COURT FILE NO.: 12-35923

DATE: 2013-09-06

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

560779 Ontario Inc. operating as Carey Industries

M. Valente and C. Yamashita, for the Plaintiff Applicant

Plaintiff Applicant

- and -

Steven Jeffory Carey, Ralph Terrio and Steve’s Welding & Sandblasting Inc.

S. Gill and A. D. Burns, for Steven Jeffory Carey, Defendant Respondent

R. Morningstar, for Ralph Terrio and Steve’s Welding & Sandblasting Inc., Defendants Respondents

Defendants Respondents

HEARD: July 23, 2013

The Honourable Mr. Justice T. R. Lofchik

[1] The plaintiff, and moving party, 560779 Ontario Inc. operating as Carey Industries (hereinafter referred to as “Carey Industries”), is a corporation incorporated pursuant to the laws of the Province of Ontario, with its head office in the town of Port Robinson, and carries on business as a structural steel fabricator and erector. Prior to February 11, 2011, Carey Industries carried on business under the trade name “Steve’s Welding & Sandblasting”, a trade name which was utilized by the corporation for almost 30 years.

[2] The defendant Steven Jeffory Carey (“Steven”), incorporated 560779 Ontario Inc. in 1983, and until January 31, 2008, was the sole director, officer and shareholder of the company. Subsequent to the sale of Steven’s shares on January 31, 2008, Steven was employed by Carey Industries as a general manager until March 8, 2012, when he ceased to be so employed. There is contradictory evidence before me as to whether to Steven was terminated or resigned from his employment.

[3] Immediately upon leaving the employment of Carey Industries, Steven and his business associate and friend, the defendant, Ralph Terrio (“Terrio”), incorporated a company called “Steve’s Welding & Sandblasting Inc.” (sometimes referred to as SWSI), which from the date of its incorporation was managed solely by Steven who it is alleged by the plaintiff passed off SWSI as Carey Industries in an attempt to confuse and interfere with the plaintiff’s business operations.

[4] This motion is brought by Carey Industries seeking an injunction restraining the defendants from carrying on business as “Steve’s Welding & Sandblasting Inc.”.

[5] The plaintiff currently operates from two locations in Port Robinson: (1) its finishing plant located at 1219 Hurricane Road (the “Hurricane property”); and (2) its manufacturing plant located at 1636 Allanport Road (“the Allanport property”).

[6] Steven worked from the inception of the corporation to build the business and reputation of the business, which was mainly steel fabrication, welding and sandblasting. The plaintiff company currently operating as Carey Industries had operated as Steve’s Welding & Sandblasting until February 2011. Upon changing its business name to Carey Industries it canceled its registration of the style “Steve’s Welding & Sandblasting” and has operated as Carey Industries for upwards of two years. Michael Perrotto (“Perrotto”), is the current president and sole director of Carey Industries. The documentation before me indicates that he purchased all of the shares of the company from Steven on January 31, 2008. Perrotto is also the registered owner of the Hurricane property.

[7] Notwithstanding the documentation relating to the sale of his shares in the corporation to Perrotto, Steven contends that he is the true beneficial owner of all the shares of Carey Industries and that Perrotto is only holding the shares of the corporation in trust for him until such time as he requires the shares back. It is admitted that this transaction was to minimize the assets which Steven held for the purposes of minimizing any settlement he was required to make with his former spouse in matrimonial proceedings with her.

[8] In February, 2011, it was decided by Carey and Perrotto that the business of the plaintiff corporation had outgrown the name “Steve’s Welding & Sandblasting” and needed a new name as the business grew and further developed in the future. When the name was changed the registration of “Steve’s Welding & Sandblasting” as the business of the plaintiff corporation was canceled.

[9] In response to an audit performed by the Minister of Finance in June 2010 and December 2011, Carey Industries engaged D.J.B. Chartered Accountants to assist in developing human resource policies and instituting better operational controls and procedures.

[10] As part of the scope of this engagement, D.J.B. reviewed the various aspects of Carey Industries business operations, including its sale of scrap metal. Through discussions with Carey Industries’ employees and a review of corporate records, D.J.B. concluded, among other things, that Steven had kept for himself all cash generated from the sale of scrap metal and equipment totaling approximately $250,000.

