Polar Wireless Corporation v. Roberts, 2013 ONSC 1155

Court File and Parties

CITATION: Polar Wireless Corporation v. Roberts, 2013 ONSC 1155

DIVISIONAL COURT FILE NO.: 565/12

DATE: 20130225

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

POLAR WIRELESS CORPORATION

Plaintiff

– and –

STEVEN J. ROBERTS, JACK ROBERT LEE, 1271583 ONTARIO INC., CHUN-WING LEE, 1177153 ONTARIO LIMITED, MARILYN SCHAFFER, XTM INCORPORATED and GO TO WIRELESS INC.

Defendants

Mark Veneziano & Andrew M. Porter, for the Plaintiff (Responding Party)

David N. Bleiwas, for the Defendants, Marilyn Schaffer and XTM Incorporated (Moving Parties)

HEARD: January 21, 2013

Reasons for Decision

LEDERER J.:

Introduction

1The plaintiff, Polar Wireless Corporation (“Polar”), is a wireless technology company based in Toronto that provides alternative roaming solutions. It offers its mobile phone customers the ability to roam internationally without needing to change phone numbers or switch SIM cards. Polar sells a “SIM Overlay” device which provides a connection to the Polar network of international carriers, which provides Polar users with access to local networks while roaming.

2Pursuant to an order made on November 16, 2012, an interlocutory injunction was granted in Polar’s favour enjoining the defendants, including Marilyn Schaffer (“Schaffer”) and XTM Incorporated (“XTM”), from:

• seeking to do business with carrier and distribution opportunities developed while at Polar;

• taking any affirmative steps under agreements cultivated at Polar; and,

• using or disclosing any and all confidential and/or proprietary information belonging to Polar;

as well as

• to return any confidential information;

• to preserve any information, electronic or otherwise, relating to Polar, its technology, business and operations.

3The order required an expert, on behalf of Polar, to attend at the premises of the defendants to create “forensic images of all physical and electronic devices and copies of data stored remotely… used by the… defendants in the last calendar year which contained confidential information of Polar…”.

4On December 18, 2012, a further endorsement was made. It amended the order made on November 16, 2012. Among other things, the court ordered that the part of the order requiring the creation of the forensic images and copies be stayed as against Schaffer and XTM (see: order, dated November 16, 2012, at paras. 3 and 6).

5On this motion, Schaffer and XTM seek leave to appeal the injunction insofar as it is made against them.

Background

6The defendant, Steven J. Roberts (“Roberts”), was the president of Polar. As president, he retained Schaffer and XTM to provide certain branding and marketing services to Polar. Polar contends that Schaffer was in charge of identifying any potential shortcomings in the look, feel or functionality of the product. The project commenced on or about April 1, 2012. It is alleged that Schaffer was in regular attendance at the offices of Polar, asked questions of Polar’s management and employees who, in turn, relied on XTM’s branding and marketing expertise. It is said that Schaffer gained an intimate knowledge of Polar’s marketing strategy and business plan, as well as valuable confidential knowledge respecting Polar’s user experience. Schaffer says that she and XTM had no access to high level proprietary information. As she sees it, most of the documentation in the possession of XTM was created for marketing and branding purposes. Why this could not be considered important or proprietary was not explained.

7On June 28, 2012, Roberts was terminated as president of Polar. According to Schaffer, the new president asked XTM to suspend providing services so he could familiarize himself with the situation. It became apparent that the work was not going to re-commence. Although Schaffer claims that there had been no indication of dissatisfaction with any of the work that had been done, the new president evidently expressed unhappiness with the brand name that had been proposed for the service Polar sought to market. On behalf of XTM, it is alleged that Polar did not pay outstanding invoices. In response, Schaffer registered domain names that utilized the names of the new president of Polar and another individual who was also associated with Polar. She said she would write a blog “outlining the irregularities…with the way you are doing business”. Schaffer says she apologized the next day. XTM commenced litigation and, in an action separate from this one, sued Polar. For its part, Polar says that Schaffer unilaterally terminated the agreement between XTM and Polar. It alleges that, on the day following the termination of Roberts, Schaffer demanded payment from Polar in respect of what is referred to as “the incomplete mandate”. Polar disputes that it is under any obligation to make any further payments under the contract.

