Court of Appeal for Ontario

Date: 20240509 Docket: COA-22-CV-0384 & COA-23-CV-0587

Before: Fairburn A.C.J.O., Simmons J.A. and Daley J. (ad hoc)

Between

7868073 Canada Ltd., 1841979 Ontario Limited, 1636833 Ontario Inc., Architectural Coatings Solutions Inc., Transreflect Inc. and Itolo Mallozzi

Plaintiffs

And

1841978 Ontario Inc., Powder Coating Solutions Inc., Vacuum Metallizing Limited, Robert W. Langlois carrying on business as Relectionight, Carrie Ferguson, carrying on business as Reflectionight, Robert W. Langlois, Carrie Ferguson, Jeffrey Steven Sugar, Gary Sugar, RJG Labs Inc. and Pultrucoater Inc.

Defendants

And Between

Powder Coating Solutions Inc., Robert W. Langlois and 1841978 Ontario Inc.

Plaintiffs by Counterclaim

And

7868073 Canada Ltd., 1841979 Ontario Limited, 1636833 Ontario Inc., Architectural Coatings Solutions Inc., Transreflect Inc., Itolo Mallozzi, Fram Professional Corporation, Wade Kosowan and Low Risk Logistics Inc.

Defendants to the Counterclaim

And Between

Gary Sugar

Plaintiff

And

Vacuum Metallizing Limited, Powder Coating Solutions Inc.,

RJG Labs Inc., Pultrucoater Inc., Jeffrey Steven Sugar and Robert W. Langlois

Defendants

And Between

Vacuum Metallizing Limited, Powder Coating Solutions Inc.,

RJG Labs Inc., Pultrucoater Inc., Jeffrey Steven Sugar and

Robert W. Langlois

Plaintiffs by Counterclaim

And

Gary Sugar

Defendant to the Counterclaim

Counsel: Matthew Milne-Smith, for the appellant/respondent by way of cross-appeal (COA 22-CV-0384) and respondent/respondent by way of cross-appeal (COA 23 CV-0587), Gary Sugar Hilary Book and William McLennan, for the respondents/respondents by way of cross-appeal (COA-22-CV-0384) and appellants/respondents by way of cross-appeal (COA-23-CV-0587), Vacuum Metallizing Limited, Robert Langlois, Jeffrey Sugar and 1841978 Ontario Limited Maureen L. Whelton, Ed Hiutin and Meaghan Coker, for the respondents/appellants by way of cross-appeal (COA-22-CV-0384 & and COA 23 CV-0587), 7868073 Canada Ltd., 1841979 Ontario Limited, 1636833 Ontario Inc., Architectural Coatings Solutions Inc., Transreflect Inc., Low Risk Logistics Inc., Itolo Mallozzi and Wade Kosowan

Heard: March 5, 2024

On appeal from the judgment of Justice Bernadette Dietrich of the Superior Court of Justice, dated August 29, 2022, with reasons reported at 2022 ONSC 4557 and 2023 ONSC 736.

Simmons J.A.:

Overview

[1] The judgment under appeal stems from two actions that were tried together. In both actions, the plaintiffs were former business associates of Robert Langlois.

[2] Mr. Langlois held himself out as an expert in powder-coating substrates, which involved applying powder coating, as opposed to liquid paint, to surfaces such as fiberglass and plastic.

[3] After being fired from his long-time position at Alliance Surface Finishing Inc. (“ASF”), Mr. Langlois started two powder-coating business ventures in quick succession with different partners, and then transferred the business of the second venture to a third venture.

[4] The plaintiffs in both actions claimed that Mr. Langlois breached obligations to their businesses and that they were therefore entitled to the profits from powder-coating work sourced by him between 2013 and 2015.

[5] The issues on appeal in relation to the first action that was commenced arise in large part from a license agreement dated June 24, 2011 (the “License Agreement”).

[6] Under the terms of the License Agreement, Mr. Langlois granted an exclusive, worldwide license in perpetuity to certain “Licensed Rights”, including his “knowledge acquired” in the powder-coating industry, to 7868073 Canada Ltd. (“786”).

[7] Prior to being fired by ASF, Mr. Langlois had persuaded two friends, Itolo Mallozzi [1] and Wade Kosowan, who had no experience in the powder-coating industry, to join him in launching a powder-coating business venture. [2] Together they formed, and through their respective holding companies, held equal shares in, 786, the Licensee under the License Agreement. In turn, 786 owned the shares of two other companies, Architectural Coatings Solutions Inc. and Transreflect Inc., each of which was intended to carry out different aspects of the newly founded business. [3] I will refer to these three companies collectively as “ACS”.

[8] It is undisputed that while Mr. Langlois contributed the know-how and industry contacts to ACS, Mr. Kosowan and Mr. Mallozzi were investors, with little, if any, knowledge of the powder-coating industry.

[9] Mr. Kosowan and Mr. Mallozzi invested over $350,000 in the 786 business venture over a period of approximately 18 months. This money was used, in part, to advance shareholder loans, in lieu of salary, to Mr. Langlois. Despite these monetary investments, ACS was not ultimately successful. [4]

[10] As of February 2012, ACS had not attracted any customers or generated any revenue. In January 2012, Mr. Langlois began forming a new powder-coating joint venture with Jeffrey Sugar, the owner of a liquid paint company, Vacuum Metallizing Limited (“Vacuum Metallizing”), and Gary Sugar, a corporate-commercial lawyer and Jeffrey Sugar’s brother. The three men operated their joint venture through Powder Coating Solutions Inc. (“PCS”). All three eventually became officers and directors of, and held equal shares in, PCS. By early February 2012, Mr. Langlois had stopped working at ACS.