[11] After being confronted with the scrap metal deficiency, and unhappy with Carey Industries implementation of D.J.B. recommended policies and procedures to establish greater checks and limitations on the authority of the Carey Industries management/supervisory team, it is alleged by the plaintiff the Steven resigned without notice on March 8, 2012.

[12] Michael Perrotto has sworn in an affidavit that prior to leaving Carey Industries business premises, Steven kicked down Perrotto’s office door and advised him that he intended to do so much damage to Carey Industries that it would be out of business within a month.

[13] Perrotto has also sworn in an affidavit that in or about one week after Steven’s termination of employment, Terrio attended at Perrotto’s office and advised Perrotto that:

(a) he and Steven were going to take away all of Carey Industries business;

(b) Carey Industries would soon be out of business; and

(c) he had given Steven $50,000 in a truck and had paid Steven’s lawyer a substantial retainer to ensure that the plan to destroy Carey Industries would succeed.

[14] Perrotto alleges that prior to his assuming 100 percent ownership of Carey Industries in January 2008, the company carried on business solely as a welding and sandblasting company. Since Perrotto’s ownership of the company, the business has diversified. In addition to welding and sandblasting Carey Industries now also specializes in the fabrication of plate and structural steel as well as the fabrication and installation of overhead cranes, process equipment, tanks and other steel structures.

[15] Perrotto alleges, that under his direction Carey Industries has developed a small yet impressive customer base with respect to the building and installation of cranes. In 2011, this work generated millions in gross sales for the plaintiff. Carey Industries workforce has also increased by 30 percent since 2008.

[16] Perrotto also alleges that while the plaintiff may today carry on business as “Carey Industries”, because it was known as “Steve’s Welding & Sandblasting” for 28 years, most customers today still recognize and refer to the company today as “Steve’s Welding & Sandblasting”. Until very recently the signs located at the Hurricane property and Allanport property identified the place of business as that of “Steve’s Welding & Sandblasting” and the plaintiff’s website and related links continue to reference this trade name.

[17] On March 14^th, 2012, six days after Steven ceased to be employed by the plaintiff, he incorporated a Niagara Falls based corporation known as Steve’s Welding & Sandblasting Inc. with his friend and associate Terrio. It is alleged on behalf of the plaintiff that this was for the purpose of competing with the plaintiff in the same structural steel industry and in the same geographic area.

[18] It is alleged on behalf of the plaintiff that given the amount of good will Carey Industries has built up in the trade name “Steve’s Welding & Sandblasting” due to its prolonged use of the trade name in the industry, regardless as to whether the trade name continues to be registered to Carey Industries, such a trade name is one clearly associated with that company.

[19] Terrio has no experience in the structural steel business. His expertise lies in highway road maintenance. Steven is managing the day to day operations of SWSI and is the operating mind of SWSI.

[20] Notwithstanding the fact that SWSI is using the trade name “Steve’s Welding & Sandblasting” the majority of the work performed by SWSI does not involve welding or sandblasting but rather it involves the fabrication and installation of cranes and other steel structures.

[21] The plaintiff has recently discovered that Steven in his role as manager of SWSI is using business cards with a logo that is virtually identical to the logo on the business cards he was using when he was employed by the plaintiff. The business card is virtually identical to the business cards he used while in the plaintiff’s employ, except for the fact that the address of Carey Industries does not appear on the card. Nor does the address of Steven’s new company.

[22] It is alleged by the plaintiff that the fact that SWSI is using a trade name historically associated with Carey Industries, combined with Steven’s role as the face of SWSI, have resulted in great confusion in the minds of customers and suppliers. There is evidence before me that Carey Industries continues to receive invoices and other documentation relating to jobs to be completed by SWSI, many of which are from historical subcontractors and customers of Carey Industries. Additionally, Carey Industries continues to be contacted by third parties either looking for Steven or attempting to send Steven and/or SWSI payment, invoices or other documentation.

[23] It alleged on behalf of the plaintiff that Carey Industries has already lost an immeasurable amount of business and good will, the extent of which has not been quantified. Carey Industries sales revenue for 2012 was down approximately $850,000 as at November 2012 as compared to the 2011 fiscal year, due in large part to the loss of installation jobs to the defendants.

