CITATION: Dentec Safety Specialists Inc. v. Degil Safety Products (1989) Inc., 2014 ONSC 2449
DIVISIONAL COURT FILE NO.: 447/12
DATE: 20140603
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Kent, Harvison Young, and Whitaker JJ.
BETWEEN:
Dentec Safety Specialists Inc.
Plaintiff
Respondent
Appellant in Cross-Appeal
– and –
Degil Safety Products (1989) Inc.
Defendant
Appellant
Respondent in Cross-Appeal
Leo Klug, for the Plaintiff (Respondent in Cross-Appeal)
John O’Sullivan, for the Defendant (Appellant in Cross-Appeal)
HEARD: Tuesday, January 28, 2014
harvison young J.
[1] This appeal arises out of a passing off action that was brought by Dentec Safety Specialists Inc. (“Dentec” ) against Degil Safety Products (1989) Inc. (“Degil”). The trial judge held that the cause of action had been made out. He awarded Dentec $10,000 in compensatory damages but declined to award punitive damages. Degil appeals the compensatory damages award on the basis that it was unsupported by the evidence. It seeks an order dismissing Dentec’s passing off claim and awarding costs of the trial and costs of this appeal.
[2] Dentec cross-appeals the trial judge’s refusal to award punitive damages. It seeks an order allowing the cross-appeal and an order of $10,000 in punitive damages.
[3] For ease of reference, I will refer to Degil as the appellant and Dentec as the respondent.
[4] For the reasons that follow, I would dismiss both the appeal and the cross-appeal.
BACKGROUND:
[5] The core of the respondent Dentec’s passing off claim was that the appellant Degil had passed itself off as Dentec by registering and using the internet domain name dentecsafety.ca (“DOT CA”) to redirect internet traffic from DOT CA to degilsafety.com.
[6] Dentec and Degil are two separate corporations carrying on the business of selling industrial safety products. The principal of Dentec, Claudio Dente, and the principal of Degil, Martino Dente, are brothers who worked together for many years at Degil. In 2004, Claudio left Degil and incorporated Dentec. As part of the separation, Claudio received the list of customers that were buying from Degil. Dentec and Degil are in direct competition with each other. The two brothers harbour considerable personal animosity toward each other, and now only speak through their respective lawyers.
[7] Dentec’s company website is dentecsafety.com, and was registered when Dentec was incorporated. Dentec alleged it relied on its website as part of its business communications and advertising strategy. On February 23, 2009, Martino’s son, on behalf of Degil, purchased a two-year registration for the DOT CA domain name. He was aware at the time that Dentec’s company website was dentecsafety.com. Any visitors to the DOT CA web address were automatically redirected to Degil’s website at degilsafety.com. Degil never intended to create an actual website at the DOT CA domain name. Degil admitted that it was deliberately redirecting potential Dentec customers to Degil’s company website.
[8] Claudio became aware of Degil’s actions in May 2009 when one of Dentec’s customers advised him that he had been redirected from the DOT CA domain name to Degil’s website. Claudio brought an action for the tort of passing off on July 7, 2009. On August 6, 2009 (about one month after the action commenced), Degil voluntarily ceased redirecting internet traffic from the DOT CA domain name to Degil’s website. The redirection thus occurred for approximately 5½ months. Degil owned the DOT CA domain name until February 2011, but did not do anything with it. In other words, the webpage was blank. Dentec eventually acquired the DOT CA domain name in September 2011 when Claudio learned it was no longer registered to Degil.
[9] At trial, Dentec conceded that it had no evidence of lost sales or lost customers as a result of Degil’s actions. The trial judge found Degil was liable for the tort of passing off and ordered it to pay Dentec $10,000 in compensatory damages. He declined to award Dentec punitive damages.
The Issues
[10] This appeal and cross-appeal raise the following three issues:
Did the trial judge err in finding that Dentec had satisfied the “damage” element of the tort of passing off?
Did the trial judge err in awarding $10,000 as compensatory damages?
