The British Columbia Supreme Court recently ordered a former
Imperial Parking Canada Corporation ("Impark") CEO to
repay over $1.2 million in severance and to disgorge fees earned
from and profits earned by his new company as a result of a breach
of his fiduciary duties. The judgment provides a cautionary tale to
those who would ignore their fiduciary obligations.
Herbert Anderson was CEO of Impark from 2005 until the Board of
Directors terminated the relationship. Anderson and Impark
negotiated a Severance Agreement including the following terms:
over $1.2 million in severance;
Anderson's agreement not to
compete following termination was reduced from 24 to 18
Anderson's agreement that he
continued to owe Impark a fiduciary duty following his dismissal
from employment; and
any breach of Anderson's
confidentiality obligation or his ongoing fiduciary duty would
result in a complete failure of consideration.
Michael Menzies, described by Justice Emily Burke of the B.C.
Supreme Court as a "close friend" of Anderson, entered
into a consulting agreement with Impark which expired August 31,
2012 and contained a non-competition provision preventing him from
working for a competitor until August 31, 2014.
On June 9, 2010, just months before his departure, Anderson
entered into an agreement with Menzies on behalf of Impark which
cancelled the final year of Menzies' consulting agreement and
eliminated two years of his non-competition provision.
Anderson claimed that he had entered into the Letter Agreement
not for personal gain but rather to save Impark money by
eliminating a $180,000-a-year consulting contract. Justice Burke
found that while the Letter Agreement did in fact save Impark
consulting fees, it gave away significant non-competition
protection for no consideration. Such a decision should have
involved someone else from Impark, not just Anderson, who had a
close relationship with Menzies and a personal interest in the
outcome of the Letter Agreement.
Justice Burke concluded that the Letter Agreement was made
contrary to the best interests of Impark and for the benefit of
Anderson and Menzies as it enabled them to compete with Impark
through their new company, GoPark. Justice Burke also found that
Anderson and Menzies intentionally concealed the Letter Agreement
Breach of Fiduciary Duty
As CEO, Anderson owed a fiduciary duty of utmost good faith and
loyalty to Impark, which required him to: (a) act in the best
interests of the corporation; (b) avoid conflicts of interest; (c)
keep confidences; and (d) fully disclose to the corporation all
material information that might affect the corporation's
Justice Burke found that Anderson had a fiduciary duty to
disclose the Letter Agreement when negotiating his Severance
Agreement. In failing to disclose this material information,
Anderson breached his fiduciary duty.
The Court also concluded that Impark was induced to enter the
Severance Agreement by Anderson's failure to disclose material
information contained in the Letter Agreement. Had Impark known of
the Letter Agreement, it would have instead dismissed Anderson for
Justice Burke also determined that Menzies knowingly assisted
Anderson's breach of fiduciary duty by concealing the existence
of the Letter Agreement and relying on it to compete against
Impark. Menzies was jointly and severally liable for Anderson's
breach of fiduciary duty.
Justice Burke made an order rescinding the Severance Agreement
and the Letter Agreement. Anderson was required to disgorge the
$1.2 million severance payment and Menzies' non-competition
obligations remained in effect until August 31, 2014.
Justice Burke found a "common sense causal link"
between the breach of fiduciary duty and the profits earned by
GoPark – "as a direct result of the breach of his
fiduciary duty to Impark, Anderson permitted Menzies to take
unlawful advantage of Impark and, in doing so, gave himself and his
new company a competitive advantage in the parking market".
GoPark, Anderson and Menzies were ordered to disgorge their profits
and fees earned in the GoPark venture for the duration of
Menzies' non-competition period.
The decision is a clear warning to fiduciaries (and their
friends) about the serious consequences of breaching or assisting
in a breach of fiduciary duties. It is also a useful reminder to
employers of the broad remedies available in the event of a
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