[11] After learning what Mr. Langlois had done, in July 2012, ACS and three others (the two holding companies owned by Mr. Kosowan and Mr. Mallozzi, respectively, and Mr. Mallozzi personally, collectively the “ACS plaintiffs”) commenced an action (the “ACS action”) against Mr. Langlois, Jeffrey Sugar, Gary Sugar, PCS, Vacuum Metallizing and other related parties, alleging that Mr. Langlois had breached the License Agreement and his fiduciary duties to ACS, including a duty of confidence, and that Jeffrey Sugar and Gary Sugar knowingly assisted him in doing so.

[12] Subsequently, in 2015, Gary Sugar commenced an action (the “Gary Sugar action”) against Mr. Langlois, Jeffrey Sugar, Vacuum Metallizing, and other related parties. [5] Among other things, Gary Sugar alleged that, in January 2014, Mr. Langlois and Jeffrey Sugar secretly misappropriated PCS’ powder-coating business, which included a contract with RM2 Canada Inc. (“RM2”), a manufacturer of fiberglass-reinforced polymer pallets, and transferred it to Vacuum Metallizing, while misrepresenting to PCS and Gary Sugar that the RM2 contract was not profitable. An accounting report filed at trial showed that the total estimated profits of PCS and Vacuum Metallizing between 2012 and 2019 was $3,018,702. [6] Gary Sugar asserted that the majority of these funds were profits from the RM2 contract which belonged to PCS but were diverted to Vacuum Metallizing.

[13] The two actions were heard over 22 days in November and December 2021 and February 2022. Mr. Langlois and Jeffrey Sugar were self-represented at trial. Jeffrey Sugar acted on behalf of Vacuum Metallizing. PCS was unrepresented. Following the trial, the trial judge gave lengthy reasons in which she extensively reviewed the evidence and positions of the parties.

[14] In relation to the ACS action, the trial judge rejected Mr. Langlois’ and Gary Sugar’s many grounds for claiming that the License Agreement is invalid and unenforceable or had been terminated. She found that Mr. Langlois was a fiduciary who owed fiduciary duties to ACS and his former partners, Mr. Kosowan and Mr. Mallozzi, and that Mr. Langlois breached both the License Agreement and his fiduciary duties, “all of which [breaches] were intertwined”, by leaving ACS and taking with him the Licensed Rights he had granted to ACS, including his know-how and expertise. She found that both Gary Sugar and Jeffrey Sugar knowingly assisted him in doing so. She further found that PCS, Mr. Langlois, Jeffrey Sugar and Vacuum Metallizing misappropriated business opportunities, including the RM2 contract, and the sale of three powder-coating machines called Pultrucoaters, which would have been available to ACS but for the breaches of fiduciary duty and breach of the License Agreement. However, she dismissed the ACS plaintiffs’ claim for breach of confidence. [7]

[15] The trial judge assessed the profits to be disgorged by the defendants in the ACS action (except for Gary Sugar who did not share in such profits) at $2,501,986. However, she capped the liability of Jeffrey Sugar and Vacuum Metallizing at $1,250,000 based on evidence that Jeffrey Sugar received a 50% share of these profits. [8] The foregoing awards are referred to as the “ACS judgment”.

[16] Although Gary Sugar was not ordered to repay any of the misappropriated profits in the ACS judgment, because the trial judge found he knowingly assisted Mr. Langlois’ breaches, she ordered that the damages and claims in the ACS action ranked ahead of the damages and claims in the Gary Sugar action.

[17] Given her decision in the ACS action, the trial judge concluded that the Gary Sugar action was moot. She therefore dismissed the Gary Sugar action. However, she added that, had she decided the ACS action differently, she would have found Mr. Langlois and Jeffrey Sugar breached duties that they owed to PCS as senior officers and directors of that company. Further, she found that, in addition to breaching duties, they had caused PCS’ business to be conducted in a manner that was prejudicial to, and unfairly disregarded the interests of, Gary Sugar, i.e., she concluded that their conduct was oppressive. In the circumstances, had she not granted judgment to ACS, she said she would have ordered an accounting and a prophylactic disgorgement of the net profits from the powder-coating work done by PCS and Vacuum Metallizing to Gary Sugar. The trial judge stated that these remedies would have been appropriate not only because of Mr. Langlois’ and Jeffrey Sugar’s breaches of fiduciary duty and oppressive conduct, but also because of their failure to disclose important documentary evidence until ordered to do so.

[18] Turning to costs, in the ACS action, the trial judge ordered that Mr. Langlois, Jeffrey Sugar, PCS, Vacuum Metallizing and Gary Sugar pay the costs of the action, in the amount of $1,000,000 all-inclusive, on a joint and several basis. However, the trial judge capped the costs liability of Jeffrey Sugar and Vacuum Metallizing together at $334,000 and also capped the costs liability of Gary Sugar at the same amount. The ACS plaintiffs did not request costs in the Gary Sugar action. The trial judge accepted Gary Sugar’s submission that no order as to costs should be made in the Gary Sugar action.

Issues on Appeal

[19] Gary Sugar joins Mr. Langlois, 184978 Ontario Limited (Mr. Langlois’ holding company), Jeffrey Sugar and Vacuum Metallizing (these appellants, other than Gary Sugar, are referred to as the “Langlois appellants”) in appealing the ACS judgment. They [9] assert that the trial judge erred in holding that:

i) the License Agreement was valid and enforceable;

ii) the License Agreement was not terminated; and

iii) Mr. Langlois breached the License Agreement and also breached fiduciary duties to ACS by joining PCS and/or by misappropriating corporate opportunities of ACS.

[20] Gary Sugar also appeals the dismissal of the Gary Sugar action. He asserts that, if the appeal of the ACS judgment is allowed, the order dismissing the Gary Sugar action should be set aside and he should be awarded disgorgement damages for breach of fiduciary duty in the amount of $2,501,986 plus pre- and post-judgment interest, and an order under s. 248(3) of the Business Corporations Act, R.S.O. 1990, c. B.16, requiring Mr. Langlois, Jeffrey Sugar, Vacuum Metallizing and PCS to reimburse him for his investment in PCS and purchase his shares in that company.

