copener.

[412] To say that Mr. Vinall was charged with duties and responsibilities greater

than the role of a mere servant is not, of itself, a helpful observation. Clearly, he was

not a lowly servant at the Bahia Mill. But the focus of the analysis is to evaluate the

nature and extent of Mr. Vinall’s unilateral authority, power and discretion over the

plaintiffs’ vital affairs, and assess the vulnerability of their legal, economic and

practical interests to his exercise of it.

[413] Mr. Goh’s testimony stood out as remarkably skimpy as it concerned the

nature of the businesses and internal management of each of the plaintiffs and

Mr. Vinall’s corresponding involvement, authority and impact. Significantly, Mr. Goh

acknowledged that Mr. Vinall did not participate in overseeing the operations or the

affairs of Sateri Shanghai or Sateri Singapore. Overall, the evidence revealed very

little about how any of the plaintiffs might be vulnerable, even in theory, to the

exercise of power or discretion granted to Mr. Vinall.

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[414] The Sateri organization followed a classically top-down management model,

with a multi-layer hierarchy of management and authority over its various business

interests. Although Mr. Vinall ran the Bahia Mill, he was not a member of the

plaintiffs’ upper management empowered to make decisions of consequence with

regard to that business operation or any other. Although he was given the

impressive title of “President of Upstream” and later “President Specialty Cellulose”,

Mr. Vinall was not an actual corporate officer of any plaintiff. The restrictions

imposed upon his discretion, power, and authority were very much by design and his

actions were significantly overseen by the superior ranks of executive management

for the purpose and in a manner that effectively safeguarded the plaintiffs’ interests

and the valuable Bahia Mill. Though Mr. Vinall was expected to assume a

significantly more enhanced management role once the Bahia Mill was running

satisfactorily, for reasons already canvassed, that eventuality did not come about.

Instead, and despite his impressive title, Mr. Vinall’s power and authority remained

narrow and highly controlled and his discretion significantly fettered and constrained.

Had he been conferred with the extensive and high-level profit and loss power and

authority for the upstream operation he had been recruited to do, he may well have

owed fiduciary obligations to the plaintiffs. But he had not been.

[415] In all, an examination of the nature and scope of the power, authority and

discretion delegated to Mr. Vinall and his responsibilities with respect to the Bahia

Mill, the planation and, more crucially, relative to the plaintiffs (and the other

companies within the Sateri collection) shows that Mr. Vinall was not imbued with

the distinguishing hallmarks of the fiduciary dynamic before he was appointed as a

director. That is to say, he was not vested with the autonomy to exercise his limited

delegated power, authority or discretion in a manner that could genuinely direct,

affect or alter the legal, economic or vital practical interests of any of the plaintiffs or

steer the management of their affairs. He did not undertake to act in an utterly

selfless manner so as to elevate him to the stature of a fiduciary where no other

basis to do so existed. Mr. Vinall’s controlled and constrained authority did not leave

the plaintiffs in a position of vulnerability. To borrow the parlance of Wilson J. in

Frame, the plaintiffs were not at his mercy. While I recognize it is possible for a

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fiduciary relationship to exist even where the elements under the Frame “rough and

ready guide” are not present, that has not been established in this case.

[416] As will be seen in the following sections, Mr. Vinall’s conduct was not above

reproach. He violated provisions of the Sateri Employment Contract and Declaration

and breached his implied contractual duties of fidelity, good faith and loyalty. It is

incumbent on the Court to avoid the trap of reading equity backwards by reasoning

that, on account of that misconduct, Mr. Vinall owed fiduciary duties to the plaintiffs.

[417] Mr. Goh testified that Mr. Vinall’s responsibilities and those of other senior

management cut “across multiple companies” in the Sateri “Group”. I do not accept

his evidence as remotely accurate. Nevertheless, the plaintiffs asserted that based

on his assertion, the language of the Sateri Employment Contract that links most of

Mr. Vinall’s contractual obligations to the wider “Group”, and pursuant to the

common employer doctrine, Mr. Vinall’s fiduciary obligations (as well as his

contractual ones) are owed to all members of the “Sateri International Group”.

[418] In support of their assertion, the plaintiffs offered the following passage

authored by Stacey Ball in the 1999 edition of his text, Canadian EmploymentLaw,

adopted by the Ontario Court of Appeal in Downtown Eatery (1993) Ltd. v. Ontario

(2001), 54 O.R. (3d) 161 at para. 1, leave to appeal refused, [2001] S.C.C.A.

No. 397 [Downtown Eatery]:

The courts now recognize that, for purposes of determining the contractual

and fiduciary obligations which are owed by employers and employees, an

individual can have more than one employer. The courts now regard the

employment relationship as more than a matter of form and technical

corporate structure. Consequently, the present law states that an individual

may be employed by a number of different companies at the same time.

[419] In the 2013 update of Mr. Ball’s text, Canadian EmploymentLaw, loose-leaf

(Toronto: Canada Law Book, 2013-) at §13.30.3(5), he writes:

Fiduciary obligations referred to in Canaero have been found to be owed not

merely to the employee’s immediate employer, but also to related companies

of a corporate employer. Consequently, just as the courts will go behind the

corporate veil and find an employee to be employed by a “group enterprise”,

fiduciary obligations can be owed to a “corporate group”. This approach is

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sound in that, since corporate groups can owe employees common law

obligations, there is nothing in policy or principle against a fiduciary employee

owing obligations which extend beyond the technical employer in appropriate

cases.

[420] Mr. Ball did not expand on what might count as an appropriate case.

However, he cited two authorities for the propositions he endorsed: Manley Inc. v.

Fallis (1977), 2 B.L.R. 277 (Ont. C.A.) [Manley], and Imperial Sheet Metal Ltd. et. al.

v. Landry and Gray Metal Products Inc., 2007 NBCA 51 [Imperial Sheet Metal]. No

submissions were made in relation to either case.

[421] In Imperial Sheet Metal at para. 65, the court simply approved of the passage

from Mr. Ball’s text without addressing whether it applied in the case before it.

[422] In Manley, the defendant employee was employed by Manley Popcorn of

Canada Limited, which was a wholly-owned subsidiary of Manley Incorporated. The

subsidiary dismissed the employee when it discovered that during the course of his

employment he had established a business that competed with the parent company,

although technically not with the subsidiary. The trial judge determined that in so

doing the employee had breached his fiduciary duty to the employer-subsidiary.

[423] On appeal, the employee conceded that although the business he set up may

have been competing with the parent, it was not competing with his actual employer,

the subsidiary. He argued that the trial judge had failed to distinguish between the

parent and the subsidiary in this important context. At paras. 5-6, the Court of

Appeal rejected his argument:

[5]

Several issues were raised in Mr. Roebuck’s able argument, but we

need only refer to those upon which we called for argument by the

respondents. The first point is the failure of the learned trial judge to make a

distinction between the two respondent companies. It was submitted that the

appellant’s personal enterprise did not compete with or injure the business

carried on by Manley Popcorn Canada Limited, the appellant’s employer, as

this company did not deal in the type of snack product machines sold by the

appellant’s enterprise. We are satisfied that in a case of this kind, it is open to

the court to regard the Manley companies as constituting one business

enterprise. In our view, it would undermine the requirement of fidelity to allow

an employee to successfully argue that, while his activities may have injured

the parent company of his employer, it did not in fact injure his employer.

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[6]

This is a case where the court is not precluded from lifting the

corporate veil, and, in effect, regarding the closely related respondent

companies as essentially one trading enterprise, in the interests of the

affiliated companies, in a circumstance where the refusal to do so would

allow the appellant to escape the consequences of his breach of a fiduciary

trust. Cases where this derogation of Salomon’s case (Salomon v. Salomon

& Co., [1897] A.C. 22) is permitted are collected in Professor Gower’s

textbook, Modern Company Law, 2nd ed., particularly in c. 10 entitled “Lifting

the veil”. There is a reference there to Holdsworth & Co. v. Caddies, [1955] 1

W.L.R. 352, also reported at [1955] 1 All. E.R. 725. This is a decision of the

House of Lords which in our opinion supports the author’s analysis, which we

adopt because of its brevity, as set out at p. 206. In referring to the essential

unity of a group enterprise, he says:

Perhaps the most remarkable illustration is afforded by

Holdsworth & Co. v. Caddies. There, Mr. Caddies had been

appointed managing director of the parent company upon the

terms that he should ‘perform the duties and exercise the

powers in relation to the business of the company and the

businesses ... of its existing subsidiary companies ... which

may from time to time be assigned to or vested in him by the

board of directors of the company.’ After disagreements

between him and the board he was directed to confine his

attentions to one of the subsidiaries only. This was held not to

be a breach of contract by the company, notwithstanding that it

prevented him from working for the company employing him.

The argument that the subsidiary companies were separate

legal entities each under the control of its own board of

directors’ was described as ‘too technical,’ since ‘an

agreement in re mercatoria ... must be construed in the light of

the facts and realities of the situation,’ which were that the

parent company had full control of the internal management of

its subsidiaries.

The “group enterprise” concept must obviously be carefully limited so that

companies who seek the advantages of separate corporate personality must

generally accept the corresponding burdens and limitations.

[424] The common employer doctrine originated to enable the court to treat legally

separate but interrelated entities as a single employer to protect the interests of

employees against unjust treatment: Downtown Eatery. It frequently arises in

wrongful dismissal cases.

[425] The plaintiffs did not make submissions about the judicial reception in this

province of the group enterprise approach taken in Manley or, more broadly, the

circumstances in which the court may be prepared to apply it or the common

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employer doctrine to extend an employee’s liability for employment-related

obligations among related companies in ways that ignore the separate legal entities.

[426] Additionally, there was a dearth of evidence of the factors that typically inform

the analysis of whether corporations should be regarded a one, such as the

integration of their businesses, directorships, management and financial matters,

apart from their shareholdings and Mr. Tanoto’s supreme control: see generally,

Bartholomay v. Sportica Internet Technologies Inc., 2004 BCSC 508.

[427] Despite the holding in Manley, I am skeptical of the quid pro quo reasoning

that says simply because related corporate entities can owe duties to an employee

of one of their affiliated companies, the employee may, in return, owe fiduciary

duties to the corporate group as a whole. My thinking is that it would be a most

exceptional, even rare, case that would justify finding that an employee owed a

fiduciary duty to an affiliated company of the actual employer, solely on the basis of

the interrelation between those companies, and where there is an absence of factors

that support a fiduciary relationship with the affiliate in the first place.

[428] If the employee does not exercise a robust level of unilateral power, authority

and discretion over the affiliate’s vital interests and affairs and the affiliate is not

vulnerable to the employee, it does not seem equitable to impose a fiduciary duty on

that employee as regards the affiliate. In doing so, the so-called fiduciary employee,

who is unable to meaningfully participate in the management of the affiliate or

influence its affairs, is held to a stringent standard of conduct without being granted

any of the powers normally associated with such a burden. The affiliated company

thus reaps the benefit of being owed a fiduciary duty without ever assuming the risk

of making itself vulnerable to the exercise of the discretion, power and authority of

the employee in question.

[429] In my opinion, adherence to the foregoing approach would allow for a back

door to create a fiduciary relationship where one would not otherwise exist and run

afoul of the carefully developed jurisprudence on the principled approach to the

fiduciary doctrine articulated by our highest court.

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[430] Moreover and in any event, Mr. Ball’s remarks indicate that in order for the

doctrine to apply, the employee must first owe fiduciary duties to his or her

immediate employer. Only where that threshold exists, would the principle apply in

appropriate cases to lift the corporate veil of the other corporations of the corporate

group so as to extend the fiduciary employee’s fiduciary obligations beyond the

“technical employer” to the wider corporate group. That threshold connection has

not been proven in this case.

 Vinall’s Directorships

[431] Sateri’s policy required satisfaction of only two preconditions before an

employee could qualify for appointment as a director. First, he or she had to

successfully pass the applicable probation period. In Mr. Vinall’s case, that occurred

in about July 2009. Second, the employee had to hold a reasonably senior position.

[432] Mr. Vinall testified that Mr. Andrade, the lawyer at the Bahia Mill who did not

report to him, routinely presented him with a stack of documents received from head

office for signature with little and often no explanation of their contents. It was

typical for Mr. Vinall to sign whatever documents Mr. Andrade placed before him

without discussion.

[433] The evidence indicated that some of the consents to act as director were

emailed to Mr. Vinall for signature on about January 14, 2010 by an executive

assistant in Singapore. I find that, except for those emailed documents, the

consents to act as director and the few resolutions he signed were presented to

Mr. Vinall among the batches of paper unceremoniously put under his nose by

Mr. Andrade, although not necessarily on the dates shown.

[434] Mr. Vinall was aware that the Sateri Employment Contract stated he could be

appointed a director of any company that fell within the broadly defined Sateri

“Group” of companies, and that he was required to accept the appointment. He

therefore gave it little thought and assumed that he was being appointed as a mere

matter of corporate convenience and expediency.

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[435] Mr. Goh did not play any part in Mr. Vinall’s directorship appointments. He

had no insight into the reason behind those appointments and was unable to explain

why they came about, other than to surmise that the board of Sateri International Co.

had simply decided they were to be made. There was no evidence to indicate that

Mr. Vinall was advised about the appointments in advance or after they were made,

or was told what they entailed. He was not provided with any of the documents

referred to in the consents, such as the memoranda and articles of incorporation.

Mr. Vinall convincingly disavowed any knowledge of the subject matter of the

resolutions, including the internal reorganization of Sateri International Co. that was

recited in many of them. He was not given copies of the documents mentioned in

those resolutions, such as the share exchange agreement and corporate bonds.

[436] Mr. Vinall did not attend an official board meeting of any of the plaintiffs or any

Sateri company of which he was made a director. He was not kept informed as to

whether any such meetings had been convened, and was not supplied with an

agenda or meeting minutes.

[437] As mentioned, the plaintiffs assert that the law of fiduciary duty does not

recognize a nominal, passive or dummy director. Their contention is that, as a

matter of law, all directors owe fiduciary duties to their respective corporations. To

that point and for the proposition that the existence of a director’s fiduciary

obligations does not depend upon his or her level of engagement in the

management of the company, the plaintiffs place heavy reliance on 101109718

Saskatchewan Ltd. v. Agrikalium Potash Corp., [2011] 9 W.W.R. 757 (Sask. C.A.)

[718 Saskatchewan].

[438] 718 Saskatchewan involved an interlocutory application for an injunction that

arose in relation to the applicants’ claim that two former directors and officers,

Medge and Mann, had breached their fiduciary duty by failing to disclose corporate

opportunities and acting in a conflict of interest.

[439] The chambers judge considered the three-prong test for injunctive relief set

out in RJR-McDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 [RJR-

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MacDonald]. He denied the injunction on the ground that there was no serious

question to be tried as to whether Medge and Mann were fiduciaries and because

the applicants failed to demonstrate that irreparable harm would occur if the

injunction was not granted. In concluding there was no serious question to be tried,

the chambers judge reasoned that Medge and Mann had fulfilled the primary tasks

they had been instructed to carry out as directors and that, thereafter, they owed the

applicants “minuscule” fiduciary duties only. Also relevant to the chambers judge

was that, for some of the time, one of the directors had been totally excluded from

participating in activities, negotiations or responsibilities for the corporate applicants.

[440] The Saskatchewan Court of Appeal readily found that the chambers judge

had erred in law by concluding there was no serious question to be tried in relation

to the fiduciary duties owed by the directors. At paras. 14 and 15 the panel

reasoned:

[14]

[The chambers judge] reached his conclusion in part because he

failed to appreciate the argument that the fiduciary duty owed by a director

arises simply by virtue of the individual being elected or appointed to office,

remains throughout the duration of the director’s tenure and may only be

restricted by unanimous shareholders agreement (see ss. 117(1), 117(3) and

140(4) of The Business Corporations Act, R.S.S. 1978, c. B-10 (the “SBCA”)).

As to what that fiduciary duty requires of a director, the Supreme Court of

Canada, in Re People’s Department Stores 2004 SCC 68, [2004] 3 S.C.R.

461 (“Re People’s”), described the fiduciary duty set forth in the concordant

section of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (s.

122(1)(a)), in the following general terms:

[35] The statutory fiduciary duty requires directors and officers to

act honestly and in good faith vis-à-vis the corporation. They must

respect the trust and confidence that have been reposed in them

to manage the assets of the corporation in pursuit of the

realization of the objects of the corporation. They must avoid

conflicts of interest with the corporation. They must avoid abusing

their position to gain personal benefit. They must maintain the

confidentiality of information they acquire by virtue of their

position. Directors and officers must serve the corporation

selflessly, honestly and loyally: …

[15]

On the basis of this preliminary investigation based on just those facts

which were not in dispute (see above), the statutory fiduciary duty of a

director as defined under the SBCA and the Supreme Court’s decision in Re

People’s, in my judgment, this matter gives rise to a serious question to be

tried.

