COURT FILE NO.: CV-12-464500 DATE: 20121116

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

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 A. Veneziano and Matthew B. Lerner, for the Plaintiff

Richard P. Quance, for the Defendants Steven J. Roberts, Jack Robert Lee, 1271583 Ontario Inc., Chun-Wing Lee, 1177153 Ontario Limited and Go To Wireless Inc.

David N. Bleiwas, for the Defendants Marilyn Schaffer and XTM Incorporated

HEARD: October 29 and November 2, 2012

Stevenson J.

reasons for decision

Introduction

[1] The plaintiff, Polar Wireless Corporation ("Polar"), seeks an interlocutory injunction preventing the defendants, Steven J. Roberts ("Mr. Roberts"), Jack Robert Lee, ("Rob Lee"), 1271583 Ontario Inc.,("1271583"), Chun-Wing Lee ("Wing Lee"), 1177153 Ontario Limited, ("1177153"), Marilyn Schaffer, ("Ms. Schaffer"), XTM Incorporated ("XTM") and Go To Wireless Inc. ("Go To") from unlawfully competing with Polar and from misusing Polar's confidential information.

[2] Polar alleges that the four individual defendants recently occupied key positions at Polar and have started competing directly with Polar through Go To. Polar contends that these individual defendants have done so using the relationships, information and opportunities that they developed while at Polar.

[3] Specifically, Polar seeks an injunction:

(i) restraining the defendants from directly or indirectly soliciting, contacting, approaching, entering into agreements, or in any way seeking to do business with carrier and distribution opportunities developed while at Polar;

(ii) restraining the defendants from taking any affirmative steps under any agreements executed with Choice, SIS, or any third party relationship cultivated at Polar where such steps are not explicitly required of Go To under those agreements; and

(iii) enjoining the defendants from using, misusing or disclosing any and all confidential and/or proprietary information of Polar.

[4] Polar also seeks the return of any confidential and/or proprietary information of Polar by the defendants and an order preserving all information, documents and data in any format, electronic or otherwise, in the possession and or control of the defendants and relating to Polar, its technology, business and/or operations.

[5] Polar also seeks an order authorizing an expert on its behalf to attend at the defendants' premises to create forensic images of all physical electronic devices, and copies of data stored remotely, including all e-mail accounts used by the defendants in the last calendar year, or which contain confidential information of Polar, for preservation subject to further order of the court, and an order that the defendants cooperate with Polar's expert. They further seek an order prohibiting any of the defendants from in any way, deleting, modifying or in any way interfering with any electronic equipment or data stored remotely, including all e-mail accounts containing information which is potentially relevant to the action, until further order of court. Polar also seeks its costs of this motion.

Background Facts

[6] 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 that is placed on the back of the user's regular SIM card. The device provides a connection to the Polar network of international carriers who are international wireless airtime providers providing Polar users with access to local networks while roaming. This enables a Polar customer to roam "seamlessly" in that it allows Polar's users to retain their regular telephone numbers while Polar provides significantly discounted roaming rates.

[7] Polar contends that its business relies on three pillars; those being, (a) a properly functioning hardware device or SIM; (b) an established network of international carrier partnerships; and (c) a developed network of international distributors. It submits that it has dedicated more than three years of effort and invested approximately $16 million in order to launch its SIM Overlay product in early November 2012.

[8] Mr. Roberts was the President of Polar for approximately one year, but was terminated from his position on June 28, 2012.

[9] Rob Lee and Wing Lee and their holding companies being 1271583 and 1177153 respectively, remained at Polar until August 1, 2012. For approximately one year they were both involved with Polar's business and entered into agreements with Polar through which they gained access to Polar's confidential and proprietary business information.

[10] XTM provided marketing and branding services to Polar pursuant to an agreement dated April 11, 2012 that was terminated over what appears to be a billing dispute in August 2012. Ms. Schaffer is the President and CEO of XTM and leads a team of 20 employees.

[11] Polar alleges that Go To directly competes with Polar by also operating an alternative roaming solutions business that operates and generates revenue in the same manner as Polar and that uses business opportunities that were fostered at Polar when the individual defendants were involved with Polar. Polar further alleges that the individual defendants now comprise the management team of Go To.

[12] Polar contends that Go To is "spring-boarding" to commercial viability using those business opportunities gained at Polar in breach of their legal duties. Polar states that the defendants were fiduciaries who are not to unfairly compete with their former employer and that they have contractual duties to keep Polar's confidences. Further, Rob Lee, Wing Lee and Ms. Schaffer have a duty in law and equity not to knowingly assist Mr. Roberts in breaching his fiduciary duties by converting Polar's business opportunities and confidential information for Go To's own use and benefit.

[13] Polar further alleges that these individual defendants breached negative confidentiality covenants and that during the course of their work with Polar, they each obtained knowledge of, and participated in, the development of Polar's confidential and proprietary business plans, operations, technical information, marketing strategy, financial position, and business development opportunities.