Did the trial judge err in declining to award punitive damages to the plaintiff?
[11] Before addressing these issues, which I will do in turn, it will be helpful to set out the standard of review.
Standard of Review
[12] The Supreme Court of Canada set out the following standard of review for an appeal of a judicial decision in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 10 and 36-37:
On a pure question of law, the basic rule with respect to the review of a trial judge’s findings is that an appellate court is free to replace the opinion of the trial judge with its own. Thus the standard of review on a question of law is that of correctness.
The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a “palpable and overriding error.”
Questions of mixed fact and law are subject to the ‘palpable and overriding error’ standard unless it is clear that the trial judge made some error of law or principle that can be identified independent of the judge’s application of the law to the facts of the case.
Did the trial judge err in finding that Dentec had satisfied the “damage” element of the tort of passing off?
[13] The appellant Degil takes the position that the trial judge erred in finding that the respondent Dentec had proven damages as necessary to establish the tort of passing off. At the heart of its submission, with respect to both the cause of action and the remedy, was Degil’s argument that the trial judge misapprehended the evidence, which led him to err in finding that the plaintiff had established damages. According to Degil, there was no evidence that it was “likely” that there was “considerable” internet traffic to DOT CA during the six-month period in which the automatic redirection was happening.
[14] Degil further argues that the trial judge erred in finding that “many potential customers” of Dentec made purchases from Degil, and that it would be unrealistic or unreasonable to conclude that Dentec suffered no damage during this period. According to the appellant, the only evidence was that traffic to DOT CA was very light, and that traffic to dentecsafety.com increased in the period that redirection to Degil’s website was occurring. Degil further submits that only customers who accidentally visited DOT CA would be redirected to Degil’s website. It submits that the only evidence in this regard was a customer who gave evidence that he was not confused by the redirection.
[15] In addition, Degil submitted that the trial judge erred in finding that there was evidence that could ground his award of $10,000 in compensatory damages. This is the second issue, which I will discuss in more detail below. Both of these, in Degil’s submission, were findings of fact subject to the “palpable and overriding” standard of review. I will address them in turn. Before doing so, it will be helpful to set out the governing elements of the tort of passing off and the damages available when the tort has been established.
The Tort of Passing Off
[16] As damage is one of the elements of the tort of passing off, the issue must be considered in determining whether the cause of action has been made out.
[17] In Ciba-Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R. 120, the Supreme Court stated, at p. 132, that the three necessary components of a passing off action are as follows: (i) the existence of goodwill; (ii) deception of the public due to a misrepresentation; and (iii) actual or potential damage to the plaintiff. The only issue in this appeal arises from the finding of “actual or potential damage”.
[18] The trial judge must find that the element of proving damage at the cause of action stage has been satisfied, but a finding of potential damage is sufficient to ground the cause of action: Ciba-Geigy; and BMW Canada Inc. v. Nissan Canada Inc., 2007 FCA 255, 60 C.P.R. (4th) 181, at para. 35.
[19] In Saskatoon Star Phoenix Group Inc. v. Noton, 2001 SKQB 153, 206 Sask.R. 106, which was also a passing off case, the defendant had created an internet website with a domain name that looked very much like the plaintiff’s. Like the case at bar, the website was set up with the purpose of attracting or redirecting customers looking for the plaintiff’s website to that of the defendant. Laing J. reviewed the applicable law and observed that the plaintiff was unable to point to any direct or pecuniary loss as a result of the defendant’s activities, such as cancelled subscriptions or lost advertising revenue, though the plaintiff did claim for actual and potential loss of reputation for being unable to control its own website and advertising: see para. 13. Laing J. referred to the following passage from the House of Lords’ decision in Draper v. Trist et al., [1939] 3 All E.R. 513, in which Goddard L.J. stated, at p. 526:
…The law assumes, or presumes, that, if the goodwill of a man’s business has been interfered with by the passing-off of goods, damage results therefrom. He need not wait to show that damage has resulted. He can bring his action as soon as he can prove the passing-off, because it is one of the class of cases in which the law presumes that the plaintiff has suffered damage.