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[441] The Court of Appeal added at para. 16:

[16]

… there is also a serious question to be tried as to whether the SBCA

recognises categories of directors who owe greater or lesser duties to their

corporations depending on the nature or status of the tasks undertaken by or

assigned to the director. To this point, the law has not typically recognised an

animal such as a “nominal”, “passive”, “dummy”, “puppet” or “eunuch”

director.

[442] Continuing at para. 18, the Court concluded:

[18]

Mr. Medge and Mr. Mann were directors of the Appellants. As

directors, they owed a fiduciary duty to the Appellants. As part of a director’s

fiduciary duty, the director must avoid conflicts of interest with the corporation

and otherwise serve the corporation selflessly, honestly and loyally.

Mr. Medge and Mr. Mann are directors of the corporate Respondents. The

corporate Respondents appear to have been competing with the Appellants.

The Chambers judge need not have gone further than that limited review of

the facts and the law to conclude this matter demonstrates a serious question

to be tried.

[443] The chambers judge also held that the applicants had not proved the

ingredient of irreparable harm, being the mandatory second branch of the RJR-

MacDonald test. The Court of Appeal did not interfere with that finding and on that

basis, upheld the ruling of the chambers judge and dismissed the applicants’ appeal.

[444] In assessing the precedential value of 718 Saskatchewan, it is significant that

the Court of Appeal was called upon to determine whether the chambers judge erred

when he concluded that there was no serious question about whether the directors

owed fiduciary duties to the corporate applicants; it was not asked to and did not

purport to decide the serious question itself. Under that first stage of the RJR-

McDonald analysis, the test merely requires the court to determine whether there

was a serious question to be tried on the basis of common sense and an extremely

limited review of the case on the merits. It is a low threshold. Basically, unless the

case on the merits is frivolous or vexatious, the court is generally required to find the

existence of a serious question to be tried and to move onto the next stages of the

test: RJR-McDonald at348.

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[445] Accordingly, neither the chambers judge in 718 Saskatchewan nor the Court

of Appeal was required to consider the jurisprudence on the law of fiduciaries in any

depth. In particular, neither Court addressed the principle articulated by Sopinka J.

in Lac Minerals that, in special circumstances, the presumption that a director is

imbued with the attributes recognized as inherent in the fiduciary relationship is

rebuttable. While the Court of Appeal remarked that the law has not typically

recognized “nominal” or “dummy” directors, it did not adjudicate that issue.

[446] Another point of distinction that weakens the precedential weight to be

accorded 718 Saskatchewan in deciding the case at hand, is that the Court of

Appeal relied on the statutory provisions of the applicable provincial legislation that

informed the fiduciary duty of the corporate directors. Whether Mr. Vinall was

subject to similar statutory duties, and if yes, pursuant to what jurisdiction, was never

raised or argued by any party.

[447] In the end, I consider 718 Saskatchewan to be of negligible assistance in

determining the central issue of whether Mr. Vinall owed a fiduciary duty to the

plaintiffs of whom he was a director owing to his appointment as such.

[448] Similarly, in my assessment, the decision in Three Ports Fisheries Limited v.

Jeffrie, 2014 NSSC 228 (S.C.) [Three Ports], which the plaintiffs and Mr. Vinall rely

upon, does not advance the determination.

[449] The plaintiffs appear to interpret Three Ports as authority for the proposition

that, as a matter of law, a director is invariably a fiduciary of and owes fiduciary

obligations to the corporation that he or she serves. In my view, that interpretation is

overbroad and cannot be sustained on a considered reading of the case.

[450] The court in Three Ports cited secondary authority that suggested courts do

not need to undertake an analysis to determine whether a fiduciary duty exists

between a director and corporation in each suggested instance of a breach of such

duty. In doing so, however, the court did not pronounce that such duty cannot be

rebutted through evidence that shows the characteristics typically underlying such a

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relationship are missing. Indeed, the court specifically referred to the rebuttable

presumption in per se fiduciary relationship. Furthermore, at para. 25 Three Ports

explicitly referred to Sopinka J.’s discussion in Lac Minerals to the effect that the

presumption of the presence of fiduciary characteristics in traditional categories of

fiduciary relationships is rebuttable in exceptional or special circumstances. Later in

the judgment, the court acknowledged that the presumption that a director owes a

fiduciary duty to the corporation may be rebutted with convincing and cogent

evidence to the contrary.

[451] Moreover, the core issue engaged in Three Ports was not whether the

director stood in a fiduciary relationship to his corporation but, rather, the point at

which he had effectively ceased being a director and, thus, no longer owed the

corporation any fiduciary duties, even though a formal resignation had not been

implemented and he remained a director in name only. The court did not analyze,

nor purport to decide, the issue of whether the presumed fiduciary obligations

between a director and corporation could be rebutted where the attributes innate to

such a relationship were not present from its inception.

[452] I have concluded that Mr. Vinall was not a fiduciary in relation to the plaintiffs

and did not owe them fiduciary duties, under Canaero, the key employee test or

Frame. It is to be emphasized that his responsibilities and the nature and ambit of

his power, autonomy and discretion did not change after he was appointed a director

of Sateri International Co. and Sateri Singapore or the non-plaintiff companies.

[453] Mr. Vinall’s per se fiduciary relationship with Sateri International Co. and

Sateri Singapore borne out of his directorships of those corporations did not carry

the essential characteristics inherent in a fiduciary relationship. I would add that the

fact that Mr. Vinall had little choice under the provisions of the Sateri Employment

Contract but to accept those appointments lends support to the finding that he did

not enjoy the rank of a true fiduciary. So too does the fact that his job description

and work assignments could be determined by his superiors at any time, and that he

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could be seconded to any of the companies within the “Group” at the pleasure of

management.

[454] I conclude that this is an exceptional case of the kind envisaged by Sopinka J.

in Lac Minerals where the presumption that Mr. Vinall’s status as a director imposed

fiduciary obligations upon him, has been rebutted by cogent evidence. Mr. Vinall’s

stature as a director of Sateri International Co. and Sateri Singapore simply does not

suffice. This conclusion does not stem from a refashioning of any legal principle

relative to the per se fiduciary relationship of director and corporation; it is the result

of the application of an established one.

[455] To conclude, in the material timeline Mr. Vinall was not in a fiduciary

relationship with, and owed no fiduciary obligations to, any of the plaintiffs.

Allegations of Breach of Fiduciary Duties against Vinall and Knowing

Assistance Claim against Fortress

[456] In light of my findings, it is axiomatic that I need not consider whether

Mr. Vinall acted in breach of his fiduciary duties. My conclusion that Mr. Vinall is not

a fiduciary and owes no fiduciary duties to the plaintiffs, is likewise fatal to the

plaintiffs’ claim that Fortress is jointly and severally liable for Mr. Vinall’s alleged

breaches of fiduciary duty based on the doctrine of knowing assistance in breach of

trust.

[457] The plaintiffs did not proceed with their conspiracy claim and Mr. Vinall

abandoned his counterclaim by which he sought payment of his 2009 bonus.

[458] Left for consideration on the issue of liability are the plaintiffs’ claims for

breach of confidence, breach of contract (of both Mr. Vinall’s implied and explicit

contractual obligations) and the tort of inducement to breach contract.

[459] Also controversial are the availability and application of certain remedies.

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Claims of Misuse of Plaintiffs’ Confidential Information

 Overview of Legal Framework

[460] The wrongful use or disclosure of confidential information may give rise to a

number of causes of action. In the employment context, the claims may be

grounded in the discrete but overlapping wrongs of breach of confidence, breach of

an express term of an employment contract, and breach of the employee’s implied

contractual duty of good faith, fidelity and loyalty: RBC Dominion Securities;

McMahon. Such claims are frequently accompanied by a claim against a third party

for misuse of the plaintiff’s confidential information. All of these causes of action are

alleged by the plaintiffs in this case.

[461] The plaintiffs also alleged that Mr. Vinall’s misuse of their confidential and

proprietary information constituted a breach of his fiduciary duty. Because I have

concluded that Mr. Vinall does not owe fiduciary obligations to the plaintiffs, I have

not considered the breach of confidentiality claims within that frame of reference.

[462] Breach of confidence is a sui generis hybrid claim with roots in the common

law and in equity: Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 at

para. 20 [Cadbury]. The three-part test for the claim of breach of confidence was

affirmed by La Forest J., for the majority on this point, in Lac Minerals at 635-635:

The test for whether there has been a breach of confidence is not seriously

disputed by the parties. It consists in establishing three elements: that the

information conveyed was confidential, that it was communicated in

confidence, and that it was misused by the party to whom it was

communicated. In Coco v. A.N. Clark (Engineers) Ltd., [1969] R.P.C. 41

(Ch.), Megarry J. (as he then was) put it as follows at p. 47:

In my judgment, three elements are normally required if, apart

from contract, a case of breach of confidence is to succeed. First,

the information itself, in the words of Lord Greene, M.R. in the

Saltman case [Saltman Engineering Co v. Campbell Engineering

Co. (1948), 65 R.P.C. 203 (C.A.)] on page 215, must “have the

necessary quality of confidence about it.” Secondly, that

information must have been imparted in circumstances importing

an obligation of confidence. Thirdly, there must be an

unauthorized use of that information to the detriment of the party

communicating it…

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[463] In Lac Minerals Sopinka J. provided this succinct iteration of the test at 608:

1. the information must have a necessary quality of confidence about it;

2. the circumstances under which the information was imparted must give

rise to an obligation of confidence; and,

3. the defendant must have made unauthorized use of the information.

[464] At 610, Sopinka J. adopted the oft-cited definition of the meaning of

necessary quality of confidence from the following passage in Saltman Engineering

Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203 (C.A.) (leave to appeal to

House of Lords refused) at 610:

I think that I shall not be stating the principle wrongly if I say this with regard

to the use of confidential information. The information, to be confidential,

must, I apprehend, apart from contract, have the necessary quality of

confidence about it, namely, it must not be something which is public property

and public knowledge. On the other hand, it is perfectly possible to have a

confidential document, be it a formula, a plan, a sketch, or something of that

kind, which is the result of work done by the maker upon materials which may

be available for the use of anybody; but what makes it confidential is the fact

that the maker of the document has used his brain and thus produced a result

which can only be produced by somebody who goes through the same

process.

[465] Sopinka J. endorsed two general categories of confidential information:

information that is confidential because it has not been made public; and information

that may have been assembled from publicly available materials, but amounts to a

confidential work product because its assembly required the application of some

independent thought process: Lac Minerals at 610.

[466] There is also authority for the proposition that information generally known

within a particular industry may not qualify as confidential: Monarch Messenger

Services Ltd. v. Houlding (1984), [1984] A.J. No. 1018, 56 A.R. 147, (Alta. Q.B.) at

para. 18; Lake Mechanical Systems Corp. v. Crandell Mechanical Systems Inc.,

[1985] B.C.W.L.D. 2373, [1985] B.C.W.L.D. 2422.

[467] The threshold for establishing confidentiality is a low one. However, the law

recognizes a continuum of specialness with respect to confidentiality, and that the

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placement of such information on that continuum may affect the remedy awarded for

a breach: Cadbury at paras. 75-76.

[468] In No Limits Sportswear Inc. v. 0192139 BC Ltd., 2015 BCSC 1698 [No

Limits], Griffin J. provided a helpful overview of the principles that inform the second

constituent ingredient of a breach of confidence claim, namely that the

circumstances in which the information was conveyed give rise to an obligation of

confidence:

[15]

An obligation to keep information confidential may arise by express

contract, or by implication based on the circumstances and relationship of the

parties.

[16]

Even if no mention of confidentiality is made, a communication may

be considered to have been made in confidence if there was a mutual

understanding that the parties were working towards a joint venture or some

other business arrangement: Lac Minerals at 612-613.

[17]

In Lac Minerals at 612-613, and at 642, the Court adopted the

following passage of the judgment of Megarry J. in Coco v. A. N. Clark

(Engineers) Ltd., [1969] R.P.C. 41. at 48:

In particular, where information of commercial or industrial value is

given on a business-like basis and with some avowed common object

in mind, such as a joint venture or the manufacture of articles by one

party for the other, I would regard the recipient as carrying a heavy

burden if he seeks to repel a contention that he was bound by an

obligation of confidence….

[469] In Lac Minerals, La Forest J. confirmed that a party’s receipt of confidential

information in circumstances of confidence established a duty that the recipient party

will not use that information. The use of confidential information other than in the

permitted way therefore constitutes misuse. At 642, La Forest J. explained that

where it is shown that the confidential information was used by the defendant, the

burden then falls to the defendant to demonstrate that it was a permitted use.

[470] In Sabre Inc. v. International Air Transport Assn., 2011 ONCA 747, it was

argued that, as a matter of law, the passage from Coco v. A. N. Clark (Engineers)

Ltd., [1969] R.P.C. 41 cited approvingly by La Forest J. in Lac Minerals, established

the “doctrine” that the legal or ultimate burden moves from the plaintiff to the

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defendant where certain factual prerequisites are made out. In rejecting that

interpretation, Doherty J.A. explained the proper approach:

[26]

I do not read the passage as intending to move the legal burden of

proof. In my view, an approach that would shift the burden upon certain facts

being established would undermine the fact-sensitive inquiry demanded by

the determination of whether a reasonable person in the circumstances would

understand that the information was given in confidence. The evidentiary

weight to be given to any particular fact or constellation of facts must depend

on the trier of fact’s assessment of the entirety of the factual picture. To

regard certain facts as always shifting the legal burden of proof is to distort

the reasonable person inquiry.

[27]

I think Megarry J. in Coco was describing his assessment of the

impact of certain important facts on the confidentiality claim made in the case

before him. His Lordship was satisfied that the value of the information, the

business-like basis upon which the information was provided, and the joint

venture nature of the discussions in which the information was provided,

combined to place a heavy evidentiary burden on the defendant. Megarry J.

was responding to the evidence he heard and the nature of the confidentiality

claim made in that case. He was not pronouncing any legal doctrine. Nor do

the references to the passages from Coco in LAC Minerals Ltd. elevate

Megarry J.’s comments to the status of legal doctrine.

[471] This third mandatory element appears to contemplate that the misuse of the

information must be to the detriment of the confider of the information. In the words

of La Forest J., if confidential information is used by the recipient for a purpose other

than that for which it was conveyed, “and detriment to the confider results, the

confider will be entitled to a remedy”: Lac Minerals at 638-639.

[472] In No Limits, Griffin J. observed, at paras. 25-30, that the law is unsettled on

whether the feature of detriment is essential to complete the cause of action of

breach of confidence. In the course of her thoughtful analysis, her Ladyship

commented that while the Court in Cadbury did not rule on whether detriment was a

requisite ingredient to establish the claim, the reasoning of Binnie J., for the Court, at

paras. 52-54, was supportive of the principle that general damages for breach of

confidence cannot be awarded where the plaintiff has asserted, but failed to prove,

that the breach caused financial loss:

F. Relevance of Detriment

[52]

La Forest J. said in Lac Minerals that if the plaintiff is able to establish that the

defendant made an unauthorized use of the information to the detriment of the party

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communicating it, the cause of action is complete (at pp. 635-36 and 657; see also

ICAM Technologies Corp. v. EBCO Industries Ltd. (1991), 36 C.P.R. (3d) 504

(B.C.S.C.), affirmed (1993), 52 C.P.R. (3d) 61 (B.C.C.A.), per Toy J.A., at pp. 63-64;

Ontex Resources Ltd. v. Metalore Resources Ltd. (1993), 13 O.R. (3d) 229 (C.A.);

655 Developments Ltd. v. Chester Dawe Ltd. (1992), 42 C.P.R. (3d) 500 (Nfld. S.C.).

[53]

The issue of detriment arises in this case because the trial judge made a

specific finding that the respondents had not suffered financial loss, yet she

proceeded to find liability and award damages “in the interest of fairness”. While La

Forest J. in Lac Minerals considered detriment to be an essential element of the

breach of confidence action (Sopinka J. did not express a view on this point in his

discussion of the applicable principles), it is clear that La Forest J. regarded

detriment as a broad concept, large enough for example to include the emotional or

psychological distress that would result from the disclosure of intimate information

(see, e.g., Argyll (Duchess) v. Argyll (Duke), [1967] Ch. 302. In the Spycatcher case,

supra, Lord Keith of Kinkel observed, at p. 256, that in some circumstances the

disclosure itself might be sufficient without more to constitute detriment:

So I would think it a sufficient detriment to the confider that information given in

confidence is to be disclosed to persons whom he would prefer not to know of it,

even though the disclosure would not be harmful to him in any positive way.

[54]

The concept of detriment need not be explored on this occasion because, as

the Court of Appeal correctly emphasized, the parties had agreed prior to trial that

any evidence regarding losses allegedly suffered by the plaintiff would be deferred to

a post-trial reference. This arrangement obviated the need for the respondents to

lead evidence of detriment at the liability trial. In the end, however, having elected

the remedy of financial compensation, the respondents will obviously have to

demonstrate at the reference the nature and extent of any detriment suffered to

establish the basis for a monetary award.