[21] The ACS plaintiffs seek leave to cross-appeal the trial judge’s costs award, and, if leave be granted, ask that the caps on the costs liability of Jeffrey Sugar, Vacuum Metallizing and Gary Sugar be set aside.

Decision in Brief

[22] For the reasons that follow, I would dismiss the appeals of the ACS judgment and also deny the request, by way of cross-appeal, for leave to appeal costs. As Gary Sugar’s appeal of the judgment in the Gary Sugar action was premised on a successful appeal of the ACS action, it is unnecessary that I address his arguments on appeal of the Gary Sugar action, and I would dismiss that appeal.

Discussion

A. The Appeals of the ACS Judgment

[23] Before turning to the issues on the appeals of the ACS judgment, I will review the relevant provisions of the License Agreement.

The License Agreement

[24] The Licensed Rights are defined in the first recital of the License Agreement:

1. The Licensor is engaged in the design, manufacture and distribution of powder, liquid and other coating technology pursuant to the patents, patent applications and technological disclosures and designs set out in Schedule “A” to this Agreement, and has developed equipment, processes, trade secrets and manufacturing and distributing techniques and knowledge acquired during many years (all collectively referred to herein as the “Licensed Rights”)[.] [Emphasis in original.]

[25] Section 1(1) of the License Agreement sets out the grant of license and reads in part as follows:

1. Licensor covenants (1) Li[c]ense Grant. The Licensor grants to the Licensee … an exclusive, non-assignable … world wide li[c]ense to the Licensed Rights…. The parties agree, understand and intend that the Licensed Rights granted hereunder are broader than the contents of the patent applications, and shall continue to be broader than the patent applications.

[26] Section 1(4) restricts the right of the Licensor to transfer the Licensed rights during the term of the License Agreement unless sooner terminated:

(4) Licensor’s Restriction. The Licensor agrees that it will not during the term of this Agreement, unless sooner terminated as provided, grant any assignment, license or …sublicense to manufacture or sell the Licensed Rights covered by this Agreement to any person, firm or corporation anywhere in the world.

[27] Section 2(1) explains that the absence of royalties payable under the License Agreement is because the Licensor took an ownership interest in the Licensee:

2. Licensee Covenants (1) Royalty. The Licensee shall pay no royalties to the Licensor for the rights granted hereunder, the Licensor having taken an ownership interest in the Licensee in consideration of this Agreement.

[28] Section 3 specifies that the term of the License Agreement “shall be for an unlimited period, being a grant in perpetuity of a license to the Licensed Rights.”

[29] Sections 4 and 5 address cancellation for default and termination. Section 4 specifies that the License Agreement shall be subject to cancellation by the Licensor in the event of default by the Licensee that is not cured within sixty days of written notice of cancellation. Section 5 gives the Licensor a right of termination in various circumstances, including on or after the Licensee is either bankrupt or insolvent.

[30] Schedule ‘A’ to the License Agreement contains several provisional patent applications, which could be, and were, updated while Mr. Langlois was at ACS to include further provisional patent applications. As emerged at trial, however, none of these applications ever matured into patents.

(1) The trial judge did not err in holding that the License Agreement was valid and enforceable

[31] At trial, Gary Sugar and the Langlois appellants raised multiple challenges to the validity and enforceability of the License Agreement. The trial judge rejected their arguments that the License Agreement was void as against perpetuity, lacking consideration, an unlawful restraint of trade, unconscionable, not duly authorized by a shareholder’s resolution, and missing Schedule ‘A’ when it was signed, as well as their claims that the License Agreement had been terminated.

[32] On appeal, Gary Sugar and the Langlois appellants (collectively “the appellants”) challenge only her findings that the License Agreement was not an unlawful restraint of trade and that it had not been terminated. I will deal with the appeal issue that the trial judge erred in failing to find that the License Agreement was terminated in the next section.

[33] Leaving aside the issue of whether the License Agreement was terminated, the appellants focus their validity and enforceability submissions on: i) the trial judge’s rejection of their arguments that the License Agreement imposed an unlawful restraint of trade, and ii) her findings that “know-how” can be licensed.

[34] Concerning the restraint of trade issue, the trial judge accepted the ACS plaintiffs’ position that an unlawful restraint of trade arises only once the relationship between two contracting parties comes to an end and one party is improperly restrained from doing certain things. However, she found that, in this case, Mr. Langlois began competing with his ACS business partners while the License Agreement was still in effect and while it prevented him “from sharing his intellectual property, know-how and experience with anyone other than 786.” She therefore declined to apply the restraint of trade doctrine.

[35] Concerning the know-how issue, the trial judge noted that while Gary Sugar asserted that a license of Mr. Langlois’ know-how and expertise in perpetuity was draconian and an unconscionable covenant in restraint of trade, he did not suggest that know-how cannot be licensed.

[36] The appellants raise several arguments concerning these findings.

(i) Did the trial judge err in failing to find the License Agreement was an unlawful restraint of trade?

[37] First, the appellants argue that the trial judge erred in failing to consider whether the License Agreement was void ab initio as a restraint of trade.

[38] On its face, the License Agreement limits Mr. Langlois’ ability to work using his knowledge and experience in the powder-coating industry for the benefit of anyone other than the ACS plaintiffs, even after he stopped working for ACS. Relying on Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157, at paras. 16-17, the appellants say that such a provision is void as being contrary to public policy unless it can be shown to be reasonable having regard to three factors: its geographic scope, its period, and the extent of the activity it prohibits. Here, they contend that the worldwide scope and restriction on the use of Mr. Langlois’ knowledge in perpetuity make the restrictions in the License Agreement obviously unreasonable. In failing to even consider those factors, the appellants submit that the trial judge failed to apply the proper test to determine if the License Agreement was void ab initio as an unlawful restraint of trade, which they say it clearly was. Although they acknowledged in oral argument [10] that the Shafron test has not been applied in the employment context to hold that contracts of employment, while in effect, are an unlawful restraint of trade because they prohibit an employee from competing with their employer during their employment [11], the appellants nonetheless submitted that the Shafron test should apply in this case based on “first principles”.