[24] The defendants allege that upon its incorporation SWSI began servicing the structural steel industry. They allege that Carey and Terrio have been able to develop the business of the company to a considerable extent and the business continues to grow. Carey and Terrio allege that they are careful to ensure that the address of SWSI, namely 7739 Drummond Road, Niagara Falls, Ontario is stated on all invoices and paperwork rendered by SWSI. They state that they have no intention and have not attempted to pass off as SWSI as Carey Industries to customers. However, as stated above Steven’s business card does not have the Niagara Falls address.

[25] The defendants argue that the plaintiff has failed to show that it will suffer any irreparable harm as a result of the plaintiffs operating under the name “Steve’s Welding & Sandblasting”. They allege any loss of business that the plaintiff may suffer will be as a result of fair competition from SWSI and will not be actionable loss.

Statement of Issues

[26] Carey Industries is seeking an interlocutory injunction restraining the defendants from carrying on business as “Steve’s Welding & Sandblasting Inc.” on the grounds that the defendants have committed the tort and continue to commit the tort of passing off.

LAW

Interlocutory Injunctions

[27] Before an interlocutory injunction is granted the plaintiff must prove, (1) that there is a serious issue to be tried, (2) that it will suffer irreparable harm if the injunction is not granted, and (3) the balance of convenience favours the plaintiff. That is, the plaintiff will suffer greater harm from the refusal of the injunction than the defendant would from the granting of that remedy pending a decision on the merits.

RJR-MacDonald Inc. v. Attorney General of Canada 1994 CanLII 117 (SCC), 1994 1 SCR 311 at para. 48

[28] An applicant does not need to demonstrate a strong prima facie case but rather must show that “the claim is not frivolous or vexatious; in other words that there is a serious question to be tried”. Once satisfied that the application is neither vexatious or frivolous, the motions judge should proceed to consider the second and third test even if the motions judge is of the opinion that the plaintiff is unlikely to succeed at trial.

RJR-MacDonald, supra, at paras. 49 and 54 – 55.

American Cyanamid Co. v. Ethicon Ltd., 1975 CanLII 2598 (FC), [1975] A.C. 396

[29] There is jurisprudence that holds that the courts will require the plaintiff to establish a strong prima facie case in certain types of actions such as: where the plaintiffs seeks to prevent the defendant from passing off its product as its own where the court can make a reasonable determination of what facts are likely to be proven at trial because there is no real conflict on the facts, or where, despite a conflict, it is possible to make a reasonable determination of what the facts are likely to be proven.

C-Cure Chemical Co. v. Olympia & York Developments Ltd., 1983 CarswellOnt 395 paras. 3, 6, 8 and 10

Passing Off

[30] In Ciba-Geigy Canada Ltd. v. Apotex Inc., the Supreme Court of Canada held that the three necessary components for a passing off action are as follows:

(a) Existence of good will or reputation attached to the goods or services which the plaintiff supplies in the mind of the purchasing public via association with the identifying “get up” (which can be a trade name);

(b) Deception of the public due to a misrepresentation by the defendant leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff; and

(c) Actual or potential damage to the plaintiff by reason of the erroneous belief engendered by the defendant’s misrepresentation that the source of the plaintiff’s goods or services is the same as the source of those offered by the plaintiff.

Ciba-Geigy Canada Ltd. v. Apotex Inc., 1992 CanLII 33 (SCC), [1992] 3 SCR 120

[31] There is no requirement that the defendants actions be intentionally fraudulent, malicious or even negligent. The tort of passing off is complete without reference to the defendant’s state of mind.

Dentec Safety Specialist Inc. v. Degil Safety Products Inc. 2012 ONSC 4721 para. 8

[32] In general terms the law of passing off can be summarized in one short general proposition, “No man may pass off his goods or services as those of another.”