The Law

[14] As set out in s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and in Rule 40.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a judge may grant an interlocutory order or mandatory order on such terms as are considered just.

[15] The three-part test for an injunction is set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, at para. 43:

(i) there is a serious issue to be tried;

(ii) irreparable harm will be suffered by the applicant if the injunction is not granted; and

(iii) the balance of convenience favours granting the injunction.

Issues

[16] The issues are:

1. What is the test for the issuance of an injunction in this case?

2. Has Polar established a strong prima facie case of breach of confidence and breach of fiduciary duty?

3. Will Polar suffer irreparable harm if the injunction is not granted? and

4. Has Polar established that the balance of convenience favours it?

1) What is the test for the issuance of an injunction in this case?

[17] Polar contends that the serious issues to be tried in this case are whether the defendants are fiduciaries of Polar and whether, if not fiduciaries, any defendants are impressed with fiduciary duties by virtue of knowingly assisting Mr. Roberts and/or any other fiduciary in breach of their fiduciary duties owed to Polar. If any of the defendants is, or all of the defendants are found to be fiduciaries, the question becomes whether they have breached any fiduciary duties owed to Polar. Further, the other serious issues to be tried, Polar contends, are whether the defendants are in breach of their negative covenants to Polar respecting confidentiality and whether the defendants have conspired to breach their obligations of confidentiality owed to Polar and/or conspired to participate with Mr. Roberts and Go To in unfairly competing with Polar.

[18] Polar accepts that the defendants do not have contractual non-competition agreements or non-solicitation agreements. However, Polar contends that this is not the issue. The issue, Polar submits, is whether the defendants were under a fiduciary duty not to compete or solicit and whether that fiduciary duty creates a restrictive covenant. Polar concedes that as it is attempting to enforce restrictive covenants, it must establish not just a serious issue to be tried, but a strong prima facie case. Once Polar has established this, then the remaining elements of the test for an injunction, irreparable harm and the balance of convenience, Polar submits, are considered less rigorously by the court.

[19] Polar contends that it has a strong prima facie case that there has been a breach of fiduciary duty and a breach of the duty of confidence by the defendants either derived from the common law or contractually. They further submit that the defendants were subject to confidentiality agreements.

[20] The courts have held that the threshold to establish whether there is a serious issue to be tried is low. However, as stated by Brown J. in para. 27 of GDL Solutions Inc. v. Walker et al., 2012 ONSC 4378, referencing RJR-MacDonald Inc., "...Where the injunction will amount to a final determination of the action, where a constitutional issue presents as a question of law alone, or where, in a private law context, the factual record is largely settled, the plaintiff must show a strong prima facie case rather than a serious issue to be tried at the first step of the test (paras. 51-56).

[21] Some courts in Ontario have held that the higher standard of a strong prima facie case should apply where parties are seeking to enforce restrictive covenants, both in the context of an employment agreement and the sale of a business. If the higher standard is met, less emphasis is placed on the second and third parts of the injunction test. See: Boehmer Box L.P. v. Ellis Packaging Ltd., [2007] O.J. No. 1694 (S.C.J.) and Quizno’s Canada Restaurant Corp. v. 1450987 Ontario Corp., 2009 CanLII 20708 (ON SC), [2009] O.J. No. 1743 (S.C.J.)

[22] In other decisions, the courts have not insisted that the parties seeking to enforce a restrictive covenant make out a strong prima facie case. They have found that where a strong prima facie case can be made out, there is no need to examine the second and third parts of the injunction test. Where only a serious issue to be tried can be established, there is more emphasis on the second and third parts of the injunction test.

[23] Pattillo J., in the decision of Van Wagner Communications Co., Canada v. Penex Metropolis Ltd., [2008] O.J. No. 190 (S.C.J.), leave to appeal refused, [2008] O.J. No. 1707 (Div. Ct.), reviewed the appropriate test on an injunction where there is a negative covenant. At para. 35, he referred to statements from Canada (Attorney General) v. Saskatchewan Water Corp., 1991 CanLII 3951 (SK CA), [1991] S.J. No. 403 (C.A.) that were adopted in C.BJ International Inc. v. Lubinski, [2002] O.J. No. 3065 (S.C.J.), at para. 16:

In summary, we find that to apply the appropriate test where an interlocutory injunction is sought on the basis of breach of a negative covenant the judge should use the following approach. To satisfy the first test he must undertake a preliminary and tentative analysis of the strength of the case put forward by the plaintiff. Is it overwhelming? Is a strong prima facie case? Is it a prima facie case? Is it less than a prima facie the case? Similarly he must make a tentative and preliminary assessment of the possible defences which may be offered, all with a view to a [sic] estimating the extent to which those defences reduce the strength of the case initially shown by the plaintiff. At the end of that process the judge must answer the question: Is the plaintiff left with a[t] least a prima facie case? If the answer is yes, the first test has been satisfied. As for the second and third tests, the strength of the case that the plaintiff is left with will determine how heavily the balance of convenience and irreparable harm must be weighed in the context of negative covenants. If the plaintiff is left with a strong prima facie case approaching a plain and uncontested breach of a clear covenant, then an injunction ought to be granted without much regard to the balance of convenience and irreparable harm. If the plaintiff is left only with a prima facie case then more regard needs to be had to the balance of convenience and irreparable harm.