[39] Also relying on Shafron, the appellants argue that the onus was on the ACS plaintiffs to show that the License Agreement was not an unlawful restraint of trade and that the trial judge reversed the burden of proof by requiring the appellants to show that the License Agreement is invalid or unenforceable. I would not accept these submissions. The Shafron decision, on which the appellants rely, is about a restrictive covenant in an employment contract that restricted the right of an employee to compete with his former employer after leaving his employment. The decision also speaks generally to restrictive covenants, for example, those contained in a contract for a sale of business addressing a seller’s right to compete with a purchaser following a sale.

[40] While there is no doubt that restraint of trade principles may apply to a restrictive covenant applicable after the termination of a licensing agreement (e.g., Tank Lining Corp. v. Dunlop Industrial Ltd. (1982), 40 O.R. (2d) 219 (C.A.)), the appellants have proffered no authority to support their argument in this case that restraint of trade principles apply to the License Agreement prior to termination or cancellation in accordance with its terms.

[41] I am sceptical that restraint of trade principles apply in this case. See, e.g. Warner Brothers Pictures Inc. v. Nelson, [1936] 3 All E.R. 160 (K.B.), in which Branson J. held that restraint of trade principles did not apply to a contract which required an actress to provide her services exclusively to the plaintiff film producers. He said, “[w]here, as in the present contract, the covenants are all concerned with what is to happen whilst the defendant is employed by the plaintiffs and not thereafter, there is no room for the application of the doctrine of restraint of trade”: at p. 163.

[42] However, in his authoritative text, The Law of Contracts, 3rd ed. (Toronto: Irwin Law, 2020), John D. McCamus questions whether the principle from Warner Brothers should be “generalized beyond the employment context”: at p. 527, fn. 154. This is because covenants restraining competition have been subject to the restraint of trade principle during the term of other contracts, such as certain music publication contracts used by music publishers for young artists and solus contracts used by gas station suppliers. Nonetheless, in relation to the question whether restraint of trade principles should apply during the currency of the License Agreement, I see the principle in Warner Brothers as being more appropriate.

[43] Under the terms of the License Agreement, Mr. Langlois granted an exclusive worldwide license in the Licensed Rights to 786 in exchange for an interest in 786. He sought out his investor business partners, who had little, if any, knowledge of the powder coating industry, so he could grow his business. The restrictions on competing prior to cancellation or termination of the License Agreement were neither unreasonable to him nor contrary to public policy. That such restrictions existed made sense in the context of the business arrangement that was negotiated. Mr. Langlois participated in the negotiations, agreed to the terms of the License Agreement and was not hampered by inequality of bargaining power.

[44] However, in the end, I need not resolve the issue whether restraint of trade principles apply. Even assuming that they could apply while the License Agreement was in force, I am satisfied that the restriction on Mr. Langlois’ use of the Licensed Rights was reasonable between the parties and reasonable in the public interest for the same reasons that I consider restraint of trade principles may not apply. Notwithstanding its broad geographic scope and the limits it placed on selling, distributing and putting to use the Licensed Rights, the License Agreement was temporally limited in the sense that it was subject to cancellation and termination by the Licensor, and restricted Mr. Langlois from competing with ACS only during its currency. It did not purport to restrain him from using the Licensed Rights after its termination and went no further than necessary to protect the legitimate interests of 786, the party in whose favour it was granted: see MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168, 129 O.R. (3d) 161, at para. 38.

[45] As this court observed in Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72, 359 D.L.R. (4th) 123, “[g]reater deference is given to the freedom of contract of ‘knowledgeable persons of equal bargaining power’”: at para. 53, citing Elsley v. J.G. Collins Ins. Agencies Ltd., [1978] 2 S.C.R. 916, at p. 923; see also Payette v. Guay inc., 2013 SCC 45, [2013] 3 S.C.R. 95, at para. 58. Mr. Langlois was not in a situation akin to an employee, where the power imbalance between an employer and employee demands more rigorous scrutiny: see Shafron, at para. 23; M & P Drug Mart Inc. v. Norton, 2022 ONCA 398, 79 C.C.E.L. (4th) 171, at para. 34. Assuming, without deciding, that restraint of trade principles apply, I am satisfied that the License Agreement is reasonable between the parties and with reference to the public interest.

[46] I acknowledge that, at both the outset and the conclusion of her discussion concerning Mr. Langlois’ and Gary Sugar’s arguments that the License Agreement was invalid or unenforceable, the trial judge stated that the onus was on them to show that it was. I observe that the onus of proof issue may be more nuanced than the appellants acknowledge: see e.g., Martin v. ConCreate, at paras. 49-50. However, as I have reached the conclusion that, even assuming that restraint of trade principles apply, the License Agreement was reasonable between the parties, the question whether the motion judge reversed the burden of proof does not arise.

(ii) Did the trial judge err in finding that know-how can be licensed?

[47] Gary Sugar also argues on behalf of the appellants that, having interpreted the License Agreement as licensing Mr. Langlois’ knowledge or know-how, as opposed to licensing specific technology, the trial judge erred in determining that a worldwide license in perpetuity of knowledge or know-how is permissible.

[48] I would not accept this submission. In her reasons, the trial judge observed that while Gary Sugar raised an argument about restraint of trade at trial even though he had not pleaded it, he did not suggest that knowledge or know-how cannot be licensed. I note, as well, that in his pleadings, Mr. Langlois acknowledged that there was no intellectual property in the “technology and processes” referred to in the License Agreement. Rather, he asserted that it was his “knowledge, training, technical skills and know-how that [were] of value”.

