COURT OF APPEAL FOR ONTARIO

DATE: 20000614

DOCKET: C20536

RE: POLAROID CANADA INC. (Plaintiff/Respondent)

v. CONTINENT-WIDE ENTERPRISES LIMITED (Defendant/
Appellant)

AND RE: CONTINENT-WIDE ENTERPRISES LIMITED (Plaintiff by
Counterclaim/Appellant) v. POLAROID CANADA INC.,
RICHARD GERASCH and TRECK PHOTOGRAPHIC INC.
(Defendants by Counterclaim/Respondents)

BEFORE: LABROSSE, ROSENBERG and MacPHERSON JJ.A.

COUNSEL: Chris G. Paliare and Martin Mason,
for the appellant

Jeffrey B. Simpson and James B. Musgrove,
for the respondents

HEARD: June 12 and 13, 2000

On appeal from the decision of Mr. Justice Spence dated
November 15, 1994

E N D O R S E M E N T

[1] The appellant, Continent-Wide Enterprises Limited ("CW")
appeals the judgment of Spence J. (the "trial judge") which
awarded to the respondent Polaroid Canada Inc. ("Polaroid")
damages for breach of contract plus interest and costs. A
counterclaim by CW was dismissed.

[2] Polaroid is in the business of distributing photographic
products. CW carries on the business of dealing in a wide range
of consumer and industrial goods. The claim and counterclaim
resulted from the dealings between the parties with respect to
the sale and distribution of Polaroid photographic products. The
dispute centered on the practice of "transhipping" whereby CW
acquired goods from Polaroid in Canada and allegedly exported
these goods for resale in another jurisdiction. In general
terms, as a result of transhipping, CW could take advantage of
resale price benefits, such as favourable currency exchange
rates. However, transhipping also adversely affected Polaroid’s
global export systems and led to price and supply problems in
Canada. In an attempt to curtail the practice of transhipping on
the part of CW, Polaroid introduced an "export price policy"
charging its Canadian dealers who sold its products outside
Canada a higher price than the domestic price for goods sold in
Canada.

[3] Subsequently, Polaroid demanded payment of the export price
for certain goods sold to CW, which Polaroid alleged had been
sold outside Canada. CW refused to pay. Furthermore, in order
to monitor the CW purchases, Polaroid would only sell to CW at
export prices. Upon receiving satisfactory assurance as to the
extent to which the goods had been re-sold and distributed for
sale in Canada, Polaroid would remit the amount of any excess
payment to CW. In the end, Polaroid terminated its relationship
with CW and commenced this action.

[4] The trial judge carefully reviewed the evidence of the
entire relationship between the parties. He concluded that CW
was an "authorized dealer for the purposes of Polaroid’s pricing
policies". He also concluded that Polaroid was at liberty to
change its terms of business with CW, that it was not precluded
from imposing the export price policy and that CW became
contractually bound by the export policy when it received proper
notice of the policy. The trial judge determined the date of
effective notice to be October 10, 1986. Finally, he also
concluded that there had been no waiver of the export price
policy by Polaroid.

[5] In our view, these findings of the trial judge are all
reasonable and supported by the evidence.

[6] For the purpose of this appeal, CW restricted its attack to
the issues of restraint of trade and penalty, which were
determined in favour of Polaroid, and the calculation of damages.

[7] It was submitted that the export price policy constituted an
illegal contract in restraint of trade and, accordingly, was
unenforceable. As part of this submission, it was also argued
that the policy was contrary to the Competition Act, R.S.C. 1985,
c. C-34.

[8] The trial judge correctly considered this issue in light of
the decision of this court in Tank Lining Corp. v. Dunlop
Industrial Ltd. (1982), 1982 CanLII 2023 (ON CA), 40 O.R. (2d) 219. He stated that he had
no doubt that, on its specific wording, the export price policy
was a restraint of trade. The respondent has submitted that the
trial judge was in error in concluding that the export price
policy was a restraint of trade, arguing that the policy falls
outside the scope of the common-law doctrine of restraint of
trade. It is not necessary to decide this issue because, in any
event, the trial judge concluded that the policy satisfied the
test of being "reasonable in the interests of the parties" and
not contrary to the public interest (including the Competition
Act). We agree with the trial judge’s conclusion on this issue.

[9] It was also submitted that the export price policy was a
penalty clause. The trial judge considered that a penalty clause
is an obligation to pay damages by reason of a breach of the
agreement. This was not the present case as it applied in the
absence of any breach. He also considered the provision in the
policy that the surcharge was in addition to any other right that
Polaroid may have had. He remarked that this was not the
language of a penalty clause. He concluded that the export price
policy was not a penalty. We agree with this conclusion.

[10] With respect to damages, the trial judge concluded that as
of October 10, 1986, CW was on notice of the export price policy
and that all purchases completed after that date were subject to
the policy. It was open to the trial judge to find that orders
made prior to October 10th were subject to the policy, having
regard to the circumstances under which those orders were placed
by CW. The trial judge did not distinguish between industrial
and consumer goods and, as the appellant points out, CW did not
have the industrial export price list until sometime in 1987.
However, it is apparent that the critical factor for finding that
CW was bound by the two-price policy was its receipt of the
October 7th letter. At this point, CW knew that Polaroid
intended the relationship to be governed by the policy. This was
essentially a finding of fact and we have not been persuaded that
it is inconsistent with the trial judge's earlier comments
concerning the lack of a price list. Accordingly, we are not
persuaded that there was any error on these issues.

[11] Similarly, the trial judge's decision not to include all
orders after March 1986 was based on his assessment of the
evidence of the witnesses and especially the equivocal conduct of
Polaroid's sales staff prior to October 10th. This finding of
fact should not be disturbed and therefore the cross-appeal must
also be dismissed.

[12] The appeal and the cross-appeal are therefore dismissed with
costs.

(signed) "J. M. Labrosse J.A."

(signed) "M. Rosenberg J.A."

(signed) "J. C. MacPherson J.A."