[33] The essence of the tort is deceit by the defendant suggesting that the defendant’s product or service is the plaintiff’s product or service which thereby causes confusion in the minds of consumers as to whose products or services are being sold. It is not necessary for the plaintiff to establish the consumers were actually mislead by the defendant’s conduct but simply that the defendant made an attempt to mislead the public. It is important to avoid confusing anyone who has an actual or potential connection with the product or service. Such confusion may enable a competitor to secure a commercial advantage by affecting sales it would not otherwise achieve or it may result in a consumer purchase that might not otherwise have taken place.

Dentec Safety Specialist Inc. v. Degil Safety Products Inc., supra, para. 10

[34] Practically speaking, cases of passing off typically fall into one of two broad categories, namely:

(1) where competitors are engaged in a common field of activity and the defendant has named, packaged or described its product or business in a manner likely to lead the public to believe that the defendant’s product or business is that of the plaintiff; or

(2) where the defendant has promoted his product or business in such a way as to create the false impression that its product or business is in some way approved, authorized or endorsed by the plaintiff or there is some business connection between them thereby capitalizing on the plaintiff’s reputation and good will.

Ibid at para. 11

Analysis

[35] This is not a case where it can be said that there is no real conflict on the facts or where it is possible to make a reasonable determination on what facts are likely to be proven at trial, so, as to require the application of the “strong prima facie case test”. The American Cyanamid test is to be applied and the questions become whether there is a serious question to be tried and which party does the balance of convenience favour.

[36] The issue of whether Perrotto is the sole beneficial owner of the shares of the plaintiff company or whether he held these shares in trust for Steven is the subject of litigation which cannot be decided here. However, as the only evidence before me disputing Perrotto’s beneficial ownership of the shares is Steven’s allegation that the shares are held by Perrotto on Steven’s behalf, which is contrary to all of the documentation prepared at the time of the transfer of the shares, I give Steven’s claim to ownership of the shares little credence for the purpose of this application.

(a) Existence Of Good Will In The Trade Name “Steve’s Welding & Sandblasting”

[37] Prior to changing its name to Carey Industries in 2011, the plaintiff used the trade name “Steve’s Welding & Sandblasting” for some 28 years.

[38] Steven concedes in his cross-examination that for 28 years he worked under the trade name “Steve’s Welding & Sandblasting” through which he built a strong reputation in the industry.

[39] Even after the plaintiff changed its trade name to Carey Industries in 2011, the plaintiff’s employees continued to wear the name “Steve’s Welding & Sandblasting” on their uniforms.

[40] Given the long history of the use of the name “Steve’s Welding & Sandblasting”, most customers still recognize the plaintiff as “Steve’s Welding & Sandblasting”.

[41] Carey Industries website and related links continue to reference the trade name “Steve’s Welding & Sandblasting”, and until very recently, the signs posted at the Hurricane property and the Allanport property identified both properties as the place of business of “Steve’s Welding & Sandblasting”.

[42] The fact that Carey Industries has given up the registration of the trade name “Steve’s Welding & Sandblasting” does not detract from the fact that it still has good will associated with the name with respect to the particular business that it does and the area in which it carries on its business. Whether or not the name is registered to the applicant in my view is irrelevant to the issue of passing off.

[43] The fact that there are other businesses with the name “Steve’s Welding” associated with them in other parts of the province carrying on other types of welding and fabricating business does not diminish Carey Industries claim to the good will which the name carries in association with its business in the geographical area where it carries on business.

(b) Deception Of The Public Due To A Misrepresentation

[44] The appropriate legal standard by which to measure whether the defendants’ conduct may have caused confusion in the minds of the public is the standard of the “ordinary average customer” shopping for the products and services provided.

British Columbia Automobile Association v. O.P.E.I.U. Local 378, [2001] B.C.J. No. 151 at para. 117

[45] In assessing a likelihood of confusion among customers, the degree of similarity between the plaintiff’s business name and the defendants’ name will always be an important consideration. The greater the similarity between the names, the more likely there is to be confusion.

Local 378, supra, at paras. 78, 89-92

[46] In this case the trade name used by SWSI is identical to the trade name historically used by, and still synonymous with the plaintiff. The services being offered by both Carey Industries and SWSI are virtually identical. I find that this creates a situation where an ordinary average customer would likely be confused as to which company it is dealing with and the connection between the two companies.