[Emphasis in original]

[473] At para. 31, Griffin J. concluded where the only remedy sought is

compensation for losses, the plaintiff’s failure to prove such loss meant there was a

failure to prove entitlement to a remedy.

[474] The critical issue of detriment received no meaningful attention in this trial.

[475] A collection of principles that have come to be known as the springboard

doctrine are relevant in assessing information that is partly public and partly

confidential, or was disclosed in confidence but subsequently made its way into the

public domain: Cadbury at para. 67. The doctrine recognizes that the receipt of

information derived from one or more public sources may save a defendant

substantial time, effort and expense in searching for and gathering it himself or

herself and, therefore, may be regarded as confidential even though the defendant

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could have collected it from sources available to the public. The information is

viewed as having offered the defendant a “springboard” in the sense that it has

eliminated the bother of having to do the groundwork to source it out and compile it,

and has some degree of value because it has given the defendant a head start in

the endeavor at hand: Lac Minerals at 610; Cadbury at para. 67.

[476] The springboard doctrine was instructively summarized by Griffin J. in No

Limits:

[19]

Where information is the creation of work product and it can give the

reader of the document a “head start” or a “springboard” and advantage to

the detriment of the information-provider, the information may have the

necessary quality of being confidential and give rise to liability for its use even

if the information later becomes public: Lac Minerals at 610; Cadbury at

para. 67.

[20]

In this regard, Sopinka J. in Lac Minerals held at 610-611:

Seager & Copydex Ltd., [1967] 1 W.L.R. 923 (C.A.), cited by the

appellant, provides a useful illustration of the concept of the use of

added information to get a head start or to use it as a springboard.

The plaintiff Seager was the inventor of a patented carpet grip. He

negotiated with the defendant Copydex with a view to

development of his invention. Negotiations were terminated

without a contract. Copydex then proceeded to produce a

competing grip. The Court found that much of the information

which Seager gave to Copydex was public. But there was some

private information that resulted from Seager’s efforts such as the

difficulties which had to be overcome in making a satisfactory grip.

At pages 931-32, Lord Denning M.R. stated:

When the information is mixed, being partly public and

partly private, then the recipient must take special care to

use only the material which is in the public domain. He

should go to the public source and get it: or, at any rate,

not be in a better position than if he had gone to the public

source. He should not get a start over others by using the

information which he received in confidence. At any rate,

he should not get a start without paying for it.

[Emphasis in original]

[477] As mentioned, a breach of confidence claim in equity may be available

against a third party. In this case it is brought against Fortress, who, the plaintiffs

say, knowingly came into possession of confidential information via Mr. Vinall’s

breach of confidence. As explained in Cadbury at para. 19:

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Equity, as a court of conscience, directs itself to the behaviour of the person

who has come into possession of information that is in fact confidential, and

was accepted on that basis, either expressly or by implication. Equity will

pursue the information into the hands of a third party who receives it with the

knowledge that it was communicated in breach of confidence (or afterwards

acquires notice of that fact even if innocent at the time of acquisition) and

impose its remedies.

[478] Mr. Vinall was subject to express contractual obligations to maintain the

confidence of the plaintiffs’ information. Contractual terms that negate or limit an

employee’s obligation in respect of confidential information take precedence and will

restrict or may even exclude a breach of confidence claim. This important point was

articulated in Cadbury at para. 36, in Binnie J.’s analysis of the appellants’ argument

that the contractual terms in that case limited or circumscribed the equitable duty of

confidentiality:

Just as a contractual term can limit or negative a more general duty implied

by the law of tort, so too can a contractual term that deals expressly or by

necessary implication with confidentiality negate the general obligation

otherwise imposed by equity: 337965 B.C. Ltd. v. Tackama Forest Products

Ltd. (1992), 91 D.L.R. (4th) 129 (B.C.C.A.), per Southin J.A., at p. 176, leave

to appeal to this Court refused, [1993] 1 S.C.R. v. The ability of parties to

contract out of, or limit, general duties otherwise imposed by law has been

labelled “private ordering”, and the general principles applicable here would

be analogous to the principles considered by this Court in the context of

concurrent remedies in tort and contract in BG Checo International Ltd. v.

British Columbia Hydro & Power Authority, [1993] 1 S.C.R. 12 (S.C.C.) at

p. 27:

...the tort duty, a general duty imputed by the law in all the

relevant circumstances, must yield to the parties’ superior right to

arrange their rights and duties in a different way. In so far as the

tort duty is not contradicted by the contract, it remains intact and

may be sued upon.

[479] In Scott & Associates Engineering Ltd. v. Finavera Renewables Inc., 2013

ABQB 273 at paras. 89-93, aff’d 2015 ABCA 51, Martin J. analysed the interplay

between the breadth of the meaning of confidential information in a claim for breach

of confidence and explicit contractual provisions that have a more expansive

definition of the term:

[89]

Scott also argues that it has a claim for breach of confidence apart

from the MCA. However, Scott makes the novel argument that instead of this

Court asking what information is confidential under that avenue of recovery,

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this Court should use and incorporate the broader definition in the MCA into

the otherwise existing principles to grant a constructive trust. Scott argues

that the MCA operates to expand the idea of what qualifies as Scott’s

confidential information for the purposes of a breach of confidence action. By

doing so Scott therefore essentially asserts rights and equities over the Penn

West confidential information by virtue of the fact that the MCA included both

Scott’s confidential information and Penn West’s confidential information. In

essence, Scott claims the parties expanded by contract the definition of

confidential information to give Scott greater rights. The effect is that the

parties’ agreed upon definitions become incorporated by reference into the

breach of confidence action. Scott argues that the MCA definitions prevail

such that everything Scott gave to Finavera is protected as either Scott’s

“Confidential Information” or “Proprietary Data” in a breach of confidence

claim.

90

At the base of this argument is an assertion that the parties are free to

stipulate what will be confidential to them in a breach of confidence action.

Scott argues that the passage quoted in Cadbury Schweppes at para 36

stands for the proposition that parties can modify the elements of a breach of

confidence by private contract. I agree that parties may create the law

between them in a breach of contract action. However, any such breach will

sound in contract. In contrast, there is no authority for the proposition that the

parties may impose their own criteria when the action is one of breach of

confidence, which has its roots in equity. While this specific point is not

addressed in the case law cited, all authorities suggest that Scott’s argument

is not sound. Outside a binding contract, it is not open to the parties to modify

what the courts have set as the test for information having the quality of

confidence for a breach of confidence action.

[91]

What Scott may claim under a breach of confidence action are only

those things that the law, not the parties, recognize as confidential. In a

breach of confidence action Scott cannot modify by contract the confidential

information he has ownership over or equity in simply by including an

expansive definition of such confidential information in the MCA. As in Drake

International Ltd. v. Miller (1975), 9 O.R. (2d) 652, 61 D.L.R. (3d) 420 (Ont.

H.C.): “matters do not become confidential merely because the contract

states them to be so”.

[92]

Although I accept the legal principle that a contract can limit or negate

a general duty implied by tort law or by equity, it does not therefore follow that

a private contract can also expand the law of tort or equity to make

confidential information that which does not bear the hallmarks of

confidentiality when the action is one of breach of confidence and not breach

of contract. More specifically, para 36 of Cadbury Schweppes cited above,

does not support the proposition that a party can expand the definition of

confidential information in a breach of confidence action.

[93]

Further, given that I found there is no breach of contract, Scott is

trying to combine contract, tort and equity principles to secure for itself

something it did not bargain for. Scott’s claims in relation to the misuse of its

confidential information therefore needs to be determined under the principles

established under a breach of confidence claim.

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[480] A broad range of remedies is available for a breach of confidence, including

damages, expectation damages, injunctive relief, an accounting of profits, and a

constructive trust. While the court’s jurisdiction to grant a remedy is not limited by

whether a breach of confidence has a contractual, tortious, proprietary or trust

flavour, that factor may nonetheless inform the appropriateness of the remedy:

Cadbury at para. 26; Lac Minerals at 612 per Sopinka J.; Minera Aquiline Argentina

SA v. IMA Exploration Inc., 2007 BCCA 319 at paras. 95-99.

[481] Ultimately, the court will adopt a flexible approach in fashioning a remedy

having regard to the facts of the case and mindful that “[t]he objective in a breach of

confidence case is to put the confider in as good a position as it would have been in

but for the breach”: Cadbury at para. 61.

 Confidentiality Provisions in the Sateri Employment Contract

[482] Paragraphs 1, 2, 6 and 8 of clause XVI of the Sateri Employment Contract,

headed Confidentiality, read as follows:

XVI

CONFIDENTIALITY

1.

[Mr. Vinall] shall observe strict confidentiality with regard to all matters

directly or indirectly related to his work and all matters concerning [Sateri

Shanghai’s] or the Groups’s shareholders, and shall not disclose or divulge to

any one any confidential information related to [Sateri Shanghai’s] or the

Group’s business or its customers which may come within [Mr. Vinall’s]

knowledge or possession in the course of his employment, and which should

not be disclosed or made public save with the consent of [Sateri Shanghai] or

in the course of his duties as an Employee of [Sateri Shanghai].

2.

As [Mr. Vinall] can appreciate, much of the value of [Sateri Shanghai]

or the Group rests in the intellectual property used to conduct its businesses.

To help protect the value of [Sateri Shanghai] and/or the Group, and its

products and services, this type of information, in addition to being treated

confidentially must be used only for the benefit of [Sateri Shanghai] or the

Group, as applicable. When [Mr. Vinall] joins [Sateri Shanghai], the Employee

shall have access to information about [Sateri Shanghai’s] or the Group’s

businesses, including but not limited to information about [Sateri Shanghai’s]

or the Group’s business practices and products, intellectual property rights,

services, cost information, processes, finances, employees, compensation,

client lists and their employees, drawings, marketing plans and strategies,

investment strategies, techniques, know-how, pricing, methodologies, internal

resources, research and development, software and other technology as well

as information and products resulting from his work. By accepting [Sateri

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Shanghai’s] offer of employment, the Employee agrees to use such

information for its intended business purpose only for the benefit of [Sateri

Shanghai] or the Group, as applicable.

3.

During [Mr. Vinall’s] employment with [Sateri Shanghai], [Mr. Vinall]

may develop or help to develop services, products, materials, know-how or

other intellectual capital related to [Sateri Shanghai’s] or the Group’s

businesses. [Mr. Vinall] hereby assigns to [Sateri Shanghai] his rights and

interests in all intellectual property rights (“IP Rights”) whether or not

patentable or registrable under copyright or similar statutes, conceived or

learned by him, either alone or jointly with others, during the course of his

employment with [Sateri Shanghai]. Inventions assigned to [Sateri Shanghai]

pursuant to this paragraph shall include in particular such IP Rights

developed using [Mr. Vinall’s] equipment, facilities, resources or trade secret

and information. [Mr. Vinall] understands and agrees that [Sateri Shanghai] or

the Group, as applicable, owns all intellectual property rights, including all

copyright and trade secret rights, to such work.

…

6.

[Mr. Vinall] undertakes not to retain any documents or storage media

containing any confidential information in his possession or subject to his

control at such time and shall return all company documents, files and

properties, whether physical or electronic, in good condition during or after

the termination of his employment, and ensure proper hand-over to the

appointed employees. [Mr. Vinall] agrees to sign further declarations of

confidentiality and non-retention of [Sateri Shanghai’s] and/or the Group’s

documents, files and properties, whether physical or electronic, when so

required by [Sateri Shanghai’s] and/or the Group’s policy or officers.

...

8.

The provisions of this clause on confidentiality shall survive the

termination of this employment.

[483] The Declaration defines Confidential Information and Proprietary Assets in

widely-encompassing terms:

“Confidential Information” includes, but shall not be limited to the following:

(a) any and all non public information regarding the business of the Group,

the Company or any Group Company, including without limitation, marketing

plans and strategies, investment strategies, techniques, know-how,

processes, confidential operations, cost information, client lists, drawings,

information in connection with products and services, whether or not part of

my work, whether or not resulting from my work or otherwise obtained in the

course of my work;

(b) any and all confidential information acquired by the Group, the Company

or any Group Company from third parties; and

(c) any and all Proprietary Assets,

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provided that any information that is, or becomes, available to the public

other than as a result of breach of my obligations herein and in the

Employment Documents, shall not be deemed “Confidential Information”.

“Proprietary Assets” means assets belonging to the Company, the Group

or a Group Company, including without limitation, any and all non-public,

information, intellectual property rights, patents, copyright, trademarks,

trade secrets, processes, designs, concepts, know-how, techniques,

notes, marketing plans, strategies, forecasts, financial and cost

information, customer lists and other similar information not generally

known to the public, together with all developments therefrom and

improvements thereon”.

 Confidential Information in Issue

[484] As noted, the plaintiffs’ claims against Mr. Vinall sound in breach of

confidence, breach of express contract and breach of his implied contractual duties

of good faith, loyalty and fidelity. Their paramount contention is that Mr. Vinall

misused their confidential information in the wrongful pursuit of the so-called Thurso

Mill opportunity and in aid of his wrongful competition with them while still employed,

for the benefit of himself and Fortress.

[485] The specific components of the plaintiffs’ averments of breach of confidence

is that during Mr. Vinall’s employment, he:

i. converted and misappropriated the confidential and proprietary information

learned and otherwise obtained during his employment with Sateri

International (as that designation was broadly defined in the notice of civil

claim);

ii. disclosed, used, removed and published to others confidential and

proprietary information, without the consent or license of Sateri

International; and

iii. negotiated new employment terms with Fortress.

[486] Most of the plaintiffs’ documents in evidence alleged to contain their

confidential information are marked as “confidential and intended solely for the use

and information of the addressee”. The testimony of Ms. Li and Mr. Goh suggested

that they understood that documents displaying that confidential warning were

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confidential in fact. However, the designation of confidentiality was merely a page

template that Ms. Li automatically applied to every document that she created for the

plaintiffs, irrespective of content. Consequently, the appearance of that standard

warning is not probative of whether the information contained in the imprinted

documents was confidential under the applicable jurisprudence or pursuant to the

Sateri Employment Contract or the Declaration.

[487] Mr. Vinall’s counsel sought particulars of the alleged confidential information

through letters dated January 3, 2012 and May 31, 2013. Plaintiffs’ counsel

provided a partial reply by letter of January 13, 2012, and then just a week before

the commencement of trial, supplied additional and more specific particulars.

[488] The particulars divide the alleged breaches into two main classifications.

They distinguish confidential and proprietary information said to be misused by

Mr. Vinall, from information alleged to have been wrongfully converted by all of the

defendants into a Fortress presentation. I will refer to the documents containing the

alleged confidential information comprising the former grouping as category one

documents, and the latter as category two documents.

1. Category One Documents

[489] The plaintiffs assert that the category one documents contain confidential and

proprietary information about their business plans, including the plan for expansion

of their cellulose business and consideration of the opportunity to acquire the Thurso

Mill. Mr. Vinall is said to have copied these documents from his work laptop to a

USB stick.

[490] The plaintiffs particularized six such documents in all. Two of them were not

introduced into evidence. The remaining four are:

1. The list prepared by Mr. Shaohua of the closed mill candidates with the

accompanying map of North America showing the respective locations and

proximity to seaports of the mills, both bearing Mr. Van Lee’s highlighting.

Mr. Shaohua did not testify. The only evidence as to the sources of the

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information he used to compose the list were his notations on the document

crediting RISI and Hawkins Wright. There was no evidence to suggest that

any information in the list was not within the public domain. Ms. Li did not

know how long Mr. Shaohua would have taken to prepare these

documents. She agreed he may have spent “a long time” or may have pulled

them together in “only a few minutes”. She conceded that preparation of the

map of North America would have taken only a few minutes and that the

information could be obtained by using Google;

2. An email exchange attaching the chart prepared by Ms. Li showing three

potential Canadian mill candidates and a map of Canada pinpointing their

locations;

3. The minutes of the October 8 Meeting; and

4. The same map of North America referred to above in item 1, but with a

different heading, which was circulated for purposes of the Second October

Meeting, together with the agenda of that meeting.

[491] Mr. Vinall credibly explained that he organized the data he kept on his laptop

by subject matter: Sateri information, industry information and personal files. He

stated that he routinely backed up all data to an external hard drive as a precaution

against losing the information in the event his laptop was stolen or damaged while

he travelled between Brazil, Canada and, latterly, Singapore. He would often leave

the external hard drive at the head office.

[492] Mr. Vinall continued that, in addition to using an external hard drive and as an

extra safeguard, it was his practice to use a USB stick/thumb drive to copy weeks or

perhaps a month’s worth of the most current data on his laptop. He did so to ensure

that he would always have handy a copy of the most current files he was working on

should his laptop be lost or damaged. He viewed his actions as prudent in light of

his pace of travel and his awareness of one or more instances of computer theft in

Brazil, and believed it to be as much for the plaintiffs’ benefit as for his.