[20] In the present case, the trial judge reviewed the law as summarized above. With respect to the tort’s element that requires a plaintiff to establish actual or potential damages, he found that Dentec had suffered actual damages as a result of Degil’s conduct. At para. 36 of his reasons he stated:
In the circumstances of this case, I have no hesitation in concluding that, as a result of the defendant’s conduct, the plaintiff suffered not only the likelihood of damages, but actual damages. While the plaintiff has not provided any direct evidence of lost sales or customers, it would be unreasonable and unrealistic to conclude that the plaintiff suffered no damages in this regard. After all, for a period of some 5½ months, Dentec deliberately redirected all internet traffic through dentecsafety.ca to its own website, degilsafety.com. Throughout that period of time, customers who were looking to shop for industrial safety products offered by Dentec were being offered very similar or identical products by a direct competitor. I cannot help but conclude that, in those circumstances, Dentec was likely to suffer (and did suffer) damages as a result of lost sales and customers to Degil.
[21] On behalf of the appellant, Mr. O’Sullivan submitted that the trial judge erred in finding that the element of the tort relating to damages had been met. I disagree. The case law cited above emphasizes that a plaintiff need only establish potential damage to satisfy this element of the tort of passing off.
[22] It is clear that there was evidence before the trial judge that the redirection of traffic caused at least potential damage. In short, even if the trial judge erred in finding that the plaintiff suffered actual damage (which I do not find), there can be no doubt that the redirection caused potential damage in the sense discussed in Saskatoon Star Phoenix.
[23] Degil takes issue, in particular, with the trial judge’s finding that there was “proportionally heavy” internet traffic during the six-month period in which the impugned redirection was taking place. The trial judge explained his finding in this respect as follows, at para. 41:
In 2009 the plaintiff was a successful and profitable business and the plaintiff’s internet website, dentecsafety.com, had 570,941 hits. It is hard to imagine how, between February 23 and August 6, 2009, the dentecsafety.ca domain name would not have been proportionally heavy in internet traffic. The Dentec customers looking to purchase products through dentecsafety.ca would have been, during this 5½ month period of time, redirected to Degil, a competitor that sold the same or similar products. While there is no statistical evidence available as to how many hits dentecsafety.ca experienced during this 5½ month period, the evidence does show that, even after Degil ceased redirecting the dentecsafety.ca domain name to degilsafety.com, internet traffic on the dentecsafety.ca domain name continued. In other words, according to the evidence, even after August 6, 2009, when internet visitors to the dentecsafety.ca web address would be met with nothing but an entirely blank “home page,” internet traffic to the “site” still did not abate. This suggests that it is reasonable to conclude that, between February 23 and August 6, 2009, it is likely that considerable internet traffic was redirected to Degil through the dentecsafety.ca domain name, and that many potential Dentec customers made their necessary industrial safety product purchases from Degil.
[24] According to the appellant, the evidence showed that in the 18-month period from February 23, 2009 to August 9, 2010, a total of 168 people visited DOT CA. Degil submitted that this figure represents only .002% of the 570,941 hits that dentecsafety.com received in 2009. It submitted that there is a need for some evidence of “proportionately heavy traffic” to ground this finding, and argues that there was none. Degil’s assertion that the 168 hits to DOT CA included the period where the redirection was occurring is not entirely accurate. The evidence suggests that the number of hits to DOT CA while the redirection was occurring is unknown. Indeed, the Logs themselves do not appear to include the period from February 23 to August 5, 2009.
[25] Based on the trial judge’s comments that I have quoted in the preceding paragraph, it appears that the trial judge was alive to this when he stated “there is no statistical evidence available as to how many hits dentecsafety.ca experienced during this 5½ month period. Degil stated that despite examinations, undertakings and an interlocutory order, the plaintiff provided no evidence of the loss of a single customer or a single sale. In other words, there was no correspondence between any redirection by the defendant during the six-month period and any loss at all, and, in the defendant’s submission, no evidence that the plaintiff suffered any loss as a result of such redirection.