[47] To be held liable for passing off, the defendant need not have intentionally sought to confuse or mislead the public. However, proof of the defendants’ intention to confuse and/or mislead the public will provide strong evidence of customer confusion.

Local 378, supra, at para. 78-111

[48] Given the relationship between Steven and Carey Industries, and the acrimony that existed between the parties at the time of Steven’s leaving Carey’s employment, Steven and Terrio’s threats to Perrotto that Carey Industries would be out of business and the reality that the majority of work conducted by SWSI does not relate to either welding or sandblasting there is a serious question to be tried as to whether the defendants clearly intend to confuse or mislead the public through the use of the trade name “Steve’s Welding & Sandblasting” with a view to diverting sales away from Carey Industries to SWSI.

[49] In addition, the following facts show confusion on the part of the public:

(a) Carey Industries has received invoices intended for SWSI relating to contracts for which Carey Industries had been initially retained but subsequently awarded in whole or in part to SWSI;

(b) Carey Industries has received invoices addressed to Carey Industries from subcontractors regarding work performed on behalf of SWSI and for the benefit of SWSI;

(c) Carey Industries has received work orders intended for SWSI from several companies regarding work to be completed by SWSI;

(d) Carey Industries has received copies of invoices issued by SWSI to significant historical customers of Carey Industries;

(e) Carey Industries has received invoices intended for SWSI from suppliers regarding equipment ordered and received by SWSI;

(f) Carey Industries has been contacted by many of its customers and suppliers requesting clarification of its name and address;

(g) Carey Industries has been contacted by several companies either looking for Steven or attempting to send SWSI or Steven information, bills and invoices;

(h) Carey Industries has received invoices from at least one supplier demanding payment of goods that were not ordered or received by Carey Industries, but rather ordered at the direction of Steven;

(i) Carey Industries has on one occasion received payment in the approximate amount of $12,900 for work purported completed by SWSI which Carey Industries continues to hold in trust;

(j) Steven Carey, on his cross-examination, admitted that there have been occasions that came to his knowledge concerning confusion on the SWSI’s customers and suppliers regarding its relationship with Carey Industries.

[50] Steven admits that SWSI is performing work for at least five of Carey Industries former long term customers.

[51] In the first year of SWSI’s business operations, Steven has or will receive income from SWSI totaling $300,000.

[52] Given the immediate and obvious success of SWSI in its first year of operation it is seriously arguable that some of that success is as a direct result of good will generated by the trade name “Steve’s Welding & Sandblasting”. In contrast, Carey Industries’ year to date sales revenue as of November 2012 is approximately $850,000 less than the same period in 2011. Given the above facts, it is reasonable to conclude that some, if not all of that loss is due to the result of Carey Industries loss of contracts in favour of SWSI due to its use of the trade name “Steve’s Welding & Sandblasting”. It is also reasonable to conclude that Carey Industries revenue and good will will continue to suffer and decline as a result of the defendants’ competing practices.

[53] Based on the foregoing I find that there is a serious issue to be tried with respect to the use of the trade name “Steve’s Welding & Sandblasting” by SWSI causing deception in the minds of industry customers. There is a serious arguable case that so long as SWSI continues to use the trade name formerly used by the plaintiff, customers, suppliers and the public at large will continue to associate and confuse the two companies. It is seriously arguable that where as SWSI can only benefit from the association and confusion with Carey Industries, given Carey’s reputation and stature, the only impact on Carey Industries is the actual or likely loss of its business and good will. The resulting loss to the plaintiff due to the defendants use of the name “Steve’s Welding & Sandblasting” is immeasurable as former customers that associate the plaintiff with “Steve’s Welding & Sandblasting” once in contact with SWSI either through confusion or misrepresentation may be lost forever as customers of Carey Industries.

[54] I find that Carey Industries has satisfied the first part of the RJR test that there is a serious question to be tried as to whether SWSI has committed the tort of passing off by using the trade name “Steve’s Welding & Sandblasting”, namely that Carey Industries has demonstrated that it has established continuing good will in the trade name and that there is confusion in the public regarding the trade name resulting in Carey Industries suffering economic harm.

Would The Plaintiff Suffer Irreparable Harm If The Injunction Was Not Granted

[55] Irreparable harm refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured by the defendant.