[24] Pattillo J. further stated at para. 39 of Van Wagner Communications Co., Canada v. Penex Metropolis Ltd., with respect to negative covenants:

Each of those respected judges are saying, in my view, that in the case of an interlocutory injunction to restrain a breach of a negative covenant, irreparable harm and the balance of convenience need to be still considered. The extent of the consideration, however, will be directly influenced by the strength of the plaintiff's case. Even where there is a clear breach of a negative covenant which is reasonable on its face, the issues of irreparable harm and balance of convenience cannot be ignored. They may, however, become less of a factor in reaching the final determination of the issue depending on the strength of the plaintiff's case.

[25] I agree with the approach of Pattillo J. that even if a strong prima facie case of a breach of a restrictive covenant by the defendants is evident, the issues of irreparable harm and balance of convenience must be examined, but may become less of a factor depending on the strength of the plaintiff's case.

2) Has Polar established a strong prima facie case of breach of confidence and breach of fiduciary duty?

[26] The Supreme Court of Canada, in Frame v. Smith, 1987 CanLII 74 (SCC), 42 D.L.R. (4th) 81 (S.C.C.) at para. 60, listed three characteristics of a fiduciary:

1. The fiduciary has scope for the exercise of some discretion or power.

2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.

3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[27] The leading case on fiduciary duty is the Supreme Court of Canada decision of Canadian Aero Service Limited v. O'Malley, 1973 CanLII 23 (SCC), [1974] S.C.R. 592 at pg. 11 where the Court discussed the obligations of fiduciaries:

What these decisions indicate is an updating of the equitable principle whose roots lie in the general standards that I have already mentioned, namely, loyalty, good faith and avoidance of conflict of duty and self interest. Strict application against directors and senior management officials is simply recognition of the degree of control which their positions give them in corporate operations, a control which rises above day-to-day accountability to owning shareholders and which comes under some scrutiny only at annual general or at special meetings. ...

[28] Polar contends that courts have extended fiduciary obligations to lower-level employees where an individual is found to be a "key" employee or contractor whose position and responsibilities are essential to the employer's business, making the employer particularly vulnerable to competition upon that employee's departure. Polar relies upon GasTOPS Ltd. v. Forsythe, 2009 CANLII 66153 (S.C.J.); aff"d 2012 ONCA 134 at paras. 82 to 85 and the factors set out therein in support of its position that Rob Lee, Wing Lee and Ms. Schaffer are also fiduciaries. The factors include whether the employee has scope for the exercise of some discretion and whether the beneficiary is vulnerable to or at the mercy of the fiduciary holding the discretion or power; knowledge of customer contact information, needs and preferences, and therefore, an ability to influence customers; knowledge of the business and market opportunity of the employer, or playing a role in the employer’s strategic market development; knowledge of and access to confidential information; direct and trusted relationships with existing and potential customers; and whether or not the employee’s functions are essential to the employer’s business, therefore rendering the employer vulnerable to the employee’s departure.

Mr. Roberts

[29] Polar argues that Mr. Roberts is a fiduciary of Polar. Polar submits that he occupied a key management position within Polar as President, he oversaw all aspects of Polar's activities and he was the principal participant in the development of Polar's business strategy.

[30] Polar submits that Mr. Roberts was involved in negotiating partnerships with international carriers and distributors on Polar's behalf. They contend that Mr. Roberts was entrusted with negotiating these arrangements as initially established by the strategic advisors (there were 12 strategic advisors) on Polar's behalf. Polar submits that Mr. Roberts acknowledged on his cross-examination that Polar's carrier and distribution contacts are confidential. They also contend that he was the "public face" of Polar and that he travelled to Thailand, Pakistan, Singapore, Estonia and the United States to negotiate agreements with many potential carrier and/or distributor partners, including: SIS Incorporated ("SIS"); Choice Wireless ("Choice”); Virtuolink; Star Hub Limited; True Move; CMPak Zong Pakistan; and EMT.

[31] Polar submits that Mr. Roberts acknowledged on cross-examination that Go To depends upon the same three pillars, being hardware, an established network of carriers and global distributors as does Polar. Polar also contends that on cross-examination Mr. Roberts agreed that Go To proposes to rely upon the same business opportunities and relationships Mr. Roberts developed while at Polar, particularly with Choice and SIS. Further, they submit that on cross-examination Mr. Roberts did not dispute that he would not have known of the existence of Choice but for his introduction to Choice while employed at Polar. Additionally, at the time of Mr. Roberts' termination at Polar, Polar was in the process of negotiating the terms of an agreement with Choice.