[26] I disagree. Here, as indicated above, the trial judge did find actual damage or loss, despite the fact that he was clearly alive to the fact that a finding of potential damage would have been sufficient to establish this element of the cause of action. He found that there had been “proportionally heavy” traffic on the website during the six-month period in question. This finding was based on an inference drawn from the traffic to dentecsafety.com, as well as traffic to the DOT CA web address after the impugned redirection. This was a finding of fact that was open to him on the record before him.
[27] The standard of review with respect to such a finding is very high indeed. The fact that the evidence before the court might also have supported another inference does not render the finding made by the trial judge a palpable and overriding error, and given the record before the trial judge and his reasons which indicate that he was alive to these arguments, I find that the appellant has not met this standard.
Did the trial judge err in awarding $10,000 as compensatory damages?
[28] The second issue raised by the appellant relates to the remedy awarded by the trial judge. Having found that the plaintiff had satisfied the damage element of the cause of action, the trial judge awarded $10,000 in “compensatory” damages. The appellant Degil submitted that there was simply no evidence that Dentec had suffered any damages whatsoever that could have grounded an award of compensatory damages, as opposed to an award of general damages. This, according to Degil, constituted a misapprehension of the evidence. In the course of oral argument, Mr. O’Sullivan for the appellant stated that cases relied on by the respondent are distinguishable because in those cases, the damages were described as general rather than compensatory.
[29] I do not agree with the appellant’s submission that the standard of review applicable to this question is that of palpable and overriding error. His submissions on the $10,000 awarded are based on legal differences between general and compensatory damages. He acknowledged in the course of oral argument that the award imposed could have been justified on the basis of general damages. For that reason, I would apply the standard of correctness to this issue. That said, I do not conclude that the trial judge committed an error of law or principle that would justify setting aside the trial decision for the following reasons.
Damages for the Tort of Passing Off
[30] Having established the tort of passing off, there are a number of possible remedies that may follow. It is often the case that the primary remedy sought by a plaintiff is a permanent injunction. Because the defendant had stopped the redirection shortly after the litigation began, an injunction was not required in this case. As far as damages are concerned, the following statement summarizes the law relating to damages for passing off once the tort has been established:
A successful plaintiff may, at his option, take an inquiry as to damages or an account of profits. Where passing off is established, some damages must be awarded even if an actual monetary loss is not proven. [emphasis added]
The defendant is liable for all loss actually sustained by the plaintiff that is the natural and direct consequence of the unlawful acts of the defendant including any injury to the plaintiff’s reputation, business, goodwill or trade. Difficultly in assessing damages does not relieve the court of assessing them as best it can. (Linda Rainaldi, Remedies in Tort, looseleaf, (Toronto: Thomson Reuters, 1987), at paras. 61-62) [emphasis added]
[31] A plaintiff may seek damages in the form of the loss it has suffered. Alternatively, a plaintiff can seek an accounting of profits, which essentially requires the defendant to disgorge its ill-gotten gains even if the plaintiff cannot show that it otherwise would have received them. Here, the plaintiff sought damages for it loss.
[32] A plaintiff may also seek punitive damages, as Dentec did in this case. I will address the issue of punitive damages below. General damages, however, are frequently awarded in passing off actions. The use of this terminology can be somewhat confusing. In Prehn v. Royal Bank of Liverpool (1870) L.R. 5 Ex. 92, Martin, B. explained general damages as those that might be awarded when the judge cannot point to any measure by which they are to be assessed, except the opinion and judgement of a reasonable man: see pp. 99-100.
[33] Pecuniary loss may also be treated as general damages in this sense, both in contract and tort, and particularly economic torts such as passing off: see McGregor on Damages, 18th ed. (London: Sweet & Maxwell, 2009) at 1-031.
