B.C. Court Clarifies Limits on Departing Employee’s Use of Employer Information and Diversion of “Corporate Opportunity”
In Sateri (Shanghai) Management Limited v. Vinall, 2017 BCSC 491, the B.C. Supreme Court summed up the law governing how far a departing employee can go in effectively assisting a new employer, including through sharing his or her current employer’s confidential information or in diverting a “corporate opportunity”. The case also confirms that substantial damages will only be awarded against an employee if the employer can show it has suffered a resulting financial loss.
Vinall was a senior executive with the Sateri pulp and paper business. He reviewed pulp and paper plants around the world as potential acquisition targets. As a result of insolvency, the Thurso mill in Quebec was up for sale. Ultimately, senior management of Sateri decided to pass on the mill.
When Vinall became unhappy with his career at Sateri, he started a lengthy period of discussions with the co-defendant, Fortress Specialty Cellulose, which also bought such mills. Vinall provided Fortress with information about the Thurso mill that he had collected through his work for Sateri for the purpose of both impressing the President of Fortress and creating a reason for the President to hire him, a strategy which ended up being successful.
After Vinall joined the company, Fortress acquired the Thurso mill. Sateri, however, discovered Vinall’s e-mail messages sending various Sateri documents relating to the Thurso mill. Sateri then sued Vinall, alleging he had breached:
- His basic duty of loyalty as an employee by assisting a competitor while still employed at the company;
- His duty of confidentiality as a Sateri employee; and
- Because he was a “senior executive”, his fiduciary duty not to divert a Sateri “corporate opportunity”.
The last of the allegations allowed Sateri to demand that Fortress, which it accused of being a willing participant in all of the above, disgorge its profits from the Thurso mill.
The trial judge concluded that Vinall had crossed the line by virtue of the extent of his advice and assistance to Fortress, a Sateri competitor, and the sharing of Sateri confidential information. As for the claim for breach of confidentiality, while many of the documents Vinall sent Fortress were available to any potential purchaser of the Thurso mill and thus were not confidential, the judge did find some reports and analyses prepared by Sateri to be confidential. However, the trial judge concluded that Sateri had suffered no damage from these breaches because:
- Sateri had decided, quite independently of Vinall’s views, not to try to buy the Thurso mill; and
- The confidential Sateri documents were of limited value and utility in Fortress’ decision to purchase Thurso.
Fortress was also excused from any liability because it had immediately deleted copies of the Sateri confidential documents once it learned what they were.
With respect to the claim for breach of fiduciary duty, the trial judge concluded that Vinall did not have sufficient autonomous decision-making power to qualify as a fiduciary. Further, the judge ruled that a “business opportunity” such as the opportunity to purchase the Thurso mill, which was widely publicized and open to any qualified bidder, was not the type of proprietary “corporate opportunity” that a fiduciary must not “divert”. He contrasted the very public sale of Thurso with a non-public new contract or other business opportunity which a departing employee has helped find and develop to the point of sale and is in a unique position to divert to his new employer.
Lessons from this Decision
- Robust control of use of and access to key confidential information (including controls in relation to forwarding by e-mail) can prevent the kind of breach of confidentiality that occurred in this case.
- Not every business opportunity is a true “corporate opportunity” which fiduciaries cannot divert.