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[493] Mr. Vinall testified that after he resigned from Sateri Shanghai, he deleted all

Sateri files from his hard drive. Around the same time, he transitioned to a cloud

service in respect of his remaining computer files (personal and industry), and

believed he had probably discarded the hard drive in the process. He explained that

his collection of USB sticks/thumb drives had all been overwritten many times and,

in any event, would not have held anything of relevance.

[494] At his discovery, Mr. Vinall was asked whether he copied hundreds of

documents relating to Sateri’s businesses to an “external storage media”. He

answered that he periodically backed-up certain directories onto his portable hard

drive. The plaintiffs seized on the fact that at his discovery Mr. Vinall neglected to

mention his use of a USB stick or thumb drive to back-up his laptop. They urged

that the conveniently-timed amplification of his evidence on this matter at trial

provided another example of his tenuous relationship with the truth. I do not see it

that way. Indeed, the plaintiffs’ approach to this issue was somewhat puzzling given

that their particulars make plain that, before trial, they were well aware or, at a

minimum had an adequate basis to allege, that Mr. Vinall had copied documents

from his laptop onto a USB stick. In any case, I am not troubled by the difference in

Mr. Vinall’s evidence on discovery and at trial on this point as it does not amount to a

material omission or inconsistency of any consequence.

[495] Mr. Vinall testified that he did not believe that he had retained hard copies of

the category one documents or of any of the plaintiffs’ documents when he left his

employment. In January 2011, he received a letter from plaintiffs’ New York counsel

demanding that he identify the Sateri documents in his possession. The demand

prompted him to go through unpacked moving boxes located in the basement of his

new residence in Ottawa. Through that process he claimed to have uncovered a

“couple of folders” that held the category one documents. He produced them to the

plaintiffs in the course of this litigation.

[496] Mr. Goh’s evidence on this topic was not far-reaching. He testified that after

Tecbiz identified what had been removed from Mr. Vinall’s laptop or had been

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copied to another device, the data was sent to the strategic planning division in order

to determine “what the damage was in terms of information leakage or potential risk

to Sateri”.

[497] In the summer of 2010, Mr. Goh instructed Ms. Li to review the documents on

Mr. Vinall’s laptop that had been routed to a shared folder. Her objective was to see

whether any of those documents contained “Sateri internal information”. At the

conclusion of her review, Ms. Li had no knowledge as to whether any of the

documents in the shared folder, apart from the documents that have been identified

as falling within category two and a trip report form, were used by Mr. Vinall for a

purpose other than the plaintiffs’ business. Nor was she able to say whether

Mr. Vinall had provided any of them to a third party. Mr. Goh provided no insight on

this crucial point either. He did not testify as to whether the data from the laptop had

been sent to a device other than Mr. Vinall’s external storage device, and if it had,

the destination of the data. Nor did he say anything about whether any of the

information had been leaked, whether the plaintiffs had suffered any corresponding

damage or whether they were at any risk as a result of the copying or backup by

Mr. Vinall of his laptop files.

[498] Yet, Mr. Goh made the sweeping claim that he had gleaned an understanding

based on the Tecbiz information that Mr. Vinall’s laptop appeared to have been

modified. He did not clarify the manner in which it may have been modified or how

such modification might relate to any of the plaintiffs’ claims in this action. Instead,

Mr. Goh left dangling the implication that Mr. Vinall had somehow wrongfully altered

the content on his laptop.

[499] Assuming that the information contained in the category one documents

qualifies as confidential, the argument nonetheless falters on the sheer absence of

cogent evidence that Mr. Vinall improperly disclosed or otherwise misused such

information. That is a full answer to the claims asserted on all grounds with respect

to the information alleged to be confidential in the category one documents.

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2. Category Two Documents

[500] The evidence surrounding the plaintiffs’ claims concerning the confidentiality

of the contents of the category two documents was nearly as underwhelming.

[501] In carrying out her examination of the documents in the shared folder, Ms. Li

found two multi-page Fortress presentations that she concluded contained Sateri’s

internal information. One presentation was called, Dissolving Pulp Price and

Drivers, dated February 2010, and the other was the AcCELLerate PowerPoint at

different stages of evolvement between approximately December 2009 and March

2010. Ms. Li was the plaintiffs’ sole witness regarding the creation and source of the

information alleged to be confidential and used in the category two documents.

[502] As a means of identifying the information contained in one or both of the

Fortress presentations that Ms. Li believed originated with Sateri, she inserted

clouds that encapsulated her commentary on the perceived offending pages. She

promptly supplied Mr. Goh with the results of her comparative analysis.

[503] The plaintiffs’ response to Ms. Li’s findings is of interest. Evidently, they were

too pre-occupied by Sateri International Co.’s public offering to address the misuse

of their confidential information thought to be discovered by Ms. Li in a timely way. It

was not until several months afterwards, in January 2011, that a general issue

regarding Mr. Vinall’s alleged misuse of confidential information was raised by the

plaintiffs. A similar complaint was sent to Mr. Wasilenkoff on February 22, 2011.

[504] It is difficult to reconcile the plaintiffs’ uncontroverted evidence that Mr. Tanoto

and the Sateri organization as a whole were highly protective of Sateri’s internal and

confidential information, with their prolonged inaction to Ms. Li’s apparent discovery

of misuse. Although by no means conclusive, the plaintiffs’ casual reaction,

especially in those crucial early months, is not an entirely neutral factor in the

analysis. It suggested that they were not overly concerned about the defendants’

disclosure or use of the information in question.

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[505] Like Mr. Vinall, Ms. Li maintained her own database of information about the

dissolving pulp industry that she gathered from various publicly accessible sources

on an ongoing basis. Many of her sources were industry consultants that Sateri

subscribed to, such as RISI, Hawkins Wright and Poyry. She also amassed publicly

available information circulated by competitors, as well as a “great deal” of

information from the Internet, including data from governmental agencies like the

U.S. Department of Agriculture (“USDA”).

[506] Ms. Li drew on the information she stored in her database to perform her work

assignments. Many of her graphs, charts and other work product were used by

Sateri for “decision-making purposes”. She was methodical in her approach. For

each assignment, she would create a separate electronic file to hold her finalized

work product, together with the backup data that she had relied upon for its

compilation.

[507] Ms. Li agreed that she was able to conveniently access the underlying

sources in her electronic files. She further agreed that, in any given instance, by

comparing that underlying backup information in her database against her final work

product, it would be readily apparent what additional evaluation, assembly or

analysis, if any, she may have carried out and incorporated into her work product.

Unfortunately, and I would venture to say inexplicably, none of Ms. Li’s source data

was in evidence. That omission has proved to be a serious impediment to the

plaintiffs’ claims.

[508] Summarized below are the contents of the category two documents that the

plaintiffs assert embody their confidential and/or proprietary information:

1. A table listing several mills and their respective capacities for dissolving pulp

on a page titled, Current and Planned Dissolving Pulp Capacity (the “Fortress

Table”);

2. A vertical bar chart showing the proportionate market share of synthetic fiber,

cellulose fiber and natural fiber respectively from 2002 to 2008 (the “Fortress

Market Share Chart”);

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3. A bar graph expressing world cotton production over a period of time (the

“Fortress Cotton Production Graph”) and a two-line linear graph comparing

the cotton yield worldwide with the cotton yield for China (the “Fortress

Cotton Yield Graph”);

4. A bullet point statement and a formula expressing the yield potential of wood-

based fiber as compared to cotton-based fiber (the “Fortress Yield

Information”); and

5. A projection and correlation reflecting a prediction of the future demand for

rayon in different parts of the world (the “Fortress Correlation”).

(i) The Fortress Table

[509] It is common ground that Mr. Vinall reproduced the Fortress Table from an

appendix to an internal report that Ms. Li had prepared for Sateri. She had provided

the report to Mr. Vinall and others in management in about November 2009. I

accept Ms. Li’s testimony that the appendix was not made available outside of the

Sateri organization and its group of corporate affiliates. Mr. Vinall does not deny that

he received the internal report, with the appendix, in confidence.

[510] Mr. Vinall admitted that he had “grabbed the page” (i.e. the appendix) and

claimed to have inadvertently used it to create the Fortress Table. He

unconvincingly attested to his belief that the entire page contained information

derived from his database, until he came to realize shortly before trial that two of the

mills referenced, Sateri Rudong and Tiger Forestry & Paper mills, would not have

been available from public sources. Tiger Forestry & Paper is Ms. Li’s English

translation of a Chinese company that had no official name, and the Sateri Rudong

project had never been publicly announced.

[511] RISI (2009) is credited as the public source of the information displayed in the

Fortress Table. Mr. Vinall explained, and I find, that he cited RISI (2009) because “a

lot” of the data contained in the Fortress Table was accessible to the public from

RISI and to enhance the perception of credibility of the Fortress Table.

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[512] Ms. Li testified that she based the appendix exclusively on Sateri’s internal

records. She later back-peddled somewhat by her acknowledgement that RISI

produced a similar table, although not all of the numbers appearing in the RISI

source matched the numbers she used. The evidence showed that some of the

information set out in the appendix was also available from Fisher International,

another industry source that Ms. Li used from time to time. I find implausible Ms. Li’s

assertion that the information contained in the appendix was based entirely on

Sateri’s internal records. The probabilities of the situation show that the appendix

contained a mix of a substantial amount of publicly accessible data that Ms. Li had

not altered, as well as a small bit of information that was uniquely hers and was

confidential to the plaintiffs. The information within that latter category consisted

chiefly of the references to the Tiger Forestry & Paper and Sateri Rudong mills and,

to a much lesser extent, to the dissolving pulp capacities of a few of the mills. The

totality of such confidential information carries a low grade of specialness.

[513] The Fortress Table was one of 47 pages of the AcCELLerate PowerPoint

presented to the Quebec government by Messrs. Wasilenkoff and Monahan. I am

satisfied that during the course of that presentation, they did not discuss the content

of the slides item-by-item. I consider it unlikely that they would have highlighted or

placed any emphasis on the few marginally special features of the Fortress Table

that were confidential to the plaintiffs, or that the representatives of the Quebec

government in attendance even noticed that information.

[514] The feature of detriment as a constituent element of a breach of confidence

claim was not developed in the evidence or in argument. My rejection of the

plaintiffs’ allegations that the Thurso Mill was a taken opportunity and that Mr. Vinall

was a fiduciary effectively dispels the legitimacy of any assertion that they suffered a

form of detriment stemming from the misuse of the bits of confidential information in

the Fortress Table. For reasons to be explained, any suggestion that the plaintiffs’

detriment took the form of their professed loss of a share of the dissolving pulp

market in China occasioned by the Thurso Mill competing in that market, is similarly

groundless for an abundance of reasons.

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[515] The plaintiffs have not shown that they sustained any detriment, whether

financial or of another kind, as a result of the misuse of the confidential information

in the Fortress Table. The absence of a demonstrated detriment is fatal to this

aspect of their claim sounding in breach of confidence.

[516] For completeness, I would add that the springboard principle has no

application.

[517] Nonetheless, Mr. Vinall’s misuse of such confidential information does

constitute a breach of his Sateri Employment Contract and his implied contractual

duty of good faith, loyalty and fidelity.

(ii) The Fortress Market Share Chart

[518] The Fortress Market Share Chart consists of seven vertical bars that express

the market share of three different kinds of fiber: synthetic, cellulosic and natural. A

separate colour is ascribed to each fiber so that each individual bar is made up of

three colours to denote the proportionate market share of the three fibers.

[519] The Fortress Market Share Chart is the same as a market share chart that

appears in a Sateri document prepared by Ms. Li. Ms. Li testified that she had

created her chart from information in her database that had been compiled by

CIRFS, a fiber society in Europe. That information was publicly available. Yet,

Ms. Li had not credited any external source on her chart. That omission was at odds

with her evidence that she always identified her external sources on the internal

documents she prepared.

[520] The Fortress Market Share Chart cited the USDA (2009) as its source.

According to Ms. Li, the USDA would only be a partial but not a complete source for

the information because that agency does not compile information on the global

production of rayon (i.e. cellulosic fiber). That said, she went on to acknowledge that

data about the world rayon supply expressed in market shares was publicly

available. Ms. Li further agreed that information about the worldwide market share

of the three fibers in question is readily available in the public domain from sources

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other than the fiber society she relied upon or the USDA. One such source was

Oerlikon.

[521] As I have alluded to, Ms. Li’s computer subfile that stored the information

upon which she based her market share chart (which, on her testimony, would

include the CIRFS data she used) was not in evidence. That omission has made it

most difficult to assess whether Sateri’s version of the market share chart is any

different from a chart accessible in the public domain, except possibly with respect to

the colour scheme of the graph bars.

[522] Ms. Li ordinarily used an Excel computer program to create her graphs and

charts. When it came to colouring them, she would either choose the particular

colours or leave it to the Excel program to insert colours in default of her making a

selection.

[523] Whether, and to what extent, if any, Ms. Li brought to bear her own thought-

process or unique treatment or assembly of the public information she used to

create the plaintiffs’ market share chart was, at best, murky on the evidence. In the

end, Ms. Li’s primary assertion seemed to be no better than she “thought” she had at

least chosen the tri-colour scheme of the bars. In this regard, I would note that while

the colours in Ms. Li’s graph were not identical to the colours in the sample Oerlikon

graph in evidence, they were not entirely dissimilar.

[524] Even assuming that Ms. Li did take a moment to choose the colour scheme of

the bars in the chart she prepared, the straightforward act of using an Excel

computer program to select those colours did not require that she exercise an

independent thought process of the kind contemplated in Lac Minerals so as to

imbue her composition with the requisite threshold of confidence. In this instance,

re-colouring bars that are accessible in the public domain had no substantive effect,

and was in the nature of an inconsequential aesthetic tweaking. In my opinion, it

would upend the governing principles and confuse the underlying policy rationale in

this area of law were I to accept that the threshold of confidentiality lays that low.

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[525] In conclusion, the plaintiffs’ market share chart does not contain confidential

information within the meaning of the breach of confidence authorities or pursuant to

the provisions of Mr. Vinall’s Sateri Employment Contract or the Declaration. It

follows that the Fortress Market Share Chart does not contain the plaintiffs’

confidential information.

(iii) Fortress Cotton Production Graph and Fortress Cotton

Yield Graph

[526] The Fortress Cotton Production Graph and Fortress Cotton Yield Graph are

virtually identical to graphs that appeared in a pre-existing Sateri document titled,

Upside Risks, prepared by Ms. Li. The USDA is shown as the source on the face of

both the Sateri and Fortress documents.

[527] Mr. Vinall testified that he stored USDA information and charts concerning

cotton yield, cotton production and the like in his database. He insisted that he had

relied upon his collected data to prepare the Fortress Cotton Production Graph and

the Fortress Cotton Yield Graph. He also had a recollection of having collaborated

with Ms. Li in creating a very similar chart for use in a Sateri presentation. Although

I accept that Mr. Vinall collected such USDA information in his database, the

preponderance of the evidence is that he created the two Fortress graphs in issue

simply by cutting and pasting the graphs from the Upside Risks document prepared

by Ms. Li. But were the graphs used by Sateri the plaintiffs’ confidential or

proprietary information?

[528] Introduced into evidence were two USDA graphs. One depicted world cotton

production and the other expressed cotton yield globally and for China. Both of

them were accessible on the Internet. There were two differences between the

USDA cotton production graph and the one prepared by Ms. Li, namely the colour

coding and the years used to bookend the vertical bars. There were also differences

in the colours, timeline and a few of the plot points used in the USDA graph in

evidence reflecting the cotton yields, as compared to Ms. Li’s graph capturing those

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yields. The difference in years was readily explainable by the fact that the USDA

version had been obtained from the Internet at a later point in time.

[529] Ms. Li explained that the USDA has a comprehensive website that reports on

worldwide cotton production reaching back to the 1970’s. She had a vast body of

publicly available USDA material at her fingertips and agreed that the USDA source

materials she used to prepare the plaintiffs’ charts were publicly available online at

no cost. She denied, however, that she had merely reproduced USDA graphs in

order to create hers. Instead, Ms. Li said that she had downloaded data from the

USDA website and compiled the plaintiffs’ two charts based on that data.

[530] Ms. Li stopped short of providing any useful details about the nature of the

USDA data that she downloaded onto her computer. Nor did she clarify what it was

that she had done in relation to such data in order to arrive at the plaintiffs’ graphs.

[531] That the plaintiffs’ graphs are not identical to the two USDA graphs in

evidence, does not necessarily mean that the plaintiffs’ graphs were not among the

extensive publicly available materials on the USDA website, and relied upon by

Ms. Li, at the time she prepared them.

[532] The confounding exercise of attempting to ascertain whether the graphs

prepared by Ms. Li contained the plaintiffs’ confidential information provides a

striking illustration of how the absence of documentary evidence of Ms. Li’s

underlying source materials has hampered a coherent evaluation of the plaintiffs’

claims.