[32] Polar contends that on cross-examination, Mr. Roberts acknowledged that the former CEO of Polar, George Perlin, introduced Mr. Roberts to the CEO of Choice for the purpose of developing a carrier partnership in Canada, the United States and Mexico on Polar's behalf. Polar also submits that Mr. Roberts admitted on cross-examination that it was in Polar's best interest to develop a carrier partnership with Choice and that the relationship was critical to Polar.

[33] Polar also submits that Mr. Roberts was negotiating a potential distribution partnership with SIS, which was a retail distribution chain in Asia that had been identified to him by one of Polar's strategic advisors, Robert Collette. SIS has over 25,000 retail outlets and was a valuable opportunity for Polar.

[34] Polar also contends that in this particular industry it is very difficult to obtain financing. Mr. Roberts was involved in soliciting financing partners for Polar. Mr. Roberts, through his employment at Polar, had obtained financing with Cormark Securities ("Cormark") on behalf of Polar. Polar submits that Mr. Roberts was involved in the preparation of the May 2012 Polar Investor Presentation, and frequently delivered presentations on Polar's behalf to potential investors.

[35] Mr. Roberts contends that he had no written covenant or contractual term with respect to confidentiality, non-solicitation or non-competition. He states that he was wrongfully dismissed and during the course of his settlement negotiations, he acknowledged his duty of confidentiality to Polar with respect to confidential information, not generally known, and proprietary information that is the property of Polar, but that he was not subject to a non-competition or non-solicitation agreement. Mr. Roberts also acknowledged that he is obliged by virtue of the nature of his position as President of Polar not to disclose such information. Mr. Roberts argues that Polar is now trying to enforce a non-competition or non-solicitation agreement through this litigation that they could not negotiate directly with Mr. Roberts upon his termination. Mr. Roberts submits that this is a restraint of trade and that the courts discourage this type of restraint.

Rob Lee and Wing Lee

[36] Polar contends that both Rob Lee and Wing Lee became intimately involved with Polar's business as key employees or key contractors. They submit that both Rob Lee and Wing Lee entered into agreements with Polar which allowed them access to Polar's confidential and proprietary business information. Polar further submits that both Rob Lee and Wing Lee through their numbered companies, signed a Project Management-Consulting Services Contract, for a six-month term commencing February 1, 2012. Polar contends that both Rob Lee and Wing Lee had responsibility for all three pillars of Polar's business under the contract and were fiduciaries.

[37] Although it was denied by Wing Lee on cross-examination, Polar contends that Wing Lee had extensive involvement in carrier negotiations on Polar's behalf with the same carriers that Go To proposes to rely upon being Axiata, True Move, Star Hub and Casis Bahia. Polar contends that through Mr. Roberts, Wing Lee was also involved with negotiations for all distribution opportunities for Polar.

[38] Polar submits that Rob Lee agreed on cross-examination that he participated in senior management decision-making and had a very good understanding of all aspects of Polar's business plan. Polar further alleges that pursuant to his contract, Rob Lee had effective control over operations at Polar which included responsibility for all manufacturing and supplier relationships; the sourcing for suppliers, including finding materials for those manufacturers, making sure that the firmware worked on the SIM hardware; for logistics, and delivery schedules; and competitive intelligence. Rob Lee also dealt with the company Taisys to evaluate Polar's hardware and sourcing practices and he was familiar with Polar's negotiation with Taisys and Choice.

[39] Rob Lee and Wing Lee counter that they had no contractual obligations as to non-competition and non-solicitation (except with respect to employees), and that they were not employees, but rather they were independent contractors and did not stand in a fiduciary relationship with Polar.

[40] They also contend that their contractual agreements acknowledge that they are independent contractors and the distribution agreements entered into by each of them expressly state that the agreement does not give rise to a fiduciary relationship.

Ms. Schaffer and XTM

[41] Polar contends that Schaffer and XTM were retained by Polar to provide branding and marketing services to them. Polar submits that Ms. Schaffer was regularly in attendance at Polar's offices and that she acted as Polar's "Virtual CMO". Polar argues that Ms. Schaffer gained an intimate knowledge of Polar's marketing strategy and business plan. It also contends that Ms. Schaffer gained valuable confidential knowledge with respect to Polar's user experience, including the SIM card menu. Polar submits that Ms. Schaffer was in charge of identifying any potential shortcomings relating to the product's look, feel or functionality.

[42] Ms. Schaffer and XTM deny that they have ever held key positions with Polar, nor did they have access to sensitive confidential or proprietary information which would enable them to compete with Polar. The only information that Ms. Schaffer and XTM had access to related to the branding of Polar's product and reports related to studies that XTM conducted into the usability of Polar's product. They also contend that they do not have any relationship with Polar's customers, suppliers, distributors, carriers, investors, strategic advisors, employees, contractors or other key business partners or in dealings with any of Polar's carrier, distribution or supplier partners. Ms. Schaffer contends that she was not challenged on this evidence on cross-examination. Further, Ms. Schaffer contends that she did not consent to her name being placed on the management team for Go To and that this was admitted to by Mr. Roberts on cross-examination.