RJR-MacDonald Inc., supra

[56] In Yule Inc. v. Atlantic Pizza Delight Franchise, Cory J. referred as follows to the issue of irreparable harm:

[14] An argument was raised that the plaintiff had not established that it would suffer irreparable damage if the injunction was not granted. When considering that issue the essential question that the Court must ask itself is, "is it just in all the circumstances that the plaintiff should be confined to a remedy in damages?”

Yule Inc v. Atlantic Pizza Delight Franchise (1968) Ltd. et al (1977), 1977 CanLII 1198 (ON SC), 17 O.R. (2d) 505 at para. 14

[57] Examples of harm that have previously found to be irreparable and that cannot be quantified in monetary terms include instances where one party will suffer permanent market loss or irrevocable damage to its business or reputation, including the loss of profits and good will should the injunction be refused.

American Cyanamid, supra; and Yule Inc., supra

[58] It would be virtually impossible for Carey Industries to measure in monetary terms the loss of good will and reputation that it has lost and will continue to lose as a result of the defendants’ actions.

[59] Damages are not an appropriate remedy in a case where losses of revenue, market share, good will and reputation are involved as it is virtually impossible to assess damages in monetary terms.

[60] I am satisfied that the plaintiff is satisfied the second part of the RJR test in that it will suffer irreparable harm in the event that an interim injunction is not granted.

(c) Which Party Does The Balance of Convenience Favour?

[61] The third test that must be considered in an application where interlocutory relief is sought was described by Mr. Justice Beetz in A.G. of Manitoba v. Metropolitan Stores (MTS) Ltd. as: “a determination of which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction pending a decision on the merits”.

A.G. of Manitoba v. Metropolitan Stores (MTS) Ltd., 1987 CanLII 79 (SCC), [1987] 1 SCR 110 at para. 35.

[62] In the event that an interim injunction restraining the defendants from using the trade name, “Steve’s Welding & Sandblasting” is not granted, the activities of the defendants described above will undoubtedly continue to the detriment and prejudice of the plaintiff. In contrast, Steven Carey on his cross-examination admitted that the trade name “Steve’s Welding & Sandblasting” is immaterial to the business being carried on by SWSI because that business is coming to that company as a result of Steve Carey’s personal reputation, and that as long as Steve Carey was the “face of the company” a change of the name of SWSI would not have any effect on its business.

[63] I find on the evidence that a mandated change of the SWSI trade name would have little, if any detrimental impact on the business operations of SWSI whereas failure to grant interim injunction would have a continuing detrimental effect upon the good will of Carey Industries associated with the name Steve’s Welding & Sandblasting and hence its business.

[64] I find that on a balance of convenience Carey Industries would suffer greater harm if an injunction were not granted compared to the harm, if any, suffered by the defendants if any injunction were to be granted.

[65] There are arguable issues with respect to each of the three branches of the test for granting an interim injunction. It cannot be said that the claims being advanced are frivolous or vexatious

[66] I am satisfied on the evidence that the RJR test has been met in this case in that there is a serious issue to be tried relating to whether:

(a) The defendants are passing off SWSI as Carey Industries;

(b) Carey Industries will suffer irreparable harm in losing its customers, employees and good will should the injunction not be granted; and

(c) The balance of convenience favours Carey Industries in that it will suffer greater harm if the injunction is refused than any harm that could potentially be caused to the defendants by the granting of the injunction.

[67] Therefore an order will issue enjoining the defendants until the trial of this action or any further order of this court from carrying on business under the name “Steve’s Welding & Sandblasting Inc.” or in any way holding out or associating that name with their business.

[68] Costs of this application shall be in the cause.

___________________________

LOFCHIK J.

Released: September 6, 2013

COURT FILE NO.: 12-35923

DATE: 2013-09-06

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

560779 Ontario Inc. operating as Carey Industries

Plaintiff Applicant

- and -

Steven Jeffory Carey, Ralph Terrio and Steve’s Welding & Sandblasting Inc.

Defendants Respondents

REASONS FOR JUDGMENT

LOFCHIK J.

TRL:mg

Released: September 6, 2013