[533] On the deficient evidence put before me, I am left to speculate on whether,

and to what extent, if any, Ms. Li may have applied her own brain power or signature

treatment or assembly of the USDA data that she downloaded and used in preparing

the plaintiffs’ cotton production and cotton yield graphs. In the end, the evidence

does not establish that those graphs contained the plaintiffs’ confidential information

by any standard. Accordingly, I find that the Fortress Cotton Production Graph and

the Fortress Cotton Yield Graph do not contain the plaintiffs’ confidential or

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proprietary information. The springboard doctrine has no application in this instance

either.

(iv)

The Fortress Yield Information

[534] The Fortress Yield Information is comprised of a statement and a formula.

[535] The statement reads as follows:

Limited growth of cotton output due to competing land usage and yield

restraint

[536] The formula is expressed this way:

- Wood based fibre yield ( ̴ 6 MT/Ha, assuming 25 MAI & 5.5m3/- ADMT) vs. cotton yield < 1.5 2 MT/Ha

[537] Sateri’s pre-existing Upside Risks document contained an identical statement

and a practically identical formula. The Sateri formula reads as follows:

- Wood based fiber yield ( ̴ 6 MT/Ha, assuming 35 MAI & 5.5m3/ ADMT) vs. cotton yield < 2 MT/Ha

[538] The formula in the Sateri document reflected the wood-fibre output of the

Bahia Mill as compared to a cotton-based yield; the formula in the Fortress Yield

Information expressed the output of the Thurso Mill.

[539] Neither document credited an external source for the statement or the

formula.

[540] Mr. Vinall agreed that he had basically typed out the Fortress Yield

Information from a Sateri document he had on hand. He then changed the spelling

of “fiber” to “fibre” and lowered the MAI factor from 35 to 25 to account for the

difference in the expected yield from maple-based fiber (the Thurso Mill) as opposed

to eucalyptus (the Bahia Mill). Those changes then altered the final outcome

number. Ms. Li acknowledged that the MAI in the equation would vary depending on

the wood variety and the geography of the wood source, and that such a variation

would result in a different yield outcome.

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[541] According to Ms. Li, the statement and formula represented her uniquely

conceived work product. She maintained that no aspect of it was publicly available.

In cross-examination Ms. Li appeared to be uncertain about whether this information

had been included in Sateri International Co.’s public prospectus and allowed that it

might have been. Her allowance posed only a faint concern and was not sufficient

to sustain a finding that the plaintiffs’ statement and formula had been released into

the public domain and, therefore were exempted from the definition of confidential

information under the Sateri Employment Contract and the Declaration.

[542] Mr. Vinall, on the other hand, was adamant that the formula used in the

Fortress Yield Information, as well as the formula appearing in the plaintiffs’

document, reflected an accepted industry-wide calculation regularly used to contrast

the wood yield of fiber to the cotton fiber yield. He persuasively maintained that he

had used the formula many times in the past, and that there was nothing special

about the concept it conveyed. As for the statement appearing above the formula,

Mr. Vinall conceded that he had copied it verbatim straight from Sateri’s Upside

Risks document because he “agreed with it” and considered it to be an “elegant”

way of communicating the point.

[543] I find it more probable than not that the formula used by Ms. Li was widely

known and applied broadly in the industry to calculate the difference in fiber yields,

subject simply to variations in the inputting of the MAI factor and the consequential

change to the yield outcome.

[544] Ms. Li testified that the formula she used was essentially the source for her

statement appearing above it. I understood her to mean that the statement

represented the verbalization of the conclusion proved by the formula. Still, her

statement was an “elegant” articulation of information demonstrated by application of

the formula that she composed using her thought process and was not publicly

accessible.

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[545] I conclude that the statement (but not the formula) in the Fortress Yield

Information was confidential to the plaintiffs. In terms of specialness, the statement

falls at the lowest end of the continuum.

[546] The Fortress Yield Information appeared in the AcCELLerate presentation

and in the Dissolving Pulp Price and Drivers document. The evidence concerning

the use made by Fortress of the latter document was undeveloped apart from

indicating that it may have been provided to one or more investors.

[547] For the reasons already given in my discussion of the Fortress Table, there is

no evidence to support a finding that the plaintiffs experienced a detriment of any

kind on account of the defendants’ misuse of the confidential statement contained in

the Fortress Yield Information. Accordingly, the plaintiffs’ claim for breach of

confidence fails. As in the case of the Fortress Table, Mr. Vinall’s misuse of the

confidential statement was in violation of his contractual obligations.

(v)

The Fortress Correlation

[548] Based on data of the historical GDP of China, India, Thailand, Indonesia,

North America and Western Europe, Ms. Li prepared a projection of the rayon

markets and analysed the data to find a correlation between GDP and the output of

rayon in those regions. She then applied that correlation to project future demand

for the downstream rayon market and, based on that, extrapolated the future

demand on the upstream side. To explain her projection and correlation, Ms. Li

used a combination of text, a bar chart and six box charts each containing formulae

presented on a one-page document.

[549] Ms. Li credibly assured that she had devised this methodology of projection

and correlation of output, and that it was not in the public domain.

[550] In the course of conducting her review of Fortress’s Dissolving Pulp Price and

Drivers presentation, Ms. Li noticed a slide that showed a linear graph reporting

rayon production in China, India and five other continents or partial continents. That

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graph was accompanied by the following two bullet points of text that I have defined

as the Fortress Correlation:

●

Projections based on expected GDP growth per OECD (2009)

Correlation between historical GDP growth and Rayon Consumption

is over 0.80 which is higher costs and most have closed

[551] The Fortress Correlation caught Ms. Li’s keen eye. To her, it did not relate to

the information shown in the line graph appearing underneath. This perceived

disconnect caused Ms. Li to become suspicious that the Fortress Correlation may

have been based on a “takeoff” of the methodology of projection and correlation she

had conceived and used for Sateri.

[552] On their face, there are no obvious similarities between the information in the

Fortress Correlation and Ms. Li’s methodology of projection and correlation of

output.

[553] Ms. Li did not offer any specifics to better explain how the Fortress

Correlation was said to relate to or be derived from her methodology of projection

and correlation. On balance, her evidence was lacking in basic and material detail

to reasonably sustain a finding to align with her suspicion that the Fortress

Correlation represented a misuse of the plaintiffs’ confidential information.

[554] The claim that the Fortress Correlation contains the plaintiffs’ confidential

information has not been made out.

 Other Allegations of Misuse of Confidential Information

[555] Some months after Mr. Vinall joined Fortress, he asked his former Sateri

colleague, Michael Laberge, to supply him with an example of a technical trip report

used at Sateri. The evidence suggested that Mr. Laberge was still an employee of

Sateri at the time and may have been interested in joining Fortress. Obliging

Mr. Vinall’s request, Mr. Laberge emailed him a seven page trip report that he had

prepared for Sateri. The trip report set out Mr. Laberge’s observations and

recommendations concerning steps to be taken by Sateri’s downstream facility in

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China to improve the quality of its viscose product. Much of the report’s content

appears to be technical in nature and the relevance of it was not explained at trial.

Mr. Goh pointed to a few portions of the trip report that were not public, would not

normally be disclosed by Sateri and he claimed were confidential. His evidence was

not challenged and I accept that the information he identified was confidential. Mr.

Vinall appeared to concede as much.

[556] Without giving it much thought, Mr. Vinall forwarded the trip report to

Mr. Veilleux as a sample. The ultimate use, if any, made of the report was not

clarified.

[557] The trip report did not come to Mr. Vinall in the course of his employment with

Sateri and Mr. Laberge’s disclosure of it to him did not occur in circumstances that

imparted an obligation of confidence upon him. Mr. Vinall's receipt and treatment of

the Sateri trip report, was not in breach of confidence on Mr. Vinall’s part.

[558] The probabilities of the evidence persuade me that Mr. Vinall became aware

of the existence and use of such reports in the course of his employment with Sateri.

The Sateri Employment Contract stipulated that his covenants pertaining to

confidentiality survived the termination of his employment for 12 months. I find that

Mr. Vinall’s provision of the trip report to Mr. Veilleux within that time period

constituted a breach of contract to the extent that it contained the pieces of

confidential information highlighted by Mr. Goh.

[559] The plaintiffs contend that perhaps the most valuable information conveyed

by Mr. Vinall to Fortress was his own conclusion that the Thurso Mill was an

appropriate candidate for conversion. They say that, because he made that

determination in the course of and as a result of his employment, it was confidential

to the plaintiffs. The plaintiffs’ assertion was made in the context of their larger

argument that Mr. Vinall breached several of his fiduciary duties and was hinged to

his status as a fiduciary. Even so, I wish to briefly address it.

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[560] I agree that Mr. Vinall’s assessment of the suitability of the Thurso Mill for

Sateri was confidential to the plaintiffs; so too was his disclosure to Mr. Wasilenkoff

that Mr. Tanoto, and thus Sateri, had passed on it as a conversion prospect.

[561] Mr. Wasilenkoff was a seasoned entrepreneur with a proven track record of

successful business achievements. Mr. Vinall was not. It is implausible that

Mr. Wasilenkoff would have been prepared to move on the Thurso Mill assets

merely on Mr. Vinall’s say so during the October 2009 Call, as the plaintiffs suggest.

[562] The points canvassed in my earlier discussion regarding the lack of any

demonstrated detriment in relation to Mr. Vinall’s misuse of the confidential

information in certain category two documents has application in this instance. I find

an absence of detriment stemming from Mr. Vinall’s disclosure to Mr. Wasilenkoff.

Although a breach of confidence claim cannot be made out, Mr. Vinall’s disclosure of

this confidential information was made in violation of his contractual obligations.

 Breach of Confidence Claim against Fortress

[563] With a domino-like effect, the dismissal of the claim of breach of confidence

against Mr. Vinall defeats the claim in equity against Fortress for allegedly knowingly

coming into possession of information obtained in breach of confidence.

[564] With respect to the category two documents, it remains to add that, in any

event, proof that Fortress had knowledge at the time that the Fortress presentations

were composed and used that such information was confidential to the plaintiffs was

not established on the evidence. To the contrary, what the evidence demonstrated

was that Fortress first learned of the possibility that Mr. Vinall had used the plaintiffs’

internal and/or confidential information in its presentations from Mr. Vinall’s “dead

meat” email sent to Mr. Wasilenkoff on March 6, 2010. Allowing the status quo to

persist was unacceptable to Mr. Wasilenkoff. He immediately instructed Mr. Vinall to

purge the offending material and have Fortress’s lawyer review the amended

version.

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Claim that Vinall Competed with Sateri and/or Assisted Fortress While

Employed by Sateri

 General Comments

[565] In the preceding section of my Reasons, I concluded that Mr. Vinall’s misuse

of the plaintiffs’ confidential information violated his contractual obligations. Other

contractual breaches have also been alleged. The most serious of them is that

Mr. Vinall breached his implied contractual duty of fidelity by undertaking steps in

active competition with the plaintiffs’ upstream dissolving pulp business while still an

employee of Sateri Shanghai.

[566] It was further contended that Mr. Vinall’s conduct in that regard separately

constituted a breach of several of his express contractual obligations. In differing

ways and in varying degrees, those obligations forbade Mr. Vinall from engaging in

commercial-type activities outside the businesses of the broadly defined Sateri

“Group”, which included the plaintiffs. The express contractual provisions that

Mr. Vinall is said to have violated are his obligations:

a) not to engage directly or indirectly in another business or occupation,

except with Sateri Shanghai’s written permission, pursuant to clause XV.2

of the Sateri Employment Contract;

b) not to be employed by, hold positions with, nor be engaged in activities on

behalf of others, unless with other Sateri “Group” companies or with

approval, pursuant to clause XVIII.1 of the Sateri Employment Contract;

and

c) not to compete against the plaintiffs or any “Group” companies in any way

during the term of the Sateri Employment Contract and for 12 months

following termination of employment pursuant to clause XVIII.2.

[567] Before turning to the specific allegations of breach, I would emphasize that

predominantly all of the plaintiffs’ submissions concerning Mr. Vinall’s alleged

misconduct in this area, including their selection of case authorities, presupposed

that he owed them fiduciary duties and that the Thurso Mill was the plaintiffs’

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opportunity wrongfully appropriated by Mr. Vinall and pursued by Fortress.

Comparatively little was said by the plaintiffs concerning Mr. Vinall’s liability as a

non-fiduciary employee and the majority of the submissions made on the point were

essentially statements of conclusion.

 Implied Contractual Duty to Refrain from Competing

[568] Subsumed within an employee’s bedrock duty of fidelity, good faith and

loyalty is the obligation to refrain from actively competing with his or her employer’s

business during the subsistence of the employment relationship: McMahon; Zoic;

Restauronics Services Ltd. v. Forster, 2004 BCCA 130 [Restauronics Services];

RBC Dominion Securities. In those instances, protection of the employer’s interests

is given precedence over the employee’s entitlement to pursue self-betterment.

[569] An employee’s obligation is not so strict as to preclude him or her from tilling

the soil for future employment opportunities or ventures and undertaking some

planning and preparatory steps in that regard during the currency of employment:

Zoic at paras. 187 and 188; RBC Dominion Securities. The challenge lies in

determining the boundary between acceptable planning and preparation on the one

hand, and impermissible competition with one’s employer on the other. The lack of

clarity as to when the actions of a current employee cross the line from the tolerable

to the improper has been lamented in the authorities. Whether or not the employee

is also a fiduciary informs the analysis.

[570] In Fleming v. Calyniuk, 2007 SKCA 85 [Fleming], relied upon by the plaintiffs,

the Saskatchewan Court of Appeal canvassed several appellate decisions that

considered what steps aimed at competing with the employer may be permissible of

a fiduciary employee in contrast to an ordinary employee. The court’s discussion

speaks to the difficulty in finding the line between acceptable and unacceptable

conduct.

[571] Included among the cases surveyed in Fleming, is Torcana Valve Services

Inc. v. Anderson, 2007 ABQB 356 [Torcana], which Mr. Vinall relies upon. In

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Torcana, Graesser J. examined the scope of permissible conduct of an ordinary

employee and a fiduciary employee, concluding at paras. 54 and 55:

[54]

It appears clear from the case law that it is not a breach of duty for an

ordinary employee to plan his or her departure from the employer’s

employment, nor is it problematic for the employee to make plans with other

employees. A caveat on that is that these activities should not occur during

normal working hours nor on the employer’s premises, and should not involve

any inducements to breaching contractual duties. Failing those impediments,

however, there are generally no restrictions on employees planning to leave

and set up a competing business (other than issues relating to misuse of

confidential or proprietary information after they have gone). Are things

different for a fiduciary employee?

[55]

The answer to that question is fact driven and not always clear. It

would generally be contrary to public opinion and contrary to common sense,

to prohibit a fiduciary from contemplating leaving and working for the

competition, while still employed. So long as the fiduciary can fulfil his or her

employment obligations, I see no difficulty in concept with a fiduciary making

plans and indeed acting on them in a preparatory way. Getting legal advice,

getting accounting and tax advice, arranging for premises, arranging for staff

and other normal things involved in setting up a business might be done

without any breach of fiduciary duty (so long as they are done on the

fiduciary’s own time, off the employer’s premises, and while the fiduciary is

still faithfully performing his or her job).

[Underling added]

[572] In Fleming, the Court expressed uncertainty as to whether the authorities

went so far as to support the underlined portion of the above passage in Torcana,

without imposing an obligation on the fiduciary to inform and obtain consent from the

current employer. Acknowledging that Graesser J. made those comments in obiter,

the Court in Fleming did not make a determination one way or the other.

[573] Fleming did not indicate disagreement with the comments of Graesser J.

made in para. 54 concerning the steps that are acceptable for an ordinary employee

to undertake in advance of leaving the present employer. If Graesser J.’s comments

are interpreted to mean that it is permissible for an ordinary employee to actually set

up a competing business while still employed, as opposed to taking preparatory

planning steps to set it up, I have reservations about their accuracy. The term “set

up” strikes me as somewhat ambiguous in this context, and, if given a broad

construction, could conceivably sanction the employee actively implementing an

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operating competing business and taking similar steps that would encroach over the

line drawn in RBC Dominion Securities, discussed below.

[574] Returning to Fleming, the appeal was decided on the footing that the

employee in question owed his employer a fiduciary duty. At para. 24 the Court held

that, although the distinction between the implied duty of fidelity and fiduciary duties

was not obvious, something more is required of an employee who owes fiduciary

duties than of one who owes only a duty of fidelity. Jackson J.A. concluded that a

fiduciary employee may not be in breach where he or she is “simply in the

preliminary stage of either contemplating or casually discussing with others the

possibility of developing his or her own competing business”: at para. 25. Expanding

on that proposition, Jackson J.A. noted that there were no cases that have held that

“preparatory steps of an embryonic nature only, and taken on one’s own time,

constitute a breach of an employee’s fiduciary duty of loyalty such that they must be

disclosed”: at para. 28. Where the conduct of a fiduciary employee goes beyond

such preparatory steps, he or she is likely duty-bound to inform the employer and

obtain the employer’s consent. Jackson J.A. reasoned that this obligation stemmed

from the fiduciary’s fundamental duty to avoid conflicts of interest and to disclose

them when they arise, and distinguished the fiduciary employee from the ordinary

employee.