[43] For the reasons below, I find that there is a strong prima facie case that Mr. Roberts is a fiduciary and that those fiduciary duties have been breached by him and that there has been a breach of confidence by him.

[44] Mr. Roberts understood that after his termination he could advise his contacts of his termination and that was the extent of what he was permitted to do. I find that he understood that he owed a fiduciary obligation to Polar. Roberts acknowledged in his President's Report and his signing of the strategic agreements and distribution agreements that Polar offered a unique Worldwide Travel SIM Card and that Polar had built a proprietary Worldwide Mobile Virtual Network in partnership with local and regional providers. In the distribution agreement signed by Wing Lee, which Mr. Roberts also signed, clauses were agreed to by Wing Lee that he would not use or disseminate Polar’s confidential information and if he did so, he agreed to an injunction. Mr. Roberts was cross-examined on this issue and agreed that the non-disclosure was not limited to technical information and included strategies and other information of Polar. He also admitted that he understood the duty of confidence and that he accepted this duty when he executed his release after his termination from Polar. He also acknowledged on cross-examination Polar’s three pillars and how essential these were to Polar.

[45] However, within 7 days of Mr. Roberts’ departure, he was engaged in business on behalf of Go To and appears to be soliciting Polar's business opportunities as is evidenced by an e-mail dated July 4, 2012 from a Polar strategic advisor, Ralston Senewirathe to a Richard Duffy and to Mr. Roberts. In that e-mail, Mr. Senewirathe writes that Mr. Roberts has just telephoned him to advise him of Mr. Roberts' resignation and that Mr. Roberts and a Jim (Polar contends that this is Jim Lovie who is under a non-competition agreement with Polar) were "...teaming up with a large telecom group from the US and will have a similar or better product. In a few weeks. I have told them that we will hold off till they are ready. Polar will not survive without Steve and Jim...".

[46] Mr. Roberts also admitted on cross-examination that he learned of Choice while at Polar (it was referred to in his President’s Report) and that Go To had secured an agreement with Choice. Mr. Roberts submits that there are a large number of carriers in the industry and that Choice is only one of the options available. This position, however, does not assist Mr. Roberts as he chose to enter into an agreement with Choice, the very same company that he had negotiated with on Polar’s behalf and a company that was crucial to Polar's success.

[47] With respect to the retailer, SIS, Go To has also secured an agreement with SIS which once again is the very same company that Mr. Roberts had negotiated with on Polar’s behalf, the same company referred to in his President’s Report and the same company whose representatives he met with on behalf of Polar. Mr. Roberts, on behalf of Go To, used the same strategic advisor, Robert Collette, to foster a deal with SIS and he admitted on cross-examination that SIS “were the retail” proving how vital SIS was to Polar. Mr. Roberts also admitted on cross-examination that SIS was a good fit for Polar.

[48] Mr. Roberts also acknowledged on cross-examination that Go To was a competitor of Polar, yet he chose to pursue the very same companies that Polar relied upon and the very same companies that he had negotiated with on behalf of Polar. There is a strong prima facie case on those facts alone that Mr. Roberts has breached his fiduciary duties.

[49] I do not find the fact that Go To relies on a plastic SIM card as opposed to a SIM overlay card, creates a distinction between the companies. They are both focused on reducing roaming fees and both cards appear to perform the same function. The fact that Mr. Roberts admits that Go To is a competitor of Polar speaks volumes. Both companies are in the business of selling these cards to the customers and obtaining a percentage of the roaming charges.

[50] Mr. David Dobbin, the current CEO of Polar, deposed that he discovered an e-mail dated September 15, 2012 from Wing Lee to Rob Lee and Mr. Roberts (when checking Rob Lee’s e-mail after his departure) that attached a corporate overview investor presentation of Go To and showed the management team being the individual defendants, Mr. Roberts, Ms. Schaffer, Rob Lee and Wing Lee. Also forming part of the corporate overview was a summary of the nature of Go To’s business, a reference to SIM overlay and plastic SIM cards, and reference to the same companies being pursued by Mr. Roberts and others at Polar, including True Move, Star Hub, Axiata, Casis Bahia and a US partner (which is Choice). The corporate overview has striking similarities to the Polar Investor Presentation and subsequently the Roamly Investor Presentation (Polar having changed its name to Roamly). Polar and Go To focus on the customer maintaining his or her own phone number, “no VOIP” and the disclaimers are also very similar. The e-mail also made reference to upcoming Cormark discussions at which the corporate overview investor presentation would be used. Cormark was one of Polar's financing options pursued by Mr. Roberts while at Polar.