8In the meantime, Roberts incorporated the defendant, Go To Wireless Incorporated (“GTWI”). It is a competitor of Polar. On the motion for the injunction, the judge found that Roberts was soliciting business opportunities of Polar, on behalf of GTWI, within seven days of his departure from Polar. Roberts and Schaffer both say that she is not an officer, director, shareholder or employee of GTWI. She says that she has had no involvement in GWTI’s investor presentations or product development and has had no dealings with Polar’s “alleged” carrier, distribution or supplier partners. Roberts says that Schaffer had no involvement in management meetings or investor presentations. On the other hand, there is the similarity between the brand name XTM was involved in developing for Polar (“GoGo”) and the new business (“Goto”). There is the suggestion that XTM stopped any work on registering the “GoGo” trademark despite the explicit instructions of the new president to process the application. Instead, Schaffer registered the domain name “www.gotowireless.com”. It turns out that the registered address of the new company is the office of XTM. Moreover, Schaffer’s biography and photograph were included in the investor presentation. Roberts apparently has said that he had a hope or expectation that Schaffer and XTM would become involved with GTWI in the future, although the biography and picture were included without her consent.

The Decision of the Judge

9The motions judge canvassed recent authority on the applicable test for injunctive relief set out in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 and its modified application in cases involving the enforcement of a negative covenant. The judge noted that the three parts of the test are not to be applied in isolation. The consideration given to the second and third parts of the test (“irreparable harm” and “balance of convenience”) will be directly influenced by the first (the “strength of the plaintiff’s case”) (see: Van Wagner Communications Company, Canada v. Penex Metropolis Ltd., [2008] O.J. No. 190 (S.C.J.), at para. 39).

10In applying the test, the judge determined that Roberts owed a fiduciary duty to Polar. She determined that there was a strong prima facie case that he had breached that duty. He used the same relationships developed at Polar for his own benefit at GTWI to the detriment of Polar. The judge went on to find that there was a strong prima facie case that “the other defendants”, as a result of having joined Roberts at GWTI, were impressed with the same breach of fiduciary duty (see: Precision Fine Papers Inc. v. Durkin, [2008] O.J. No. 703 (S.C.J.), at paras. 22-23).

11Consistent with Van Wagner Communications Company, Canada v. Penex Metropolis Ltd., supra, the motions judge determined that, as a result of having found that Polar had a strong prima facie case, the second and third parts of the injunction test could be applied less rigorously than might otherwise have been the case. She agreed that Polar would suffer irreparable harm if the injunction was not granted. The potential loss of market share could be significant and would certainly be difficult to quantify given that Polar and GWTI were attempting to obtain market share in the same emerging line of business. The judge found that the balance of convenience favoured Polar. It had been actively engaged in pursuing alternative roaming solutions for several years and had invested significant amounts of money to develop its product. If the injunction was not granted, it would be greatly affected by the potential loss of market share in an emerging market. GTWI had been involved in the business of providing alternative roaming solutions for a very short period of time.

12It is on this basis that she granted the injunction.

The Test for Leave to Appeal

13This motion for leave to appeal is brought pursuant to Rule 62.02(4) of the Rules of Civil Procedure. It requires a determination that there is a conflicting decision in circumstances where the judge hearing the motion is of the opinion that it is desirable that leave be granted (see: Rule 62.02(4)(a)) or, in the alternative, a finding that there is good reason to doubt the correctness of the order in question accompanied by the judge being of the opinion that the proposed appeal involved matters of such importance that leave to appeal should be granted (see: Rule 62.02(4)(b)).

Analysis

14This motion for leave is brought on behalf of only Schaffer and XTM and not the other defendants. In short, it is submitted that Schaffer and XTM had no fiduciary relationship with Polar, possess no information that could be confidential to it and have no direct involvement with GTWI. The difficulty with the way this has been put is that it would require me to make findings that should be left for the trial judge.