[575] In RBC Dominion Securities, the Supreme Court of Canada considered the

contours of an employee’s implied duty of good faith in the context of the actions of a

branch manager who had orchestrated his departure to join a competing firm with

the majority of his investment advisors in tow, causing a “near-collapse” of the

employer’s investment department.

[576] At paras. 18-19, 37 and 39-41, McLachlin C.J.C. and Abella J., respectively,

affirmed the proposition that as soon as the employment comes to an end

employees are generally free to compete with their former employer’s business.

There are exceptions where there is a valid restrictive covenant limiting

post-employment competition, the employee owes a fiduciary duty to the former

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employer and where the employee misappropriates the former employer’s

confidential information or trade secrets and exploits them for the purposes of

competition. McLachlin C.J.C., for the majority, affirmed the decision of the Court of

Appeal that an employee who has terminated employment is not prevented from

competing with his or her employer during the notice period. In those

circumstances, the employer is confined to damages to compensate for the

employee’s failure to give reasonable notice. To this general proposition, the Court

reiterated, at para. 18, the important qualification that a departing employee might

nonetheless be liable for specific wrongs, such as improper use of confidential

information during or after the notice.

[577] Madam Justice Abella, dissenting on the conclusion of the majority that the

branch manager breached his implied duty of good faith in the manner of his

departure, discussed the kinds of steps that an employee is entitled to take to seek

new employment with a competitor during the currency of his or her employment:

[57]

… It seems to me that a necessary corollary to an employee’s

undisputed right to compete following the termination of the employment

relationship is the right to plan for future employment opportunities while still

employed. This is subject, of course, to the duty not to breach an employer’s

confidentiality. But it is not, in my view, a breach of an employee’s implied

duty of good faith to search for alternative job opportunities, to negotiate with

a competitor, or to talk to co-workers about his or her intentions. (See Stacey

R. Ball, Canadian Employment Law (loose-leaf), vol. 1, at p. 15-2, footnote 9.)

I agree with Macklin J.’s observation in Westcan Bulk Transport Ltd. v.

Stewart (2005), 373 A.R. 236, 2005 ABQB 97, that:

Every individual has the fundamental right to earn a

livelihood... . Reasonable restrictions [on that right] do not

include those reasonable steps the employee must take to

prepare to earn a livelihood as soon as possible following the

termination of employment with the employer. [para. 83]

(See also Leith v. Rosen Fuels Ltd. (1984), 5 C.C.E.L. 184 (Ont. H.C.J.), at

p. 195.)

[578] Abella J.’s reasoning was informed by the trial judge’s finding, which was not

appealed, that the branch manager did not owe a fiduciary duty to the employer.

She acknowledged that fiduciary employees are held to a higher and more exacting

standard: at paras. 46 and 47.

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[579] In Zoic, at para. 187, Russell J. referred to the instructive discussion of the

distinction between planning and preparation and competition by the authors of

Geoffrey England, EmploymentLaw in Canada, vol. 2, 4th ed. (loose-leaf, updated

June 2012, release 38) (Markam Ont.: LexisNexis Canada Inc., 2005) at §. 11.137.

The equivalent passage in the updated loose-leaf version dated December 2016,

release 68 at §.11.137, reproduced below, endorses the principles articulated by

Abella J. in RBC Dominion Securities concerning the bounds of unobjectionable

conduct of a non-fiduciary employee in planning for a new job with a competitor:

Difficulties have arisen in determining the exact point at which planning and

preparation by an employee who is still employed to set up himself or herself

in competition with the employer will violate his or her implied duty of fidelity.

In two older cases, the courts held that the implied obligation was breached

when employees met with a competitor, or between themselves, to discuss

setting up in business to compete directly with their employer. It is submitted,

however, that these decisions should be viewed with circumspection. After

all, if it is lawful for an employee to engage in post-termination competition

with an employer, it hardly makes sense to hold it unlawful to plan the form

that such competition will take. In later decisions on point, the courts have

held that merely planning to establish a competing business does not ipso

facto violate the duty, unless it is clear that the employee has already

determined to abuse the employer’s confidential information or trade secrets

in his or her future business or has already begun to canvass the employer’s

customers or entice fellow employees of the employer to join him or her in the

new business. The two earlier decisions can be explained on the ground that

the employees in question, in addition to planning to set up a competing

business, had decided firmly to misuse their employer’s confidential

information. The principle expressed in the later decisions is the better view,

for as Sloan C.J.B.C. stated in his dissenting opinion in one of the earlier

decisions, the oppositive view would tread:

… dangerously close to saying that in a free enterprise society a

man’s thoughts and conversation of an intention to attempt to

better his position in life by leaving his present position and

undertaking another even in competition with his employer is an

actionable wrong…

Nor does it violate the duty of fidelity for an employee to search out alternate

employment with a competitor organization, to respond to a competitor’s

offers of employment and to accept an offer of alternate employment, the

policy being to facilitate labour mobility. While written in the context of a

dissent over a finding that a branch manager not in a fiduciary relationship

had nonetheless breached an implied duty of good faith in leading an exodus

of investment advisors to a new firm, Abella J. in [RBC Dominion Securities]

sets out, it is submitted, the applicable principles for employees planning on

moving to a new employer or starting up their own ventures. The learned

justice noted that non-fiduciary employees regularly leave their employers

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and, in the absence of any competition during their employment or improper

use of confidential information, it is not a breach of an employee’s implied

duty of good faith “to plan for future employment opportunities while still

employed”. This includes an employee searching for alternative job

opportunities, negotiation with a competitor or talking to co-workers about his

or her intentions.

[Footnotes omitted]

 Express Contractual Provisions to Refrain From Competing

and Similar Activities

[580] A preliminary issue for determination is whether Mr. Vinall was subject to a

valid non-compete covenant under the Sateri Employment Contract and/or the

Declaration, as alleged by the plaintiffs.

[581] The provision of the Sateri Employment Contract that Mr. Vinall is said to

have breached in this regard reads, in relevant part:

XVIII.2. Subject to any existing non-restraint of trade legislation, [Mr. Vinall]

shall not, at any time during the term of his employment with [Sateri

Shanghai] and for a period of 12 months after the termination of his/her

employment with [Sateri Shanghai], do or permit any of the following without

the prior written consent of [Sateri Shanghai]:

(i) directly or indirectly carry on or be engaged or interested in any

capacity in any occupation similar to that of [Mr. Vinall] when

[Mr. Vinall] was employed by, held positions with and/or was

engaged in activities with the business or businesses of [Sateri

Shanghai] or any Group companies;…

[Bolding in original]

[582] The non-compete covenant is not confined in its geographic coverage.

However, a geographic limitation is imposed by the corresponding non-compete

restriction found in paragraph 4.2.1 of the Declaration:

Subject to compliance with law, I shall not, at any time during the term of my

employment with [Sateri Shanghai] and for a period of twelve (12) months

after cessation of my employment with [Sateri Shanghai], do or permit any of

the following without the prior written consent of [Sateri Shanghai]:

1.

be engaged in any activity or employment, similar to the

scope and contents of my work whilst I was employed by [Sateri

Shanghai], in any country where [Sateri Shanghai] has offices or

plants; ...

[Underlining added]

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[583] It will be remembered that the Declaration stipulates that, to the extent of any

conflict between its terms and those of the Sateri Employment Contract, the terms of

the Declaration prevail.

[584] The non-compete provisions set out in clause XVIII.2 of the Sateri

Employment Contract and those in paragraph 4.2.1 of the Declaration are in plain

conflict as they pertain to the geographic reach of Mr. Vinall’s obligations. The

former does not impose a limitation, and the latter does. Accordingly, the provisions

of the Declaration apply.

[585] There is no evidence that Sateri Shanghai has, or ever did have, a plant or

office in Canada so as to trigger application of the non-compete provision contained

in the Declaration. That is also true with respect to the two other plaintiffs and the

non-plaintiff Sateri companies.

[586] In the result, the restraints set out in clause XVIII.2 of the Sateri Employment

Contract and in paragraph 4.2.1 of the Declaration have no application to Mr. Vinall.

[587] Mr. Vinall’s employment agreements contain other provisions that purport to

impose relatively extensive limitations on his entitlement to directly or indirectly

engage in certain activities during the course of his employment.

[588] Clauses XV.2 and XVIII.1 of the Sateri Employment Contract respectively

stipulate:

XV.2

[Mr. Vinall] will not, except with written permission from [Sateri Shanghai],

engage directly or indirectly in any other business or occupation whether as

principal, agent or otherwise, except where appointed to positions and duties

within other Group companies, or engage in any activity to the detriment,

whether direct or indirect, of [Sateri Shanghai’s] or the Group’s interests.

[…]

XVIII.1

[Mr. Vinall] shall not during the term of his/her employment with [Sateri

Shanghai] be employed by, hold positions with, nor be engaged in activities

on behalf of other employers or principals unless approved in writing by

[Sateri Shanghai] or unless engaged in such manner by other Group

companies.

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[589] A parallel and more expansive curtailment is contained in paragraph 4.1 of

the Declaration:

I agree that I shall not during the term of my employment with [Sateri

Shanghai] be employed by, hold positions with, nor be engaged in activities

on behalf of any principals or entities, or be engaged in my own enterprise

whether by myself or jointly with other persons, directly or indirectly in any

capacity whatsoever, unless approved in writing by [Sateri Shanghai] or

unless engaged in such manner by other Group companies.

[590] Read together, the foregoing provisions have a wide grasp. I will consider

their application in the analysis below.

 Analysis

[591] To set the discussion I will say that Mr. Vinall’s credibility suffered more in

relation to this disputed subject area than in all others. He repeatedly minimized the

nature, regularity and importance of his participation in Fortress’s acquisition of the

Thurso Mill. His insistence that he provided limited and only technical input to

Fortress on the conversion feature and its overlap with the co-generation element,

which he claimed totalled not more than the equivalent of seven full days on his own

time, is implausible on any considered weighing of the evidence. Although I accept

that Mr. Vinall repeatedly exaggerated the overall importance of his role in the

transaction as a negotiating tactic to maximize his compensation, there was more

than a kernel of accuracy in his self-promoting communications to Mr. Sangra and to

Mr. Wasilenkoff.

[592] Mr. Vinall’s dominant interest in arranging the October 2009 Call was to

secure new employment that would facilitate resettlement in Canada with as

lucrative an employment arrangement as possible and, ideally, with an equity

position in the new venture. In order for his goal to be realized, Fortress had to

acquire the Thurso Mill. With that vital objective at the forefront and in some

respects comporting himself with the mindset of a future owner, Mr. Vinall helped to

lay the groundwork to bring it about. He furnished his assistance over a period of

nearly six months while still working at Sateri.

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[593] By its nature, the proposed Thurso Mill project was complex and multifaceted,

entailing the negotiation and achievement of a series of decisive milestones along

the way to completion. Obtaining a financial commitment from the Quebec

government was the linchpin of the entire transaction. The AcCELLerate

PowerPoint was an important part of Fortress’s introduction to the Quebec

government and Mr. Vinall was instrumental in the composition of some of the

slides. That said, the evidence does not go so far as to establish that the

PowerPoint presentation played a significant role in Fortress securing the deal – not

by any means. It was merely one factor in a complex scenario that helped introduce

Fortress to the government and obtain a greenlight to move to the next stage.

Fortress’s successful track record in the forestry sector likely played a greater role in

gaining a credible foothold with the Quebec government. But it was not decisive

either. In the context of this discussion, it cannot be overlooked that weeks after the

AcCELLerate presentation, the monitor instructed Mr. Veilleux to contact several

other companies as potential buyers and Fraser Papers entered into at least one

confidentiality agreement relative to the Thurso Mill transaction with another third

party.

[594] Mr. Vinall readily shared his technical and operational expertise when called

upon and by his own initiative. In addition to misusing the small bits of confidential

information in the category two documents and sharing the trip report, Mr. Vinall took

advantage of some of the plaintiffs’ internal resources. For example, he obtained

the Cornerstone model data from Mr. Shaohua, passed along information about the

Kemijarvi assets he had obtained from Mr. Leite and used other internal information,

such as the tree trunk graphic. A further example is found in Mr. Vinall’s request in

December 2009 to a Sateri marketing employee to share data compiled by an

industry consultant called PCI. At trial, Mr. Vinall testified that over the years he had

collected materials prepared by PCI into his database and that he “knew the

principal at PCI very well”. However, it is plain from his own email to the Sateri

employee that he did not know who PCI was at that time. Mr. Vinall’s explanation for

this inconsistency was unsatisfactory. He wanted the PCI data in furtherance of the

Thurso Mill project.

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[595] Mr. Vinall also took steps to bring Mr. Monahan aboard and with some

regularity throughout the timeline, communicated with him, Mr. Veilleux and others

about a range of technical and operational matters facing the project. After the

Quebec government confirmed its preliminary interest and the deal began to unfold,

the nature and frequency of Mr. Vinall’s involvement expanded. Mr. Wasilenkoff

treated Mr. Vinall as though he was part of the Fortress team. They were in regular

contact to discuss technical concerns, as well as other matters of substance (for

example, Mr. Vinall reviewed and commented upon one or more of Fortress’s

proposed letters of intent to the Quebec government). I find that Fortress shared

information with Mr. Vinall under the Fraser Papers’ confidentiality agreement

because it looked upon him as acting in a consultative-like role. Fortress also

introduced Mr. Vinall to Mr. MacHan who understood that “John” would be Fortress’s

lead technical person for the conversion. Having confidence that Fortress had that

in-house technical expertise was of importance to the Quebec government.

[596] Mr. Vinall was kept apprised of the major developments in the transaction as

they occurred, including some of the unanticipated problems that erupted along the

way. He participated as a technical advisor of sorts to Fortress in at least two

telephone conferences with the stakeholders. Along with Mr. Veilleux, he assisted in

the development of a modified business plan for the project to address matters

raised by the government. He also helped rewrite information for inclusion in

presentations for potential investors. He even provided input on engineering matters

related to the conversion. As far as Mr. Vinall was concerned, he began to incur

travel expenses on behalf of Fortress in early March 2010, although Fortress

declined to reimburse him.

[597] It is the case that Mr. Vinall played no significant role in negotiating the details

of the transaction with the Quebec government or the monitor. Nor did he assist

Fortress in overcoming the many non-technical hurdles it confronted in trying to

close the deal, such as achieving agreement with the trade unions, resolving an

unexpected environmental problem and obtaining the approval of the monitor and of

the court. But that does not diminish the fact that Mr. Vinall’s assistance behind the

Sateri (Shanghai) Management Limited v. Vinall

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scenes was steady and crucial. Because the Thurso Mill had been virtually

inoperative and running with a skeletal staff to “keep the lights on” for a prolonged

period, the substantive technical and operational decisions he was part of to restart

the plant and implement the conversion were vital.

[598] In any event, the applicable test does not ask whether Mr. Vinall made the

largest or the most significant contribution in bringing the potentially competitive

venture to fruition. What is of interest is whether his conduct trespassed into the

impermissible realm of actively assisting in the creation and implementation of a

transaction by which it was understood his new employer would become a

competitor in the upstream dissolving pulp business.

[599] Fairly early on Mr. Vinall used his middle name and an alias email to shield

his identity and thus his involvement with Fortress to the outside world. I find that he

was initially motivated to do so because there was no guarantee the Fortress deal

would pan out and he worried that his job at Sateri would be jeopardized if his

intention to join Fortress was exposed. As the months passed and his assistance to

Fortress intensified, the veil of secrecy became all the more essential as Mr. Vinall

could see that the nature and extent of his involvement had crossed the line of what

was acceptable pre-resignation planning and preparation. Mr. Wasilenkoff went

along with Mr. Vinall to evade detection by the plaintiffs for the same reasons.

Mr. Vinall’s fear of reprisal by Sateri and his insight into his dereliction of duty not to

compete with his current employer, and Mr. Wasilenkoff’s appreciation of those two

factors, were also behind their phoney email string that gave the impression that

Mr. Vinall’s connection with Fortress arose after he resigned. Another factor driving

Mr. Vinall’s covert conduct was his concern over his liberal use of the plaintiffs’

internal (although not necessarily confidential) information.

[600] Among the prime excuses offered by Mr. Vinall in defence of his conduct was

that, because Fortress had not obtained court approval to seal the deal and was not

actually producing dissolving pulp at the Thurso Mill when he resigned, he cannot be

said to have been competing with the plaintiffs in the upstream business. It is of

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significance that the competitive enterprise in this case was not a ready-made

business. Rather, it could only materialize through the successful navigation of a

complex transaction. To sanction such a narrow conception of an employee’s act of

competition would be misguided in the circumstances at hand. It could allow an

employee to cross the line for the purpose of facilitating a third party’s acquisition of

a competitive business that would soon employ the employee, without violating his

or her implied contractual duty so long as such business did not activate until after

the employee’s resignation. Concurrence in that approach poses a danger of

eroding the parameters of the employee’s implied duty and does not resonate with

the rationale for prohibiting employees from competing with their current employer.