[51] Additionally, as part of his undertakings from his cross-examination, Mr. Roberts provided an e-mail dated July 20, 2012 from one of his strategic advisors, Mr. Robert Collette (who is a strategic advisor to Go To). Mr. Collette was providing a draft letter for Mr. Roberts’ review that Mr. Collette was purporting to send to a representative at SIS. In the e-mail there is reference to “significant changes at Polar” and the resignations of Mr. Roberts and Mr. Jim Lovie due to a “major decision by Polar to change their strategic approach” and outlining the decisions of Polar’s new owners and managers. Further, he states: “We believe that the net result of Polar’s decision is that it will not offer competitive rates for incoming and outgoing calls as well as for SMSs and for data. As I mentioned above, Steve Roberts and Jim Lovie have determined that the new Polar strategy is not going to be effective since it will be without any regional carriers worldwide. They have formed a new partnership with Choice Wireless, an established MNO from Texas, with a million subscribers. They have also established a new partnership with the manufacturer of a world travel sim card. This new sim card will offer more than the Polar sim card. This sim card is ready for market……Steve and I will be in Thailand on August 8 to conclude negotiations with SIS, meet the Lim brothers and finalize negotiations with True Move. We very much value these partnerships.”

[52] It is clear in this e-mail that confidential information is being misused, facts are incorrect and the purpose of the letter is to encourage SIS to choose Go To rather than Polar. Confidential business strategies are being disclosed and Mr. Roberts is involved in those breaches less than one month after Mr. Roberts was terminated from Polar.

[53] Mr. Roberts, Rob Lee and Wing Lee contend that SIS and a number of the other companies are well known in the industry and anyone could approach them. However, even if SIS was well known, Mr. Roberts had a relationship with SIS through his role as President at Polar and had confidential discussions with them concerning Polar. Additionally, Polar has a strong prima facie case that Mr. Roberts, as a fiduciary, is utilizing strategic advisors for his own benefit and to the detriment of his former employer, Polar, which is a breach of his fiduciary duties and a breach of confidence.

[54] As indicated, Polar also contends that Mr. Roberts while at Polar assisted Polar with obtaining financing. Polar submits that start-up companies such as Polar have difficulty obtaining financing and that their options for financing this type of business are limited. Mr. Roberts acknowledged this on cross-examination. Polar submits that Mr. Roberts assisted Polar with obtaining financing through Cormark and that after he was terminated from Polar, he used his connections and relationships that he had developed with Cormark to seek financing from them on behalf of Go To, thereby attempting to obtain financing from the very same source he pursued on behalf of Polar. This too shows a strong prima facie case that Mr. Roberts has breached his fiduciary duties as once again he uses the same relationships developed at Polar for his own benefit at Go To, to the detriment of Polar as they compete for limited financing.

[55] I also find that there is a strong prima facie case that the other defendants are 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. As stated by Strathy J. in Precision Fine Papers Inc. v. Durkin, [2008] O.J. No. 703 (S.C.J.) at paras. 22-23, fiduciary duties can apply to employees, and in this case independent contractors, who leave with fiduciaries to work in a competing business:

¶[22] There is a serious issue to be tried as to whether Ms. Durkin herself owed fiduciary and common law duties of confidence to Precision. For the purposes of this motion, however, it is not necessary to investigate that issue. Case law has clearly established that fiduciary obligations attach to employees who depart with fiduciaries to work with competitive businesses. 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 CanLII 7319 (ON SC), (1994), 7 C.C.E.L. (2d) 60 (Ont. Gen. Div.); DiFlorio v. Con Structural Steel Ltd., 2000 CanLII 22765 (ON SC), 6 B.L.R. (3d) 253 (S.C.J.), aff'd.2001 CanLII 32743 (ON CA), (2001), 21 B.L.R. (3d) 22 (Ont. C.A.). I conclude that there is a strong prima facie case that Ms Durkin is bound by the same obligations as Mr. Durkin because she was aware of his non-solicitation agreement and his fiduciary duties to Precision, and she participated with him in the breach of his duties.

¶[23] It is also well-established that a third party who knowingly assists or participates in a breach of fiduciary duty, or who knowingly receives the fruits of such a breach, will be liable along with the breaching party: Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al. (1996), 1996 ABCA 169, 184 A.R. 81 (C.A.). In order to grant meaningful and effective relief, the new employer, who has knowledge of the employee’s obligations, must also be restrained: Ontario Duct Cleaning Ltd. v. Wiles, [2001] O.J. No. 5150 (S.C.J.); Wallace Welding Supplies Ltd. v. Wallace, 1986 CanLII 7626 (ON SC), 32 B.L.R. 99 (Ont. H.C.J.). It is not disputed that Inter-World was aware from the outset of Mr. Durkin’s non-solicitation agreement and it may be liable for any breaches of his obligations, both contractual and common law. There is a strong inference to be drawn that Inter-World was aware of the Durkins’ breaches of duty and knowingly received the fruits of their misconduct.