[49] In my view, this argument by Gary Sugar is but one of several attempts by the appellants to try to recast their position at trial and raise issues on appeal that were not raised in the court below. An appeal is not the forum for parties to raise issues not raised in the court below: see e.g., Mroz v. Mroz, 2015 ONCA 171, 125 O.R. (3d) 105, at para. 83, citing Perez (Litigation Guardian of) v. Salvation Army in Canada (1998), 42 O.R. (3d) 229 (C.A.), at p. 233. The attempts to do so are particularly problematic in a case such as this, involving a lengthy trial at which the trial judge was required to address a multitude of arguments, most of which the appellants do not attempt to revisit on appeal.

[50] I observe as well that the appellants did raise an argument in the court below that the License Agreement was void as against perpetuity. After finding that the License Agreement was not an unlawful restraint of trade, the trial judge relied on Conseil Scolaire Catholique Franco-Nord v. Nipissing Ouest (Municipalité), 2021 ONCA 544, 158 O.R. (3d) 332, to hold that the License Agreement was not void as against perpetuity. The appellants did not challenge her finding in that respect on appeal. Nor did they challenge on appeal her finding that the License Agreement was not unconscionable.

(2) The trial judge did not err in finding that the License Agreement was not terminated

[51] The appellants submit that the trial judge erred in failing to find that the License Agreement was terminated, and therefore did not prohibit Mr. Langlois’ use of the Licensed Rights following the date of termination. The appellants focus their submissions on three emails/letters: an email from Mr. Kosowan dated February 14, 2012, a letter from Mr. Langlois dated March 1, 2012 and a letter from Gary Sugar dated April 19, 2012.

(i) The February 14, 2012 email

[52] Mr. Kosowan’s February 14, 2012 email was addressed to contacts and potential customers of ACS and ASF, Mr. Langlois’ longtime former employer until June 7, 2011 [12] with whom ACS made an arrangement following Mr. Langlois’ departure. The email reads in part as follows:

Due to recent developments concerning our association with Robert Langlois we find it necessary to clarify our position for the benefit of our clients. Robert Langlois has stated that he is no longer associated with ACS - this is definitely our position as well. We have also been made aware that Robert Lang[l]ois has not settled his differences with the Alliance Surface Finishing Inc., his former employer.

After careful consideration and due diligence, we are pleased to announce that the Board of Directors of [ACS] have chosen to move forward in an exclusive relationship with [ASF] to provide our customers with a full range of powder coating solutions. We feel this new relationship mitigates any intellectual property risk and adds significant value due to ASF’s in house capabilities. [Emphasis added.]

[53] The trial judge held that the February 14, 2012 email did not have the effect of relieving Mr. Langlois of his obligations under the License Agreement or any fiduciary obligations he may have owed to ACS. Rather, she said it was intended to clarify, for the benefit of the clients and customers of ACS and ASF, that Mr. Langlois and ACS were no longer working together. She observed that the License Agreement does not give 786 the right to terminate it. She said, “there is no language in that communication that alters the legal and contractual relationships between the parties, and their rights and obligations to each other.”

[54] The appellants submit that the trial judge erred in failing to find that the February 14, 2012 email did not terminate the License Agreement. They point to the emphasized portion of the email indicating that Mr. Langlois had stated he was no longer associated with ACS and that that was ACS’ position as well. They say the trial judge erred in law in failing to find that the email confirmed that Mr. Langlois had repudiated the License Agreement and that ACS had accepted his repudiation.

[55] I would not accept this submission. Once again, the appellants are attempting to raise on appeal an issue that was not raised in the court below. The appellants did not plead repudiation, let alone that the February 14, 2012 email constituted an acceptance of a repudiation. On the contrary, Mr. Langlois, Gary Sugar and Jeffrey Sugar argued at trial that, when Mr. Kosowan sent the February 14, 2012 email, he unilaterally terminated the License Agreement. As the trial judge observed, it was not open to ACS under the terms of the License Agreement to terminate it. In any event, I agree with the trial judge that the fact that ACS advised its contacts and potential customers that it agreed with Mr. Langlois’ statement that he was no longer working with ACS does not demonstrate an intention to release him from his obligations under the License Agreement. This conclusion is also consistent with the fact that Mr. Langlois continued to hold shares in 786 after his departure.

(ii) Mr. Langlois’ March 1, 2012 Letter and Gary Sugar’s April 19, 2012 Letter

[56] Mr. Langlois and Gary Sugar on Mr. Langlois’ behalf both purported to exercise the cancellation and termination rights contained in ss. 4 and 5 of the License Agreement in letters dated March 1, 2012 (from Mr. Langlois) and April 19, 2012 (from Gary Sugar). The letters relied on various grounds specified in ss. 4 and 5. On appeal, the appellants rely only on the right to terminate based on the insolvency of ACS. They say that, in the face of the trial judge’s finding at para. 197 of her reasons that it was “more likely than not” that ACS was insolvent when Mr. Langlois left ACS to start PCS, she erred in failing to find these letters terminated the License Agreement.

[57] I would not accept this submission. The trial judge’s statement at para. 197 of her reasons must be read in context. The issue she was discussing at para. 197 was unconscionability, not termination. She addressed termination at paras. 178 to 191 of her reasons and rejected the appellants’ claims that either the March 1, 2012 letter or the April 19, 2012 letter terminated the License Agreement. At para. 190, she stated that, “[n]o evidence was adduced to show that any of [the] events triggering termination had occurred.” She added that while the April 19, 2012 letter specifically alleged that ACS was insolvent, “no evidence was adduced in support of that allegation.”

[58] The trial judge’s subsequent statement at para. 197 on which the appellants rely was not a finding that the appellants had proven ACS was insolvent to support their purported notices of termination. Instead, it was an observation, in the context of her discussion of the appellants’ claim that the License Agreement was unconscionable, that the appellants had a right of termination that they were probably entitled to exercise. Immediately after making the statement on which the appellants rely, the trial judge went on to clarify that the appellants had not proven ACS was insolvent:

It is more likely than not that ACS was insolvent at that time. If so, to terminate the Licence Agreement, Mr. Langlois could have relied on paragraph 5 and proven that ACS was insolvent. He did not. This opportunity was identified by his lawyer at the time, Gary Sugar, but it was not pursued. [Emphasis added.]