[601] The fact that partway through Fortress’s negotiations with the Quebec

government, the project was changed to incorporate a co-generation element does

not make Fortress any less a potential competitor. Converting the Thurso Mill to a

dissolving pulp plant remained a mainstay throughout.

[602] The preponderance of the evidence amply demonstrated that, while still

employed by Sateri Shanghai, Mr. Vinall’s actions between mid-to-late October 2009

and his resignation on March 26, 2010, exceeded allowable planning and

preparation to leave his employment and take up new employment with a

competitive business. That, however, does not end the analysis.

[603] As an employee of Sateri Shanghai Mr. Vinall was duty-bound to refrain from

competing with it during the subsistence of his employment. Sateri Shanghai is in

the business of human resources management; it is not directly involved in the

upstream side of the dissolving pulp business. In my view, it is too tenuous a factual

stretch to find that Mr. Vinall was competing with the business of his actual

employer. The same holds with respect to his actions in competition vis-à-vis Sateri

Singapore, the only other plaintiff that, arguably, was Mr. Vinall’s direct employer, as

it too is solely in the business of managing personnel.

[604] The plaintiffs looked to the common employer doctrine as a means of

overcoming that factual disconnect. They contended that its application would

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extend the implied duty owed by Mr. Vinall to Sateri Shanghai (or, arguably, to Sateri

Singapore) to the entire Sateri group of companies. In effect, the plaintiffs relied on

the doctrine to import into Mr. Vinall’s implied contractual duty the broad reach of the

Sateri Employment Contract that obligated him to the Sateri group at large. This is a

convenient place to remark that none of the parties asserted that Mr. Vinall’s

express contractual provisions overtook Mr. Vinall’s implied obligation to not

compete.

[605] As has been gone through, the Bahia Mill is owned directly by Bahia

Specialty. It seems obvious that Fortress Specialty was the corresponding potential

competitor of Bahia Specialty. Even if Bahia Specialty was considered to be

Mr. Vinall’s employer pursuant to the common employer doctrine and he was found

to have actively competed with that entity, it is not a plaintiff. It must surely be the

case that, in addition to extending Mr. Vinall’s duty not to compete to all of the Sateri

corporations, there must still be a finding of fact that he breached that duty with

respect to a plaintiff. In this regard it is noteworthy that in Manley, where the court

disregarded the corporate veil to widen the employee’s duty and liability beyond his

direct employer to the employer’s parent company, both the parent and the

subsidiary were plaintiffs and the employee was in fact in competition with the

parent.

[606] Another way to consider the issue might be to ask whether the concept of

acting in competition in these circumstances ought to be given the widest possible

interpretation so as to find that Mr. Vinall’s conduct vis-à-vis Fortress was in

competition with the holding company, Sateri International Co. on the logic that it has

an indirect interest in Bahia Specialty. However, that link relies on a very distant

relationship involving three degrees of legal corporate separation between Sateri

International Co. and the active company, Bahia Specialty. Further muddying the

cohesiveness of that analysis is the fact that Sateri International Co. has indirect

interests in other Sateri operating businesses, such as the downstream branch of

dissolving pulp and the sale of products.

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[607] To expand the common employer/group enterprise doctrine for the purpose of

compromising the interests of employees, rather than in furtherance of its original

purpose of protecting the interests of employees, engages significant policy

considerations and carries potentially far-reaching ramifications for employees. It is

also fraught with conceptual and practical difficulties, some of which may have been

attenuated by including Bahia Specialty as a plaintiff. That is not to say that the

doctrine is necessarily to be forever consigned to enlarging the concept of

employers for the benefit of employees. However, in the case at hand, none of

these pivotal considerations were addressed by the evidence or the underdeveloped

submissions presented.

[608] For the foregoing reasons and having regard to the desirability of carefully

limiting the application of these doctrines, I find that I am without a sufficient

evidentiary or principled foundation to conclude that Mr. Vinall engaged in

competition against any of the plaintiffs in breach of his implied duty of fidelity,

loyalty and good faith.

[609] My conclusion likely has little practical effect (and, in saying this, I have

considered the remedy side of the equation). This is because Mr. Vinall’s conduct

under discussion clearly amounted to a breach of his obligations under the Sateri

Employment Contract. By contract, he expressly agreed that those obligations were

owed to the Sateri “Group” at large, and are not restricted merely to the act of

competing with his employer. Mr. Vinall’s conduct that I have summarized above,

can fairly be characterized as engaging:

a)

“…indirectly in any other business…” in the capacity of “…otherwise”,

without having obtained proper approval, in violation of clause XV.2 of

the Sateri Employment Contract; and

b)

“…in activities on behalf of other…entities…indirectly in any capacity

whatsoever”, without approval, in breach of clause XVIII.1 of the Sateri

Employment Contract as augmented by paragraph 4.1 of the

Declaration.

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[610] In the aforesaid way and to that extent, Mr. Vinall breached clauses XV.2 and

XVIII.1 of the Sateri Employment Contract and paragraph 4.1 of the Declaration.

Alleged Breach of Six Month Notice Requirement

[611] Clause XIX.6 of the Sateri Employment Contract required Mr. Vinall to provide

six months’ notice of his resignation or pay a sum in lieu of notice. The same clause

also empowered Sateri Shanghai, in its sole and absolute discretion, to waive the

notice requirement. As mentioned, when Mr. Vinall tendered his resignation the

plaintiffs gave no indication to him that he was to adhere to his obligation to pay in

lieu of proper notice. They did an about-face long after they first became aware that

he had joined Fortress.

[612] As I understand it, the thrust of the plaintiffs’ argument is that Mr. Vinall

resigned on the pretext of his tragic family situation and, in that way, misled them

about the real reason for his departure. They assert that because he

misrepresented why he was leaving, his contractual obligation to pay in lieu of notice

should be enforced. The plaintiffs did not direct me to any case authorities of

assistance or further develop their sparse submissions.

[613] There was more than one reason behind Mr. Vinall’s decision to leave Sateri.

He had grown dissatisfied with his employment there for an array of reasons,

particularly the unexpected protraction of his commitment to be in Brazil and his

revelation that he may never ascend to the upper management post for which he

had been recruited. Intertwined with those reasons and driving his desire to return

to Canada, were Mr. Vinall’s delicate family circumstances.

[614] In Mr. Vinall’s own words to Mr. Wasilenkoff, portraying his family crisis to

Sateri as the reason for his departure was not “stretching” the truth far - and I find it

was not. Although Mr. Vinall over-emphasized the urgency and degree that his

family situation played in his overall decision to resign to Mr. Goh, it was

nonetheless a genuine and significant interwoven factor. He had no obligation to

elaborate on his reasons or to divulge that he was joining Fortress.

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[615] By May 9, 2010, the plaintiffs were aware that Mr. Vinall had joined Fortress.

Later that summer, Ms. Li concluded that Mr. Vinall had used the plaintiffs’

confidential information. As mentioned, the plaintiffs did nothing about Mr. Vinall’s

perceived misconduct until January 2011. Even at that juncture, their counsel did

not raise Mr. Vinall’s short notice of termination. Indeed, it was not clear on the

evidence precisely when the plaintiffs first identified it as an issue.

[616] All things considered, I conclude that the plaintiffs effectively waived the

requirement that Mr. Vinall provide them six months’ notice or that he pay any

portion of his salary in lieu thereof. He did not breach his contractual obligation

under clause XIX.6.

Alleged Breach of Obligation not to Retain Confidential Information

[617] The plaintiffs allege that Mr. Vinall retained documents or storage media that

contained confidential information in contravention of his obligation under clause

XVI.6 of the Sateri Employment Contract, which stipulates:

[Mr. Vinall] undertakes not to retain any documents or storage media

containing any confidential information in his possession or subject to his

control at such time and shall return all company documents, files and

properties, whether physical or electronic, in good condition during or after

the termination of his employment, and ensure proper hand-over to the

appointed employees…

[618] The clause is clumsily worded. While, on the one hand it purports to prohibit

Mr. Vinall from retaining documents or storage media that contain confidential

information, it also contemplates that the return of such items may be made after the

termination of his employment. That point to the side, it is not disputed that after he

left Sateri, Mr. Vinall found the category one documents in his basement. He

appeared to concede that his retention of those documents put him in technical

breach of this clause, and I find that to be the case.

[619] I am satisfied that Mr. Goh agreed to Mr. Vinall’s proposed timetable of the

post-resignation delivery of his laptop to the Singapore head office and, accordingly,

find that Mr. Vinall was not in breach of this clause on that basis.

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[620] Finally, I accept Mr. Vinall’s testimony concerning his post-resignation

treatment of the confidential information on his USB/thumb drives and of the devices

themselves, which occurred long before he was put on notice by the plaintiffs to

preserve their confidential information. The probabilities of the evidence do not tip in

the plaintiffs’ favour to warrant a finding that Mr. Vinall retained confidential

information on those devices after his resignation in breach of this clause.

Claim against Fortress for Inducing Breach of Contract

 Overview of Legal Framework

[621] The plaintiffs allege that, based on the tort of inducing breach of contract,

Fortress is jointly and severally liable with Mr. Vinall for his breaches of the Sateri

Employment Contract.

[622] The tort of inducing breach of contract can be broken down into five

constituent elements. Each must be proved to establish liability:

a) the existence of a contract between the plaintiffs and a third party (i.e.

Mr. Vinall) and a breach of it by the third party;

b) the defendant had knowledge of the existence of the contract;

c) the defendant’s conduct was intended to cause the third party to breach the

contract;

d) the defendant’s conduct caused the third party to breach the contract; and

e) the plaintiff suffered damage as a result of the breach.

See: Correia v. Canac Kitchens, 2008 ONCA 506 at para. 99 [Correia]; Super-Save

Enterprises Ltd. v. Del’s Propane Ltd., 2004 BCCA 183 at para. 2; International

Sausage House Ltd. v. Hammer Estate, 2015 BCSC 1155 at para. 229.

[623] That there existed a contract between Mr. Vinall and Sateri Shanghai was

properly admitted by Fortress. Whether the remaining ingredients recited above in

(b) through (d) are sufficiently made out engages a thornier inquiry. In this case,

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however, I need only consider whether the final compulsory element to the cause of

action has been established, namely whether the plaintiffs suffered damage as a

result of the alleged breach. That is because proof of damage poses an

insurmountable hurdle to the plaintiffs and is fatal to their claim.

[624] The tort of inducing breach of contract derives from an action on the case.

Therefore, as part of establishing the cause of action the plaintiffs must prove that

damage resulted from Fortress’s wrongful inducement of Mr. Vinall’s contractual

breaches: Posluns v. Toronto Stock Exchange (1964), 46 D.L.R. (2d) 210 (Ont.

H.C.); Correia at para. 99.

[625] Unlike a claim for breach of contract, damage is a mandatory element of

proving the tort. Failure to prove damage in consequence of Fortress’s conduct

amounts to a failure to prove the cause of action.

[626] Only where the cause of action has been proven, do damages as a remedy

become available. In this context, damages are said to be “at large”, meaning they

are “not limited to specific or special damage” and may include exemplary or punitive

damages and elements for injured feelings, loss of reputation, and the bad or good

conduct of either party, where no precise limit can be set: Drouillard v. Cogeco

Cable Inc., 2007 ONCA 322 at paras. 42-43 (add’l reasons at 2007 ONCA 485).

 Analysis

[627] I understood the plaintiffs to suggest that, in light of the recent decision in Zoic

CA, it may be unnecessary to prove that they suffered a resultant loss or damage as

a constituent element of the tort and in respect of remedial damages at large. If my

understanding is correct, their submission as it pertains to proof of damage as an

ingredient of the tort confuses the analysis. The ground of appeal of relevance in

Zoic CA concerned the remedies for breach of a non-fiduciary employee’s implied

contractual obligation of fidelity and loyalty. The Court of Appeal’s discussion of

damages was confined to damages in the remedial sense and it was within that

frame of reference that it considered the availability of an equitable accounting as a

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remedy. The tort of inducing a breach of contract was not before the panel and was

not considered.

[628] What then do the plaintiffs submit was the harm or damage they suffered in

consequence of Fortress’s alleged inducement to Mr. Vinall to commit the

contractual breaches I have found (and assuming, for purposes of this discussion,

that the other elements of the tort set out in (b) through (d) could be established)?

[629] The plaintiffs assert two types of damage. Their primary contention is that the

damage suffered was a diminution of their share of the dissolving pulp market in

China, where the Bahia Mill was the largest supplier, resulting from Fortress’s entry

into that sector as a new player in December 2011. In a different context in their

submissions, the plaintiffs argued that a loss to them of sales, revenues and

customers was a “natural consequence” of Fortress’s new presence in the upstream

dissolving pulp market. They submit that, given those so-called natural

consequences, it would be reasonable to infer that “some portion” of Fortress’s

$88.5 million in sales of dissolving pulp in 2012 shown on its financial statements,

represents a loss to the plaintiffs.

[630] Offered as a further indication that they suffered some type of damage, the

plaintiffs pointed to Mr. Vinall’s acknowledgement at trial that China was the main

market for dissolving pulp and, as there were a limited number of buyers in China, a

new competitor in the market place would necessarily overlap with existing

suppliers. He also agreed with the proposition that it would not be in Sateri’s

interests for Fortress to enter the market. It is difficult to quarrel with Mr. Vinall’s

statements as general observations, but they carry no probative value to the more

exacting issue at hand. It remains to add that Mr. Vinall also credibly testified that

the quality of the grades of dissolving pulp manufactured at the Thurso Mill and the

Bahia Mill were different and would not appeal to the same buyers.

[631] The plaintiffs blamed the defendants for the lack of available documentary

evidence relevant to the issue of damage. Their accusation failed to acknowledge

that proof of any detrimental impact to the plaintiffs’ financial bottom line stemming

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from Fortress’s intrusion into their market share was very much in their control. The

plaintiffs could have opened their books, customer lists, relevant financial statements

and the like to reveal their “before and after” financial picture as a rudimentary

measure of their loss. I suspect that tracking the sales, streams of revenue and

profit generated by the upstream dissolving pulp business through the web of Sateri

companies and into the hands of the plaintiffs is a more complex endeavour than

that. If so, an appropriate expert could have been retained. However, the plaintiffs

chose not to tender any financial information along those lines or supply an expert or

other cogent evidence to support their assertion of damage.

[632] It is also relevant to the plaintiffs’ contention that Sateri had its own internal

downstream customers in China who purchased some percentage of the dissolving

pulp produced at the Bahia Mill. It is reasonable to infer that Fortress’s foray into

that market in China would not have made a speck of difference to the segment of

the plaintiffs’ market comprised of those captive buyers.

[633] The unadorned essence of the plaintiffs’ submission is that, starting in

December 2011, they sustained damage by the mere presence of Fortress as a

vendor of dissolving pulp in the Chinese market. On the evidence presented that

contention is hopelessly speculative and, frankly, simplistic.

[634] These significant evidentiary frailties to the side, there is an overarching

deficiency in the plaintiffs’ assertion of damage stemming from an alleged loss of

market share. Their assertion is tethered to the unproven underpinnings that

Mr. Vinall was their fiduciary and misappropriated the Thurso Mill opportunity, a

project that neither he nor Fortress were at liberty to pursue and use as a vehicle to

enter the dissolving pulp market in December 2011. In the result, the plaintiffs’

assertion of damage flowing from a loss of market share is not sufficiently connected

to the specific contractual breaches committed by Mr. Vinall and alleged to have

been induced by Fortress.

[635] The plaintiffs’ other assertion of damage relates to the payments made to

Tecbiz in respect of their forensic evaluation of Mr. Vinall’s laptop.

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[636] In the summer of 2010, Tecbiz rendered three invoices in the total sum of

$26,937.25 in Singapore dollars. Each invoice was issued to RGE Pte. Ltd., which

I take to be a company within the RGE Group.

[637] Mr. Goh was the only witness to testify about the Tecbiz invoices. Although

he had no direct knowledge that any of them had been paid, he assumed that they

had been based largely on the fact that he had signified his approval for payment on

the face of two of them.

[638] It is evident from Mr. Goh’s testimony that none of the plaintiffs paid the

Tecbiz invoices directly. What Mr. Goh described were the “accounting practices”

between Sateri and the RGE Group with respect to invoices. He testified that Sateri

outsourced a bundle of services to the RGE Group in accordance with an

arrangement that Sateri would pay the RGE Group for its services. Mr. Goh offered

no detail beyond that bare-bones description. He did not elaborate on the

mechanism by which one or other of the plaintiffs would have ultimately ended up

paying such invoices if, in fact, any of them did so. Nor did Mr. Goh confirm that the

ultimate payor was one of the plaintiffs; he merely referred to “Sateri” with no further

specificity.