15There is a clear disparity between the parties as to the extent of Schaffer’s involvement in the business of Polar and the nature and importance of the information she obtained. This has to be determined. It would require a trial to sort out the difference.

16Schaffer says that, with the change in leadership at Polar, XTM was prepared to continue with the work for Polar. Polar takes the position that she and XTM unilaterally ended the contract. Schaffer and XTM say that Polar refused to pay outstanding accounts. Polar denies it owes any money to XTM. A determination of these differences would, at a minimum, set a foundation to come to an understanding of what took place thereafter.

17Schaffer acknowledges that she registered domain names that used the names of people involved with Polar and threatened to write a blog that would outline irregularities in their business practices. It does not seem out of line to suggest that this may point to an animus she and XTM felt towards Polar. This could influence an understanding of what followed. In the context of this motion, I am asked to discount these actions on the basis that they were taken out of frustration and that she apologized the next day.

18Schaffer did not register the GoGo trademark for Polar. Polar says her instructions were to complete this work. In response, Schaffer relies on the understanding that the new president did not like the name and that the GoGo brand was not a priority for him. Schaffer did not consider it urgent to proceed. It could be that, as she suggested, this was because she was not being paid. On the other hand, when contrasted with the fact that, at about that time, she registered the GoTo wireless domain name, one can see the possibility that it might be determined that her allegiance had shifted. This is underscored by the fact that the address used by GTWI as its place of business is the office of XTM. It is added to by the fact that Schaffer was associated with GTWI through the use of her photograph and biography in its investor presentation. It may be that Roberts included this without her permission, but the fact that he had the hope, even the expectation, that she and XTM would become involved with GWTI, raises the possibility that she had already played a role in its activities.

19In order to determine that there was reason to doubt the correctness of the finding of the motions judge that there was a strong prima facie case against not just Roberts, but one that implicated those associated with him, including Schaffer and XTM, I would have to decide these issues in favour of Schaffer and XTM. To the contrary, to me, there is enough that is not contested that points to the strong prima facie case, as found by the motions judge, that the other defendants, including Schaffer and XTM, were “…impressed with fiduciary duties having joined Mr. Roberts at Go To which is a company that is clearly competing with Polar in the alternative roaming solutions industry” (see: Polar Wireless Corporation v. Roberts 2012 ONSC 6482, at para. 55). By way of example:

• Schaffer and XTM were retained by Roberts and did work for Polar respecting the marketing and branding of its product.

• Once Roberts was replaced, Schaffer threatened to harm the business of Polar by publishing information about its business practices and acted on the threat by registering domain names, which included the names of people associated with Polar.

• Schaffer registered the GoTo domain name for GTWI, which is similar to GoGo.

• Schaffer’s picture and biography was used by Roberts in the investor presentation in the hope and expectation that she would come to play a role at GWTI.

• The address given by GWTI was the place of business of XTM.

20It was open to the motions judge to impress Schaffer and XTM with the fiduciary obligations of Roberts. There is no reason to doubt the correctness of her decision. It is not open to serious debate (see: Judson v. Mitchele 2011 ONSC 6004, at para. 15). As was repeated in Precision Fine Papers Inc. v. Durkin, supra, (at para. 22):

Were it otherwise the fiduciary would be permitted to do indirectly what he or she cannot do directly Canadian Industrial Distributors Inc. v. Dargue, (1994), 7 C.C.E.L. (2d) 60 (Ont. Gen. Div.); DiFlorio v. Con Structural Steel Ltd., (2000), 6 B.L.R. (3d) 253 (S.C.J.), aff'd., 2001 32743 (ON CA), (2001), 21 B.L.R. (3d) 22 (Ont. C.A.).

21This specific determination was applied by the motions judge (see: Polar Wireless Corporation v. Roberts, at paras. 56 and 59). In the circumstances, it is not necessary for me to consider whether this involves matters of such importance that leave should be granted.

22In the factum filed on behalf of Schaffer and XTM, it is said that the primary basis for the decision of the motions judge against Schaffer and XTM is the finding that:

…it would not be inconvenient to Ms. Schaffer and XTM to be subjected to an injunction, if the Court finds one is warranted, if it is Ms. Schaffer’s position that she is not part of the management team and she has no access to confidential information. The injunction would not be inconvenient to Ms.Schaffer or XTM but would provide protection needed for Polar if Ms. Schaffer and XTM’s positions are not found to be credible at trial.