[34] “General damages”, then, is a term used in passing off cases to refer to approximations of the quantum of damages in circumstances where there has been some damage to the plaintiff’s reputation or goodwill, but where it is very difficult to attach a quantum to that damage. This reflects the reality that in such economic torts, the core of the interests protected are goodwill and reputation, which, while economic in nature, may be less readily quantifiable than other sorts of damage.
[35] In the Saskatoon Star Phoenix decision at para. 15, Laing J. quoted from Draper v. Trist on the subject of the assessment of damages once a passing off action has been made out: commented on the subject of damages for passing off:
Goddard L.J. in Draper v. Trist, supra, made the point at p. 527 that where the law presumes damage to the plaintiff, it is for the jury to determine what is fair and proper compensation to the plaintiff, without being limited to questions of what in truth are special damages (namely actual proven monetary loss). He rejected the argument that where a passing off has been established that the plaintiff is limited to nominal damages unless that plaintiff can prove actual monetary loss. He went on to point out that:
…once one has established passing off, there is injury to goodwill, and this court or the jury must assess, by the best means they can, what is a fair and temperate sum to give to the plaintiff for that injury…
[36] In short, the term “general damage” in passing off cases, as explained in McGregor and by Lord Goddard in Draper, is not intended to be truly “non-pecuniary”, but rather an approximation of the plaintiff’s losses that are, due to their nature, difficult to quantify. Thus, there is little difference between the nature of “compensatory” damages and “general” damages in passing off cases.
[37] In addition to Saskatoon Star Phoenix, there are a number of Canadian cases to which this court was referred that have attached the “general” label to damages awarded in passing off cases in circumstances that are quite similar to the case at bar. The common denominator is that these are damages that are clearly meant to reflect economic loss to goodwill and/or reputation, recognizing the difficulty of proving the actual quantum of loss in such cases.
[38] In Inform Cycle Ltd. v. Rebound Inc. (c.o.b. Rebound Cycle), 2008 ABQB 369, 438 A.R. 80, the defendant had committed the tort of passing off in circumstances where, for a period of 21 days, anyone who typed in “InformCycle.com” instead of “InformCycle.ca” was redirected to the defendant’s website. For a further two weeks, visitors were redirected to a gay pornographic website. Brooker J. commented as follows on the difficulties of establishing actual damages, at paras. 26-27:
There is no evidence as to how many people were so directed and there is no evidence as to whether Inform actually lost sales as a result of this. Indeed, it is difficult to see how Inform could have produced such information. It would have been helpful, however, to have had some sort of evidence as to the amount of sales or profit generated on a weekly basis at that time of the year in order to give the court some sort of frame of reference to set general damages.
In the absence of any sort of evidence as to actual damages, and having regard to the presumption of damages flowing from passing off actions, I assess general damages at $5000 for this tort.
[39] In Law Society of British Columbia v. Canada Domain Name Exchange Corp., 2004 BCSC 1102, 243 D.L.R. (4th) 746, aff’d 2005 BCCA 535, Sigurdson J. awarded general damages of $4,000 in addition to a permanent injunction, recognizing that the plaintiff had not proved actual damages.
[40] In the present case, the trial judge specifically awarded the $10,000 damage amount as compensatory damages. Unlike the cases relied on by the plaintiff, the award was not referred to as general damages. In my view, and given my conclusion that it was open to the trial judge to find that the plaintiff had suffered some potential and actual damage, it would clearly have been open to him to award such an amount in general damages. Indeed, the appellant distinguishes the cases relied on by Dentec on the basis that they awarded general and not compensatory damages.
[41] It is clear from the authorities that I have reviewed above that the difference between compensatory and general damages in the context of passing off actions is, at least to some extent, one of terminology in the context of passing-off actions. General damages are intended to be compensatory in the sense that they are awarded as approximations of the plaintiff’s damages, recognizing the economic nature of the tort of passing off and the difficulty of establishing quantum of losses to goodwill and reputation. Interestingly, none of the cases cited to me by either party involved awards of “compensatory” rather than “general” damages in the context of the tort of passing off.