[59] I see no error in the trial judge’s conclusions that the License Agreement was not terminated by any of the three e-mails/letters.

(3) The trial judge did not err in finding that Mr. Langlois owed the ACS plaintiffs fiduciary duties after leaving ACS

[60] At trial, Mr. Langlois argued that he had no fiduciary duties to ACS because he was not an officer or director of any of the ACS companies. Gary Sugar did not dispute that Mr. Langlois was a fiduciary, but rather submitted that his fiduciary duties were severed early on when Mr. Langlois got involved with PCS and Mr. Kosowan sent the February 14, 2012 email.

[61] The trial judge had “no difficulty concluding” that Mr. Langlois owed fiduciary duties to the ACS plaintiffs. He brought his knowledge, expertise and experience in the industry to their powder-coating business venture. He was ACS’ operating mind and the face of its product. He was the partner with information with respect to each of the opportunities pursued by ACS. While he was with ACS, he was the only one being paid and the most significant opportunities arose out of his contacts. Despite not holding a formalized position as officer or director of any of the ACS companies, he held himself out as “President and Chief Executive Officer of ACS.” The trial judge concluded that he was the de facto President and CEO of ACS. Moreover, without his portfolio of skills and experience, the ACS business venture had no chance of success.

[62] Mr. Langlois thus had considerable scope for the exercise of discretion. He could unilaterally exercise that discretion to affect the interests of the ACS plaintiffs, and they were particularly vulnerable to him and to the exercise of his power. He was therefore a fiduciary.

[63] The trial judge also concluded that Mr. Langlois’ fiduciary duties continued after he left ACS. As I have said, she found that the February 14, 2012 email did not terminate either the License Agreement or his fiduciary duties. Rather, she concluded that they continued even following ACS’ association with ASF. At paras. 232, 233, 235 and 236 of her reasons, she said, in part, as follows:

ACS had a critical vulnerability…. Without Mr. Langlois, and his portfolio of skills and experience, the [ACS] plaintiffs knew that the venture would have no chance of success….

As it turned out, when Mr. Langlois left without warning, the [ACS] plaintiffs were largely unsuccessful at pursuing customers and opportunities, even with the assistance of ASF. This was because Mr. Langlois continued to pursue those very same customers and opportunities, as the face of powder coating.

The very vulnerability that the [ACS] plaintiffs sought to guard against through the Licence Agreement became their reality. Their goal of mitigating the risk that Mr. Langlois would leave and take his know-how and expertise with him was defeated by Mr. Langlois’ decision to conduct himself in a manner that he had specifically agreed not to.

I find that the fiduciary obligations that Mr. Langlois owed to the [ACS] plaintiffs … were not severed as Gary Sugar alleges. Mr. Langlois’ conduct in leaving ACS and taking with him the Licensed Rights he had granted to ACS, including his know-how and expertise, with him struck at the very underpinning of the contractual mechanism between the ACS partners.

[64] Concerning Gary Sugar’s specific claim that he understood the February 14, 2012 email to mean that the relationship between Mr. Langlois and ACS was over, the trial judge said, at para. 335 of her reasons:

As a corporate lawyer, Gary Sugar ought to have recognized that the February 14 Email was a necessary but unsuccessful attempt by Mr. Kosowan to mitigate the impact of Mr. Langlois moving to PCS to unfairly compete with ACS in breach of the Licence Agreement and his fiduciary duties. Mr. Langlois’ duties to act in good faith, with loyalty and in ACS’ best interest continued.

[65] The appellants submit that the trial judge made a palpable and overriding error in failing to find that ACS eliminated its vulnerability – which was the critical element giving rise to Mr. Langlois’ fiduciary duties – through its association with ASF, a fact they say Mr. Kosowan confirmed in his February 14, 2012 email. In particular, Mr. Kosowan informed ACS’ contacts and prospective clients in that email that ACS had “chosen to move forward … with [ASF] to provide [their] customers with a full range of powder-coating solutions.” Further, he represented that “ASF [brought] the strength of 10 years” in the powder-coating industry and had “the knowledge and expertise to deliver the solutions [ACS] wish[ed] to provide.”

[66] The appellants contend that the conclusion that ACS eliminated its vulnerability by partnering with ASF is unaffected by the trial judge’s observation that the ACS plaintiffs were “largely unsuccessful at pursuing customers and opportunities, even with the assistance of ASF” because Mr. Langlois continued to pursue those same customers and opportunities. They assert that what happened after-the-fact is irrelevant to the reality that, by partnering with ASF, ACS effectively eliminated its vulnerability to Mr. Langlois – and told its contacts and potential customers that it had done so. Further, they submit that Mr. Langlois’ pursuit of customers was not a sufficient basis to ground a continuing fiduciary duty. To hold otherwise would impose a perpetual restriction on his ability to work. The appellants rely on the principle that a departing fiduciary is entitled to compete so long as the fiduciary competes fairly: Veolia ES Industrial Services Inc. v. Brulé, 2012 ONCA 173, 289 O.A.C. 207, at para. 33, leave to appeal refused, [2012] S.C.C.A. No. 229.

[67] Finally, and, in any event, the appellants say that a departing fiduciary’s continuing duty exists only for a reasonable period of time, not indefinitely: GasTOPS Ltd. v. Forsyth, at para. 109, aff’d 2012 ONCA 134, 288 O.A.C. 201. To hold otherwise would be contrary to public policy as an unreasonable restraint of trade. The appellants submit that, if Mr. Langlois’ fiduciary duties were still in place even after the February 14, 2012 email, they would certainly have ended well before April 2013, when PCS began doing business with RM2.