[56] I find that if these obligations were not impressed upon the other defendants, Mr. Roberts would certainly be permitted to do indirectly what he cannot do directly. The individual defendants were all well aware of Mr. Roberts' fiduciary duties to Polar as its President. Additionally, all had signed confidentiality agreements and their involvement with Go To in the same business and reliance upon the same business relationships raises a strong prima facie case that a breach of confidence has taken place.

[57] With respect to Rob Lee and Wing Lee, it appears that both were involved in negotiations with carriers, although denied by Wing Lee, and both had access to Polar’s confidential and proprietary information. Pursuant to the Project Management – Consulting Services Contracts they both signed, they worked on Polar’s hardware development, engineering, manufacturing management solutions, carrier partnerships and distributions channels. Rob Lee admitted on cross-examination that he participated in senior management decision making and had a very good understanding of all aspects of Polar’s business plan. Both now play major roles in Go To's management.

[58] With respect to Ms. Schaffer, Polar submits that she registered Go To, they shared office space with her, and she is shown as part of the management team on the Go To corporate overview. Polar contends that it is dangerous to parse out the defendants on this motion as Ms. Schaffer knowingly assisted Roberts and should be subject to the same injunctive relief if ordered. Polar submits that if the Court accepts Ms. Schaffer’s evidence that she is not part of the management team of Go To and that she had no access to Polar’s confidential information, at this stage of the proceedings it is not inconvenient to subject Ms. Schaffer and XTM to an order.

[59] I find that at this stage of the proceedings if the Court were to grant injunctive relief, it must be granted against all of the defendants as their positions and responsibilities were essential to Polar's business and it appears that they all had access to confidential information and, in Ms. Schaffer's case, marketing strategies of Polar. If the Court is to order an injunction it must be against all of the defendants as were it not, it would allow the other defendants to assist Mr. Roberts in doing indirectly what he cannot do directly. I also agree that at this stage of the proceeding it would not be inconvenient to Ms. Schaffer and XTM to be subjected to an injunction, if the Court finds that one is warranted, if it is Ms. Schaffer's position that she is not part of the management team and she had no access to confidential information. The injunction would not be inconvenient to Ms. Schaffer or XTM but would provide the protection needed for Polar if Ms. Schaffer and XTM's positions are not found to be credible at trial.

3) Will Polar suffer irreparable harm if the injunction is not granted?

[60] Having found that Polar has a strong prima facie case, the second and third parts of the injunction test will be applied less rigorously. The second part of the test requires the Court to determine if Polar will suffer irreparable harm if the interlocutory injunction is not granted.

[61] The defendants, Mr. Roberts, Rob Lee, Wing Lee, 1271583, 1177153 and Go To submit that any market share that Go To gains can be easily quantified and calculated. They also contend that after Mr. Roberts, Rob Lee and Wing Lee left Polar, Polar sold 7,500 units and have subsequently sold 80,000 units. As such, there is no evidence that whatever Go To has done has had any impact upon Polar and that mere speculation of harm is not enough.

[62] They further submit that there is no evidence that Polar is a “first mover” and there are several competitors in the marketplace. They submit that Wing Lee was not challenged on this evidence. They further contend that there is no evidence that Polar will be put out of business, but rather Go To will be put out of business if the injunction is granted. This is the only industry that both Mr. Roberts and Wing Lee have been in for the past 25 and 26 years respectively and they will suffer irreparable harm if the injunction is granted. They further contend that the businesses are distinct and the products are not the same. There is no infringement of the firmware or the SIM overlay card. Additionally, the SIM plastic card is not manufactured by them but rather by Taisys, a Japanese company that was established in 2005 before Polar.

[63] Further, Polar has been able to complete an agreement with Choice and Polar is still negotiating with other carriers which they submit Mr. Dobbin admitted on cross-examination. They also contend that the business plans of Polar and Go To are distinct.

[64] Polar submits that Polar is a "first mover" in the industry and that market share is not quantifiable as there is no market share to argue about at this point. The situation is one of opportunities; about developing the three pillars and not allowing Go To to detrimentally affect those opportunities. They submit that unfair competition will often lead to irreparable harm and that damages may not adequately compensate them. They rely on Precision Fine Papers Inc. v. Durkin at para. 25 where Strathy J. stated:

[25] Cases of unfair competition have often been recognized as ones in which damages may not adequately compensate the plaintiff for the loss suffered due to the defendant’s conduct. Not only is it difficult to quantify the loss of goodwill or market share suffered by the plaintiff due to the defendant’s actions, but the damage to relationships with customers is inherently difficult to assess. In a competitive industry, where there can be considerable fluidity of customer allegiances, it may be difficult for the moving party to establish an accurate measure of damages. See in this regard: EJ Personnel Services Inc. v. Quality Personnel Inc., 1985 CanLII 6386 (ON SC), 6 C.P.R. (3d) 173 (Ont. H.C.J.); Sheehan & Rosie Ltd. v. Northwood, 2000 CarswellOnt 670 (S.C.J.); KJA Consultants Inc. v. Soberman, 2002 CanLII 49613 (ON SC), 2002 CarswellOnt 467 (S.C.J.)