[42] In making the damage award, the trial judge was clearly relying on the authorities that have awarded “general” damages. He specifically referred to and discussed Saskatoon Star Phoenix and Inform Cycle.
[43] Having considered the authorities, as well as the parties’ submissions, and while it might have been preferable to describe the damages awarded as general rather than compensatory, I do not find any error in law or principle in the trial judge’s award of $10,000 in damages. It was open to the judge on the record before him to conclude that the plaintiff had established actual damage. Having done so, and as the case law clearly indicates, he was required to assess the quantum as best he could, and he did so. As the authorities I have reviewed indicate, courts are called upon to approximate the quantum of damages in passing off cases, and while they are usually called “general” damages, they remain compensatory in the sense that they are intended to compensate the plaintiff where there has been a finding of actual damage.
[44] The appellant also submitted that if compensatory damages are to be awarded in this case, $10,000 is an excessive amount. It argued that in the absence of evidence of loss of goodwill, reputation, customers or sales, and given the short duration in which passing off occurred and that Degil voluntarily ceased redirection, an appropriate award would be $2,500-$5,000. I disagree.
[45] In Saskatoon Star Phoenix, $5,000 was awarded where the passing off occurred for five months and the court found “minimal” damage to the plaintiff’s goodwill and reputation. In Inform Cycle, $5,000 was awarded where redirection to the defendant’s website occurred for approximately three weeks and redirection to a gay pornographic website occurred for a further two weeks. In Canada Domain Name Exchange Corp., $4,000 was awarded where redirection to an adult website and later to a Canadian political party’s website occurred for a total of five months. Although the $10,000 awarded by the trial judge in this case may have been at the high end of the range of reasonable damages, I am not persuaded that the amount is so high that appellate intervention is required.
[46] I would therefore dismiss the appellant’s appeal from the award of $10,000 in compensatory damages.
Did the trial judge err in declining to award punitive damages to the plaintiff?
[47] Dentec, by cross-appeal, appeals from the trial judge’s refusal to award punitive damages. It submits that Degil’s conduct was malicious, oppressive and high-handed. The conduct directly targeted Dentec. Degil only stopped redirecting internet traffic because Dentec commenced litigation. It also asserts that Degil concealed the fact that it continued to own the DOT CA domain name and did not disclose its continued ownership until examinations for discovery in September 2011.
[48] I see no error of law or principle that would justify interfering with the trial judge’s refusal to make an order awarding punitive damages. The trial judge carefully reviewed the relevant facts and the law in concluding that he was not satisfied Degil’s conduct was so egregious that a punitive damage award was appropriate. In doing so, he considered each of the factors set out in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, and concluded that “the defendant’s misconduct simply does not display the requisite level of moral blameworthiness.”
[49] The issues raised by Dentec on this cross-appeal are, in essence, an attempt to re-argue the claim for punitive damages that it made at trial. The trial judge identified the correct considerations and applied them to the defendant’s actions: see Reasons for Decision, at para. 47. The cross-appeal is dismissed.
Conclusion
[50] For the foregoing reasons, the appeal and the cross-appeal are dismissed.
Costs
[51] The parties have advised that they agreed that the loser of the appeal would pay costs in the amount of $5,000 plus costs and disbursements, and that the loser of the cross appeal would pay costs in the amount of $2,500 plus costs and disbursements. An order will go accordingly.
Kent J.
Harvison Young J.
Whitaker J.
Released: May , 2014
CITATION: Dentec Safety Specialists Inc. v. Degil Safety Products (1989) Inc., 2014 ONSC 2449
DIVISIONAL COURT FILE NO.: 447/12
DATE: 20140603
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Kent, Harvison Young and Whitaker JJ.
BETWEEN:
Dentec Safety Specialists Inc.
Plaintiff
Respondent in Cross-Appeal
– and –
Degil Safety Products (1989) Inc.
Defendant
Appellant in Cross-Appeal
REASONS FOR JUDGMENT
Harvison Young J.
Released: June 3, 2014