[68] I would not accept these submissions. The trial judge’s finding that Mr. Langlois’ fiduciary duties continued after he left ACS is a finding of mixed fact and law and is entitled to deference on appeal: Shafron, at para. 13; Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247, at para. 49. The trial judge considered ACS’ agreement with ASF but concluded that it was no more than an attempt to mitigate the harm caused by Mr. Langlois’ unilateral decision to leave ACS. ACS’ agreement with ASF did not eliminate ACS’ vulnerability vis-à-vis Mr. Langlois. As the trial judge noted, years after his departure from ACS, Mr. Langlois was still holding himself out as “the” expert in powder coating. ACS remained vulnerable to Mr. Langlois and he continued to hold power and discretion in relation to ACS, because he took with him, and continued to exploit following his departure, the knowledge and expertise he licensed to 786.

[69] Contrary to the appellants’ submissions, Mr. Langlois’ situation is not similar to that of a departed employee whose relationship with his former employer has terminated. Following his departure from ACS, Mr. Langlois continued to be bound by the terms of the License Agreement. His continuing fiduciary obligations flowed, in part, from the continuing existence of that agreement, the continued power and discretion he held vis-à-vis ACS and his former partners because of his knowledge and expertise, and their vulnerability to him as a result of that knowledge and expertise.

[70] Further, I agree with the trial judge’s conclusion that the February 14, 2012 e-mail was nothing more than an attempt to mitigate the harm caused by the breakdown in ACS’ relationship with Mr. Langlois. To hold that sending a message to potential customers, signalling the continued viability of the business, was enough to demonstrate that Mr. Langlois was relieved of his fiduciary duties could imply that businesses cannot hold themselves out as able to carry on business to their customers in the face of a loss of a business partner unless they are willing to release the former partner of all lasting fiduciary duties and associated liabilities.

(4) The trial judge did not err in concluding that Mr. Langlois breached his contractual and fiduciary obligations by misappropriating corporate opportunities of ACS

[71] The trial judge found that Mr. Langlois breached his contractual and fiduciary obligations by misappropriating corporate opportunities that belonged to ACS (the RM2 contract and sale of three powder-coating machines), for the benefit of PCS/Vacuum Metallizing. Mr. Langlois and Jeffrey Sugar ultimately shared the profits from these opportunities to the exclusion of PCS and Gary Sugar.

[72] The appellants say that in reaching these conclusions, the trial judge applied the wrong test. They argue that she erred in law by holding that the RM2 opportunity belonged to ACS because it was not a “fresh initiative” for Mr. Langlois at PCS, but rather the result of Mr. Langlois’ relationship with Stanley Rokicki, which Mr. Langlois nurtured while at ACS.

[73] Instead of asking whether the RM2 contract was a “fresh initiative”, the appellants say that the trial judge should have considered whether the RM2 contract was a “maturing business opportunity” for ACS that was “ripe” at the time Mr. Langlois left ACS, i.e., “a prize ready for immediate grasping – not a general course of future conduct which is merely being explored”: Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 225 (Gen. Div.), at pp. 246-47. Given that the ACS plaintiffs conceded that the RM2 opportunity was not available while Mr. Langlois was at ACS, the appellants submit that it could not have met this threshold. Similarly, as the trial judge found that “PCS decided to invent … the Pultrucoater” in January 2013, the subsequent sales of Pultrucoater machines could not possibly be considered a “maturing business opportunity” let alone one that was “ripe” when Mr. Langlois left ACS.

[74] I would not accept these submissions. The trial judge relied on principles set out in Can. Aero v. O’Malley, [1974] S.C.R. 592, for her analysis. She said that in Can. Aero, the Supreme Court referred to a “fresh initiative” as being the “only opportunity a fiduciary could pursue without breaching his fiduciary duty to his former partners and shareholders of ACS.” This statement undoubtedly refers to the following passage at p. 607 of Can. Aero:

In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired. [Emphasis added.]

[75] She also accepted and quoted from a passage at p. 620 of Can. Aero, setting out the principle that determining whether there has been a breach of fiduciary duty is a case-specific exercise requiring consideration of a variety of potential factors. “Ripeness” of the opportunity is not determinative but only one potential factor: see Can. Aero, at p. 620.

[76] In this case, the trial judge considered several factors to be important in determining whether there was a sufficient causal nexus between Mr. Langlois’ breach of fiduciary duty and profits earned on the RM2 contract, including the following:

• Mr. Langlois had already appropriated the ACS Business Plan for PCS before he told his partners that he would be leaving ACS;
• in addition to the ACS Business Plan, Mr. Langlois took with him the rights that he had licensed to ACS;
• Mr. Langlois left ACS at a time when he was close to closing a deal with Inline Fiberglass Ltd. (“Inline Fiberglass”), which he had been working on for months with its principal, Mr. Rokicki;
• the potential deal with Inline Fiberglass involved installing an in-line powder-coating machine at Inline Fiberglass and the ACS Business Plan included reference to a potential deal with Inline Fiberglass;
• Mr. Langlois acknowledged in his evidence that PCS was formed, in part, on the basis of the potential deal with Inline Fiberglass;
• although the deal with Inline Fiberglass ultimately fell through, in April 2013, within approximately a year of the incorporation of PCS, Mr. Langlois, Jeffrey Sugar and Gary Sugar met with RM2 at the building where Inline Fiberglass was located and where Mr. Rokicki had given Mr. Langlois office space; and
• at the time of the April 2013 meeting, Mr. Rokicki was also renting a space in the same building to RM2 and working with it on the design of an anti-slip texture for its skids.