[65] Polar also contends that Go To’s solicitation of Polar’s financing opportunities is significant and damaging given Polar’s low cash reserves and significant cash burn rate. They submit that this is a potentially fatal usurping of Polar’s market position.

[66] I agree with Polar, that it will suffer irreparable harm if the injunction is not granted. The potential loss of market share to Polar may be significant, but will certainly be difficult to quantify at this time given both Polar and Go To are attempting to obtain market share in this emerging line of business.

[67] There was also evidence from Mr. Dobbin that Polar has a cash burn rate of $700,000.00 per month and that Polar is on the brink of insolvency. The defendants submit that there is no evidence of insolvency or that Polar is set to launch its product in November 2012. They submit that the fact that Polar has already sold units proves that it has not suffered irreparable harm, nor will it do so in the future. However, I find that the fact that Polar has sold some units does not negate the impact that the defendants' alleged breach of fiduciary duties and breach of confidence may have on Polar and I accept that the failure to grant an injunction will cause irreparable harm to Polar.

[68] Additionally, the issue of damages cannot be easily determined as this is an emerging business and I accept that it would be difficult to determine damages on the basis of sale histories (as there are few) and sales projections. Polar's relationships with its carriers and distributors is essential to its business. It is clear that without an injunction, Polar will suffer irreparable harm to these relationships and opportunities it has worked hard to foster over the past few years.

4) Has Polar established that the balance of convenience favours it?

[69] Polar submits that it has invested over $16 million and developed its product over three years. Polar contends that the balance of convenience favours it as the defendants at this stage have only been engaged in the development of Go To for approximately four months.

[70] Polar contends that the granting of an injunction is the only remedy which will effectively prevent the defendants from unfairly competing and misusing confidential information. It will also prevent Go To from unfairly competing by spring-boarding using Polar’s confidential information.

[71] Go To counters that there is no evidence of market loss to Polar and in fact, Polar has secured an agreement with Choice and they have sold their product since Mr. Roberts, Rob Lee and Wing Lee left Polar. Go To submits that to grant the injunction will close down Go To’s business and it will suffer the greater harm. The defendants, Mr. Roberts, Rob Lee and Wing Lee will be prevented from pursuing a livelihood. They further submit that the lack of substance of the undertaking as to damages and the failure of Polar to disclose recent financial statements, are factors that the Court should consider when determining the balance of convenience.

[72] I find that Polar has been actively engaged in pursuing alternative roaming solutions for the past several years and I accept that Polar has invested a significant amount of money to develop its product. If an injunction is not granted, they will be greatly affected by the potential loss of market share in an emerging market. Go To has been involved in the business of providing alternative roaming solutions for a very short period of time, assuming that the defendants were not engaged in work for Go To while still with Polar. I find that the balance of convenience favours Polar.

[73] For all of the reasons above, I find that an interlocutory injunction should be granted to Polar.

Order

[74] I order the following:

1. The Plaintiff, Polar Wireless Corporation, is granted an interlocutory injunction for a period of six months:

(i) restraining the defendants from directly or indirectly soliciting, contacting, approaching, entering into agreements, or in any way seeking to do business with carrier and distribution opportunities developed while at Polar;

(ii) restraining the defendants from taking any affirmative steps under any agreements executed with Choice, SIS, or any third party relationship cultivated at Polar where such steps are not explicitly required of Go To Wireless Inc. under those agreements; and

(iii) enjoining the defendants from using, misusing or disclosing any and all confidential and/or proprietary information of Polar.

2. The defendants shall return any confidential and/or proprietary information of Polar to Polar and the defendants shall preserve all information, documents and data in any format, electronic or otherwise, in the possession and or control of the defendants and relating to Polar, its technology, business and/or operations.

3. An expert on Polar's behalf, shall attend at the defendants' premises to create forensic images of all physical electronic devices, and copies of data stored remotely, including all e-mail accounts, used by the defendants in the last calendar year, which contain confidential information of Polar for preservation subject to further order of the court, and the defendants shall cooperate with Polar's expert.

4. The defendants shall be prohibited from in any way, deleting, modifying or in any way interfering with any electronic equipment or data stored remotely, including all e-mail accounts, containing information which is potentially relevant to this action until further order of court.

[75] I urge the parties to agree upon costs, but if they are unable to do so, the parties shall provide costs submissions in writing, no more than two double-spaced pages, along with costs outlines within 20 days. Any reply submissions, no longer than two double-spaced pages, shall be provided 10 days thereafter.

Stevenson J.

Released: November 16, 2012