[639] On balance, the evidence is not sufficient to reasonably sustain the finding

that any of the plaintiffs indirectly paid the Tecbiz invoices by reimbursing the RGE

Group for services at a subsequent time. Having reached that conclusion, it is

unnecessary for me to consider the nice question of whether out-of-pocket

expenditures of this character would constitute damage for the purpose of proving

this tort.

[640] There was no suggestion in the evidence or in closing argument that the

requisite damage may have taken the form of Mr. Vinall’s substandard job

performance or inattention to his work assignments while he was assisting Fortress

with the Thurso Mill venture in the pre-resignation period.

[641] This claim against the Fortress defendants is dismissed.

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REMEDIES

General Comments

[642] At the close of the evidence, the plaintiffs elected to pursue an accounting

and disgorgement remedy over damages and made extensive submissions in

support of their position. They also sought punitive damages in conjunction with the

accounting.

[643] The plaintiffs’ argument for disgorgement was mainly postulated on the

unproven premises that Mr. Vinall owed them fiduciary duties that he breached in

relation to the Thurso Mill project and in other ways, and that Fortress was jointly

and severally liable to account in respect of such breaches by application of the

doctrine of knowing assistance in breach of trust. The failure to prove liability

against the Fortress defendants on any ground or to establish Mr. Vinall’s fiduciary

standing and the Thurso Mill’s status as a corporate opportunity leaves the plaintiffs

to pursue relief solely against Mr. Vinall in respect of his breaches of contract.

Those contractual breaches pertain to his misuse and post-resignation retention of

confidential information and participation in prohibited activities vis-à-vis Fortress

while still employed by Sateri.

Overview of Legal Framework

[644] The traditional remedy for breach of contract is expectation damages.

Damages of that sort focus on the plaintiff’s loss and are intended to put the plaintiff

in the position it would have been in had the breach not occurred. As I will return to

below, in appropriate cases it is open to the court to depart from the usual measure

of damages and order an equitable accounting of the gain enjoyed by the party in

breach.

[645] In Jostens Canada Ltd. v. Gibson Studios Ltd. (1996), 65 C.P.R. (3d) 520

(B.C.S.C.) [Jostens], the plaintiff brought an action for the wrongful appropriation of a

lucrative school photography business against a former manager and representative

with whom it had a contractual relationship of agency. The trial judge dismissed the

action. In the first of two decisions, the Court of Appeal upheld the trial judge’s

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decision that none of the alleged fiduciary obligations had survived the termination of

the contractual relationship between the parties. However, it concluded that Jostens

had a right to relief based on the respondents’ breach of contract that bound them to

devote their full time and best efforts to the promotion of Jostens’ business: Jostens

Canada Ltd. v. Gibsons Studio Ltd., [1998] 5 W.W.R. 403 at para. 31 (C.A.). On that

footing, the Court held that Jostens was entitled either to damages for breach of

contract or to an accounting in equity of the respondents’ profits.

[646] The determination of relief was remitted back to the lower court. It granted an

accounting of the defendants’ gain as a result of their breach of contract. On the

defendants’ appeal of the award, the Court of Appeal held that damages had been

properly assessed on an equitable basis corresponding to the defendants’ gain at

the time of the breach: Jostens Canada Ltd. v. Gibsons Studio Ltd., 1999 BCCA 273

[Jostens CA No.2].

[647] In Restauronics Services, the Court of Appeal considered the nature of

recovery by an employer where, in addition to competing with his or her employer, a

non-fiduciary employee had misused confidential information or trade secrets. Ryan

J.A., for the Court, commented:

[73]

The case-law seems to indicate that where there has been a misuse

of confidential information or trade secrets, the employer may recover

damages against the employee for profits it has lost as a consequence of the

breach or, instead of damages, elect to take judgment for an account of the

profits the employee has obtained through the wrongful exploitation of the

material in question. The employer is free to choose whichever method will

result in greater compensation. (e.g., 57134 Manitoba Ltd. v. Palmer (1985),

65 B.C.L.R. 355 at 371 (S.C.), aff’d (1989), 37 B.C.L.R. (2d) 50 (C.A.).)

[648] Referring to Restauronics Services and other case authorities, Sigurdson J.

summarized the animating principles in Pan Pacific:

[62]

To summarize briefly, employees generally owe their employers an

implied contractual duty of loyalty and in certain circumstances may owe a

greater and more exacting duty, a fiduciary duty. If an employee competes

with his or her employer without permission, it will generally be a breach of

the implied term of loyalty entitling the employer to damages for breach of

contract. When that breach of contract involves the misuse of trade secrets

or confidential information the plaintiff may elect judgment for the profits

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earned by the employee by the wrongful exploitation of the confidential

material in question. However, if the employee’s improper competition is also

a breach of fiduciary duty, the employer may seek the equitable remedy of

disgorgement of the profits made by the employee.

[649] In Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, the Supreme

Court of Canada acknowledged the potential of a gain-based recovery for a breach

of contract in exceptional cases where expectation damages may be inadequate.

[650] The Court of Appeal recently revisited the availability of an equitable

accounting for breach of contract in Zoic CA. There, it was argued that an equitable

accounting was justified against an employee who had breached her implied

contractual duty of fidelity (competing with the existing employer) on the basis that

she was a “near fiduciary”.

[651] Chiasson J.A., for the Court, made the important observation, at paras. 69

and 71, that the “fiduciary relationship should not drive the analysis”, and declined to

“import into the consideration of remedies for breach of contract the prophylactic

objective of equitable remedies for breach of fiduciary duty”. He affirmed the trial

judge’s discretion to grant an equitable accounting in respect of a breach of contract,

stating at para. 72:

In my view, the appellant’s position is supportable on the basis that in

appropriate circumstances the court may order an equitable accounting when

damages are not an adequate remedy for breach of contract. That was the

fundamental basis of the House of Lords’ decision in Attorney General v.

Blake, [2001] 1 A.C. 268. In Blake, a former member of the English security

and intelligence service violated a contractual obligation of confidentiality by

publishing an autobiography. By the time it was published, the information no

longer was confidential. No loss could be established. Lord Nicholls stated:

… An account of profits will be appropriate only in exceptional

circumstances. Normally the remedies of damages, specific

performance and injunction, coupled with the characterisation of some

contractual obligations as fiduciary, will provide an adequate response

to a breach of contract. It will be only in exceptional cases, where

those remedies are inadequate, that any question of accounting for

profits will arise. No fixed rules can be prescribed. The court will have

regard to all the circumstances, including the subject matter of the

contract, the purpose of the contractual provision which has been

breached, the circumstances in which the breach occurred, the

consequences of the breach and the circumstances in which relief is

being sought. A useful general guide, although not exhaustive, is

Sateri (Shanghai) Management Limited v. Vinall

whether the plaintiff had a legitimate interest in preventing the

Page 175

defendant’s profit-making activity and, hence, in depriving him of his

profit.

The court ordered disgorgement of Mr. Blake’s gains.

[652] Chiasson J.A. returned the matter to the trial judge to consider whether an

equitable accounting should be ordered. There is no record of any subsequent

hearing or order in respect of that matter.

[653] In addition to approving of the approach taken by the House of Lords in

Attorney General v. Blake (2000), [2001] 1 A.C. 268 (U.K.H.L.) [Blake], Chiasson

J.A. noted that support for ordering an equitable accounting in respect of a breach of

contract when damages are not an adequate remedy, could be found in the earlier

decisions of our Court of Appeal in Jostens CA No.2 and Smith v. Landstar

Properties Inc., 2011 BCCA 44.

[654] In Blake, Lord Nicholls, for the majority, reasoned that an accounting of profits

as a remedy for breach of contract ought to be granted only in exceptional cases.

Turning his mind to the situations that may qualify as exceptional his Lordship wrote

at 285:

...No fixed rules can be prescribed. The court will have regard to all the

circumstances, including the subject matter of the contract, the purpose of the

contractual provision which has been breached, the circumstances in which

the breach occurred, the consequences of the breach and the circumstances

in which relief is being sought. A useful general guide, although not

exhaustive, is whether the plaintiff had a legitimate interest in preventing the

defendant’s profit-making activity and, hence, in depriving him of his profit. It

would be difficult, and unwise, to attempt to be more specific.

[655] Lord Nicholls agreed with the reasoning of Lord Woolf MR in the Court of

Appeal that the following factors would not individually stand as an adequate reason

for ordering an account of profits:

(a) the breach was cynical and deliberate;

(b) the breach enabled the defendant to enter into a more profitable contract

elsewhere; and

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(c) by entering into a new and more profitable contract, the defendant put it out of

his power to perform his contract with the plaintiff.

[656] Further, Lord Nicholls rejected the proposition endorsed by Lord Woolf MR to

the effect that an account of profits should be available in circumstances where the

defendant had obtained his profit by doing the very thing he was contracted not to.

In Lord Nicholls’ view, that category was defined too widely to be of assistance, and

something more was required before an account of profits would be the appropriate

remedy.

[657] The pivotal factual premise underlying the whole of the analysis by the Court

of Appeal and the House of Lords in Blake was that the defendant had acquired ill-

gotten profits as a result of his breach of contract.

[658] In Indutech Canada Ltd. v. Gibbs Pipe Distributors Ltd., 2011 ABQB 38 at

para. 518, aff’d 2013 ABCA 111, Romaine J. posited that the “something more”

contemplated by Lord Nicholls may be as identified in John D. McCamus, The Law

of Contracts (Toronto: Irwin Law Inc., 2005) at 974:

The principal argument in favour of granting this form of relief in a contractual

context is that some breaches of contract are as offensive or wrongful as

many breaches of fiduciary obligation or breaches of confidence.

Accordingly, just as the accounting of profits remedy is available in these

other contexts, so too it should be available in the context of a heinous or

unusually wrongful breach of contract. A further and perhaps more

persuasive argument in support is that courts will, in any event, order

disgorgement of profits in a case of contract breach where any other result

would be unjust, even in the absence of an explicit doctrine permitting the

granting of such relief.

Analysis

[659] The plaintiffs’ discussion of the gain to be disgorged centered almost

exclusively on three categories of benefit that they assert was enjoyed by Fortress

as a result of Mr. Vinall’s alleged breaches of fiduciary duty and Fortress’s duplicity.

It is self-evident, that the dismissal of all claims against the Fortress defendants

leaves the plaintiffs with no remedy against them.

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[660] Accordingly, the only relief to be granted is in relation to Mr. Vinall’s breaches

of contract, for which the plaintiffs have elected the extraordinary remedy of an

equitable accounting of his so-called gain. The question thus raised is whether this

case is so exceptional that I should exercise my discretion to grant such a remedy?

[661] In assisting Fortress while still at Sateri, Mr. Vinall misused a few pieces of

the plaintiffs’ confidential information in breach of contract. The law does not take

kindly to an employee’s wrongful use of the employer’s confidential information.

Still, in considering whether an accounting is an appropriate remedy the court will

take into account several factors, such as the nature of the information, the impact of

its misuse and its degree of specialness and the nature and depth of the misconduct

of the party in breach. Here, there was nothing very special about any of the

confidential information misused by Mr. Vinall and, in the overall scheme, its

disclosure was inconsequential. Mr. Vinall’s wrongful post-resignation retention of

the confidential information contained in the category one documents, which I doubt

was deliberate, was also inconsequential.

[662] After Mr. Vinall resigned, he breached the Sateri Employment Contract by

providing the Sateri trip report to Mr. Veilleux. Although I have accepted Mr. Goh’s

testimony that some contents of that report were confidential, the evidence does not

reasonably permit a finding that it was anything other than slightly special.

Moreover, there was no cogent evidence as to what came of the receipt of that trip

report.

[663] Aside from Mr. Vinall’s disclosure of that unimportant bit of confidential

information, it has not been shown that, after he joined Fortress, he misused the

other snippets of low-grade confidential information that forms the basis of his

breaches of contract. Nor did Mr. Vinall exploit significant categories of confidential

information, such as trade secrets, client lists, pricing information, protected mill

conversion data or the like to assist Fortress.

[664] The expectation that Mr. Vinall would act as the future lead on the actual

conversion of the Thurso Mill was important to the Quebec government. However,

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the preponderance of the evidence does not show that his involvement in that future

capacity or the assistance he provided to Fortress in the pre-resignation period was

crucial to Fortress’s ultimate acquisition of the Thurso Mill, in the sense that the

government would not have entered into or continued with the deal had Mr. Vinall

not been involved or had subsequently pulled out or been excluded. Put another

way, but to the same effect, Mr. Vinall’s participation and continued involvement vis-

à-vis Fortress relative to the Thurso Mill deal was not a pre-requisite to Fortress’s

successful acquisition.

[665] The evidence falls significantly short of establishing that Mr. Vinall’s misuse of

the plaintiffs’ confidential information played anything more than a de minimus role,

in Fortress’s interest in pursuing or its attainment of the Thurso Mill project.

[666] The Sateri Employment Contract prohibited Mr. Vinall from participating in

substantially all of the activities in which he engaged relative to Fortress between

mid-to-late October 2009 and the date of his resignation. Those constraints

disappeared upon his resignation.

[667] In any event, I would again observe that assessing the matter through an

analytical model that springs from the faulty theory that Fortress’s opportunity to

acquire the Thurso Mill was the product of Mr. Vinall’s breach of fiduciary duties and

Fortress’s wrongful assistance, or was the result of his contractually prohibited

disclosures and activities, is ill-conceived.

[668] The plaintiffs’ election for an equitable accounting is readily explained by the

fact that they did not suffer any compensable loss in respect of Mr. Vinall’s breaches

of contract. Yet, it is not precisely clear what gain or benefit Mr. Vinall can be said to

have obtained as a result of his contractual breaches. In closing submissions, the

plaintiffs argued that one of the ways to assess the value to Fortress of the Thurso

Mill acquisition was with reference to the compensation and related benefits that

Messrs. Vinall and Wasilenkoff each received from Fortress in relation to that

transaction. Although the context of the argument concerning Mr. Vinall’s

compensation was intended as a partial yardstick to measure Fortress’s gain, no

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other quantification of Mr. Vinall’s gain or benefit was asserted. I therefore take the

plaintiffs’ position to be that Mr. Vinall’s ill-gotten gain stemming from his contractual

breaches for which they seek disgorgement is reflected in his compensation with

Fortress and, in particular, the receipt of his RSUs.

[669] The plaintiffs calculated Mr. Vinall’s 2010 compensation to be worth more

than $2.16 million, consisting of a salary, bonus and his RSUs when valued as at the

date they were issued. I have accepted Mr. Vinall’s evidence that he suffered large

financial losses in relation to his RSUs, which vested variously in 2010 and 2012.

They did not constitute a benefit or gain to him; in fact, the reverse was true.

[670] Closer to the point, the notion that Mr. Vinall’s negotiated employment

compensation for services rendered is in the nature of a wrongfully-obtained gain

available for disgorgement does not find support in the authorities placed before me.

The repercussions of accepting such a proposition could be catastrophic for

employees in Mr. Vinall’s circumstances in a way that does not resonate with the

applicable equitable paradigm.

[671] Unlike the defendants in Blake and Jostens, as a result of his contractual

breaches Mr. Vinall did not derive any profit or gain of the kind that would properly

be the subject matter of an equitable accounting. Moreover, his breaches of

contract, either singly or cumulatively, were not remotely sufficiently offensive or

egregious to militate in favour of the exercise of my discretion to grant an equitable

accounting. A demand for disgorgement from Mr. Vinall who has enjoyed no gain or

profit, by plaintiffs who have suffered no harm or form of loss, can find no reward in

equity.

[672] In the circumstances, it would not be unjust to the plaintiffs to decline to order

the exceptional remedy they seek. In contrast, it would be unduly harsh and

manifestly unjust to Mr. Vinall to grant the remedy sought.

[673] Finally, Mr. Vinall’s conduct was not reprehensible in the sense of deserving

of punishment by an award against him of punitive damages: see generally, Vorvis

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v. Insurance Corporation of British Columbia, [1989] 1 SCR 1085; Whiten v. Pilot

Insurance Co., 2002 SCC 18.

DISPOSITION

[674] The plaintiffs’ claims against Mr. Vinall grounded in breach of contract have

succeeded in part. All other claims against him are dismissed. An order for an

equitable accounting is denied. The plaintiffs’ election for an accounting disentitles

them to an award of damages. Even if that election had not been made, an award of

nominal damages only would be warranted.

[675] The plaintiffs’ claims against the Fortress defendants are dismissed in their

entirety.

COSTS

[676] If the parties are unable to reach an agreement on costs, they may file written

submissions implementing a timetable of their choosing that incorporates a final

deadline of June 16, 2017.

“Ballance J.”

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Schedule “A”

Bracell International Co. Ltd. (formerly, Sateri

International Co. Ltd.)

Sateri

Sateri Specialty

Cellulose Ltd.

Sateri Copener

International

(Singapore)

Pte Ltd.

Limited

Sateri

D.P.

Marketing

Int’l Ltd.

Sateri Bacell

Limited

(Shanghai)

Management

Limited

Bahia Specialty

Cellulose

Norcell, S.A.