[77] The trial judge found as a fact that the RM2 opportunity (including the RM2 contract and the sale of a powder-coating machine to RM2) was not a fresh initiative for Mr. Langlois. Rather, it was Mr. Langlois’ relationship with Mr. Rokicki, the principal of Inline Fiberglass, nurtured over the duration of Mr. Langlois’ tenure at ACS, which led to the RM2 opportunity. In particular, Mr. Langlois had been actively pursuing a joint venture with Inline Fiberglass throughout his tenure at ACS which would have involved installing an in-line powder-coating machine at Inline Fiberglass. Meanwhile, Mr. Rokicki had been working with RM2 to find an anti-slip solution for its skids. PCS’ contract with RM2 involved the use of anti-skid technology for pallets that Mr. Langlois developed while at ACS. It was reasonable to conclude that the RM2 opportunity was an extension of the Inline Fiberglass opportunity that Mr. Langlois was pursuing while at ACS and not a fresh initiative for Mr. Langlois.

[78] Similarly, the trial judge observed that Mr. Langlois conceded that the Pultrucoater powder-coating machine that he “invented” in 2013 involved basically the same process he had used for machines at ACS “but condensed into a smaller machine.” She concluded that his “know-how was essential to the design and development of the three automated powder-coating machines sold by PCS.” Further, she found that “by disclosing his processes, designs, and knowledge relating to powder-coating machines that he had licensed to ACS … [Mr. Langlois] gave PCS the competitive advantage that ACS had had while Mr. Langlois was working for ACS.”

[79] Although the trial judge considered Pizza Pizza, she distinguished it on its facts. She observed that, while it was undisputed that the defendant, Mr. Gillespie, who left Pizza Pizza to start Chicken Chicken, was a fiduciary, Chicken Chicken was his own initiative and not the result of a corporate opportunity from Pizza Pizza. She also rejected the appellants’ argument that the discussion in Pizza Pizza concerning ripeness modified the “fresh initiative” principle on which she relied.

[80] I see no error in the trial judge’s application of the law to the facts of this case. I observe that, while the passage from p. 607 of Can. Aero that I have set out above specifies that a fiduciary is precluded from usurping “a maturing business opportunity”, it indicates as well that a fiduciary is precluded from taking advantage of an opportunity “where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.”

[81] Significantly, in this case, the License Agreement had not been cancelled or terminated when the appellants took advantage of the RM2 opportunities.

[82] In the end, I am satisfied that the trial judge considered the relevant principles and committed no reviewable errors.

B. The Cross-appeal

Leave to appeal costs is denied

[83] The ACS plaintiffs seek leave to appeal the caps the trial judge imposed on the costs liability of Gary Sugar, Jeffrey Sugar and Vacuum Metallizing.

[84] The ACS plaintiffs assert that the trial judge erred in principle by departing from the rule that losing parties are generally liable for costs on a joint and several basis despite a decision to apportion liability as between the losing parties on a different basis and also by departing from the general rule without giving reasons for doing so. They also assert that the trial judge appeared not to consider key factors militating against capping liability for costs, such as findings of misconduct against a party and a party’s contribution to the overall complexity of the proceedings.

[85] Leave to appeal costs is denied. The basis for capping the awards of costs is obvious from the judgment that was awarded and the trial judge’s endorsement on costs. I am not persuaded that the ACS plaintiffs have met the high threshold for obtaining leave to appeal a discretionary costs award.

Disposition

[86] Based on the foregoing reasons, I would dismiss the appeals and the request by way of cross-appeal for leave to appeal costs.

[87] I would award costs of the appeal in the ACS action to the ACS plaintiffs in the agreed upon amount of $65,000, all-inclusive, payable severally by Gary Sugar and the Langlois appellants in the amount of $32,500 each as agreed to by the parties. In accordance with the parties’ agreement, I would make no order as to costs of the appeal in the Gary Sugar action.

Released: May 9, 2024 “J.M.F.” “Janet Simmons J.A.” “I agree. Fairburn A.C.J.O.” “I agree. Daley J. (ad hoc)”

[1] Mr. Mallozzi was a named Licensor, along with Mr. Langlois in the License Agreement. However, it is undisputed that he did not own any intellectual property. Rather, he had assisted Mr. Langlois in submitting some of the provisional patent applications that formed part of Schedule ‘A’ to the License Agreement, and it was anticipated that he would continue to do so in the future.

[2] Mr. Langlois initially represented to Mr. Kosowan and Mr. Mallozzi that ASF was in financial trouble as its investors were no longer interested in investing. Later, around June 7, 2011, the date he was fired by ASF, he informed them that ASF was on the verge of receivership and that its investors were about to seize its assets.

[3] The business venture was intended to include the manufacture, distribution and sale of powder-coating and reflective coating products.

[4] Mr. Kosowan gave evidence that, as of the date Mr. Langlois left, their total investment was $268,144.02. Around $87,000 of additional expenses were incurred after Mr. Langlois left.

[5] There were counterclaims in both the ACS Action and the Gary Sugar action, which were dismissed. The counterclaims are not at issue on this appeal.

[6] This figure includes tax credit refunds for scientific research and development received by Vacuum Metallizing.

[7] The trial judge concluded that Mr. Langlois breached the License Agreement in using his know-how to the detriment of ACS but found that the ACS plaintiffs had not “met their onus to show that Mr. Langlois was in possession of confidential information that belonged to ACS, which he conveyed to the defendants, and which they used to the detriment of the [ACS] plaintiffs.”

[8] The trial judge also found Mr. Langlois liable for repaying loans and expenses relating to APS. Those findings are not in issue on this appeal.

[9] Gary Sugar and the Langlois appellants frame some of their arguments on their appeals of the ACS judgment somewhat differently. However, because they are aligned in interest in appealing the ACS judgment, in some instances, I have chosen not to specify which of these appellants advanced which argument.

[10] Counsel for the Langlois appellants made this acknowledgement in oral argument.

[11] See GasTOPS Ltd. v. Forsyth, at para. 95, aff’d 2012 ONCA 134, 288 O.A.C. 201.

[12] ASF was in the business of powder coating. Mr. Langlois served as its CEO and President from 2003 to June 2011. As previously noted, ASF terminated his employment on June 7, 2011.