(Polar Wireless Corporation v. Roberts, supra, at para. 59)

23Counsel for Schaffer and XTM submitted that this finding of the motions judge was in conflict with an earlier decision. He referred to the case of Law Society of Upper Canada v. MacNaughton 1942 CarswellOnt 332, [1942] O.W.N. 551, at para. 1, where it is said that:

…to warrant the Court in granting an injunction it must be reasonably satisfied that there is an intention on the part of the defendant to do the acts sought to be restrained, or at least that there is probable ground for believing that, unless the injunction be granted, there is danger of such acts being done; and that it is not a sufficient ground for granting an injunction that, if there be no such intention, it will do the defendant no harm. I have always understood the rule to be that the question is not whether the injunction will harm the defendant, but whether it is probable that unless the defendant is restrained, wrongful acts will be done which will do the plaintiff irreparable injury. And I have thought that upon an application of an interlocutory injunction great care ought to be taken to see that unless the injunction is granted the act sought to be restrained is really likely to be done before the trial…

24This case was reported in 1942. Certainly, the words reveal considerations applicable to the second and third parts of the test found in RJR MacDonald Inc. v. Canada (Attorney General), supra. Nonetheless, the test has been significantly refined since then. Leave to appeal an interlocutory injunction was granted, but no reference was made to the requirement that there be an evaluation as to the prospective merits of the plaintiff’s case as is now required by the first part of the test. To the contrary, the court observed:

I say nothing about the very interesting question raised by Mr. Walker as to whether the Law Society really has a cause of action, assuming the defendant MacNaughton is holding herself out as a member of the Society, but is not in fact practising as a barrister or solicitor. That question may in a certain event become important in the Court of Appeal or at the trial.

(Law Society of Upper Canada v. MacNaughton, supra, at para. 5)

25Moreover, as the motions judge determined, as it stands today, the law says that, where a strong prima facie case is found, the consideration of the second and third elements of the test need not be as rigorous. To plug in the proposition found in the quote from Law Society of Upper Canada v. MacNaughton, supra, relied on by Polar, would ignore this refinement in the law. It would make the second and third parts of the test the pre-eminent considerations. The case does not conflict so much as it is out-of-date.

26Even if there was a conflict apparent, it would not support an opinion that it is desirable that leave be granted. The decision of the motions judge should not be understood in the narrow and limited way the position taken on behalf of Schaffer and XTM suggests. Her reasons reveal a careful and complete analysis of the test applicable to the granting of an interlocutory injunction. She found that there was a strong prima facie case made out against Roberts which, in the circumstances, bound the other defendants. She understood that this finding had an impact on the consideration of the remaining two parts of the test, but found that there was a threat of irreparable harm to Polar and that the balance of convenience lay in its favour. It was not a determination based on a lack of inconvenience to Schaffer and XTM. Given the substance of the analysis of the motions judge, there would be no purpose in granting leave to appeal on the basis of a conflict between her decision and the reasons found in Law Society of Upper Canada v. MacNaughton, supra.

27Finally, in the evidence filed on behalf of Polar, it was suggested that it may have to close down as a result of insufficient funds. As a result, it was suggested that Polar should be required to post security in respect of the undertaking as to damages made at the time of the hearing before the motions judge and referred to in the preamble to her order. This was not raised or considered in her reasons. Moreover, it is unclear why this would be of particular concern to these appellants, as opposed to those who acknowledge their involvement with GTWI and are not parties to this motion.

Conclusion

28For the reasons referred to, the motion is dismissed. It follows that the stay imposed by paragraph 6 of the order, dated November 16, 2012, is lifted.

Costs

29The parties agreed that costs in the amount of $2,750.00 should follow the event. Accordingly, costs in that amount are ordered to be paid by the moving parties (Marilyn Schaffer and XTM Incorporated) to the responding party, Polar Wireless Corporation.