1635770 Ontario Ltd. (Delta Driving School) v. Wu, 2015 ONSC 127

COURT FILE NO.: 14-00021288-0000

DATE: 20150107

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1635770 Ontario Ltd. operating as Delta Driving School, Plaintiff

AND:

Michael Hong-Bing Wu, Defendant

BEFORE: Verbeem J.

COUNSEL: Gordon M. Gervais, for the Plaintiff

Edward J. Posliff, for the Defendant

HEARD: December 16, 2014

ENDORSEMENT

Nature of the Motion

[1] This is a motion by the plaintiff for an interlocutory injunction prohibiting the defendant, its former employee, from “competing” with the plaintiff’s “driving instruction” business, within a 20 km radius of the plaintiff’s principal place of business, said to be 2521 Dougall Avenue, Windsor, Ontario.

[2] For the following reasons the motion is dismissed, with costs to the defendant.

Brief Background

[3] The plaintiff formerly operated a “driving instruction” business from several locations in Essex County. The defendant was formerly employed by the plaintiff as an instructor. The plaintiff alleges that it hired the defendant sometime in March 2012, primarily because he was fluent in a Chinese dialect spoken by many of the plaintiff’s clients.

[4] Prior to commencing his employment, the defendant, together with a representative of the plaintiff, executed an eight page “Employment Agreement”, drafted by or on behalf of the plaintiff.

[5] Under the subheading “NON-COMPETITION COVENANT”, the agreement states, at page 5:

7.1 The Representative hereby covenants and agrees with Delta that during the term of this agreement and for a period of One (1) year, the Representative shall not, for whatever reason and with or without cause, either individually or in partnership or jointly or in conjunction with any person or persons, firm, association, syndicate, company, corporation, or entity as principal, Account Executive, Independent Contractor, shareholder, owner, investor, partner or in any manner whatsoever, directly or indirectly carry on or be engaged in or be concerned with or be interested in or advise, lend money to, guarantee the debts or obligations of or permit their name or any part thereof to be used employed by any person or persons, firm, association, syndicate, company, corporation, or entity engaged in or concerned with or interested in the business of a driving school within a 20 kilometer radius from any Delta and related companies’ principal place of business.

[6] The plaintiff alleges the defendant’s employment was terminated on August 1, 2014, when one of its employees discovered that the defendant was providing clandestine driving instruction to the plaintiff’s clients, for personal profit.

[7] The defendant denies that he engaged in such conduct. He also suggests he was last employed by the plaintiff in August 2012.

[8] The plaintiff alleges that since his termination in August 2014, the defendant has continuously provided driving instruction within a 20km radius of its principal place of business, contrary to the provisions of the non-competition covenant, resulting in economic loss.

Plaintiff’s Position

[9] The plaintiff seeks to enjoin the defendant from providing driving instruction, for hire, pending the trial of this action. It states that the terms of the employment agreement, including the non-competition covenant, are unambiguous and enforceable.

[10] The defendant’s repeated and ongoing breach of the non-competition covenant is flagrant and notorious. A representative of the plaintiff deposes that she witnessed the defendant in the process of providing “private” driving lessons no less than 12 times from July 29, 2014 to September, 2014.

[11] The plaintiff submits that if the law of contract is to have any meaning, the injunction it requests must be granted.

Defendant’s Position

[12] The defendant resists the relief requested for the following reasons:

1. The plaintiff is not currently operating a driving school and consequently, cannot be said to be suffering any loss as a result of the defendant’s conduct;

2. The defendant was last employed by the plaintiff in August 2012. Accordingly, even if the “non-competition” provision is otherwise enforceable, its one year term has passed.

3. The defendant was employed by 1903279 Ontario Limited, another driving school, during certain times between August 2012 and July 2014. It appears that 1903279 Ontario Limited acquired all of the plaintiff’s assets in November 2013. 1903279 Ontario Limited is not a party to this action.

4. The defendant’s first language is Mandarin Chinese. The agreement is written in English. The language of the agreement is complex and cumbersome. The defendant did not read the agreement before he signed it. He was not directed to read the agreement before he signed it. He was not advised to obtain independent legal advice before he signed it. The non-competition clause was not specifically brought to his attention. He was told to sign the agreement as a condition of securing employment. As a result, he challenges the enforceability of the non-competition covenant.

5. The spatial feature of the non-competition clause, as drafted, is not limited to a 20 km radius from an address in Windsor, and is, on its face, overly broad and unreasonable.

6. Based on the five factors above, the plaintiff has not demonstrated a strong prima facie case, on the evidence, and accordingly has not met the requisite standard to obtain an interlocutory order enforcing a negative covenant in restraint of trade;

7. The plaintiff has failed to adduce any evidence establishing that it will suffer irreparable harm if the interlocutory injunction is not granted;

8. If granted, the injunction will deprive the defendant of his livelihood. As a result, the balance of convenience militates against the injunction.

Disposition

[13] For the following reasons I am not persuaded that an interlocutory injunction, as requested by the plaintiff, should be ordered in this instance.

[14] An interlocutory injunction is an extraordinary remedy. In 1711811 Ontario Ltd. (AdLine) v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 315 O.A.C. 160 at para. 86, Gillese J.A. observes:

In general terms, injunctive relief is onerous. It is available only when truly necessary to ensure that a party is not deprived of his or her rights. Even when injunctive relief is appropriate, the particulars of that relief must be determined so as to ensure a proper balancing of the parties’ respective interests. That also demands a careful weighing of the evidence.

[15] The applicable test when considering a motion for an interlocutory injunction is set out by the Supreme Court of Canada in RJR MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R.(4th) 385, as follows:

1. Is there a serious question to be tried?;

2. Will the moving party suffer irreparable harm if the injunction is not granted?; and

3. Does the balance of convenience favour the granting of an injunction?

[16] Based on the evidence before me, the merits of the plaintiff’s remedial request are challenged at each stage of the analysis.

1. Serious Question to be Tried

[17] The plaintiff seeks an injunction to restrain the breach of a covenant “in restraint of trade”. As a result, it must demonstrate a strong prima facie case based on the evidence: see 1003126 Ontario Ltd. v. DiCarlo, 2013 ONSC 278, 10 C.C.E.L. (4th) 1 at para. 21.

[18] The plaintiff argues that it has made out a strong prima facie case, as the evidence indicates that the plaintiff and defendant entered into a contract, the contract contained a non-competition covenant that is temporally and spatially reasonable and the defendant is currently in breach of same. For the following reasons, I disagree.

(i) The Formation and Execution of the Agreement

[19] There is conflicting evidence with respect to the circumstances surrounding the defendant’s execution of the agreement.

[20] The defendant deposes that: English is not his first language; he was not given the opportunity to read the contract before signing it; he was not provided with a copy of the agreement after execution; he was not provided with independent legal advice before signing; and he was not advised that the contract contained an onerous provision, specifically the one year non-competition covenant. He was simply told to sign the contract if he wanted a job, and he did so.

[21] If true, the defendant’s evidence raises an issue concerning whether the parties were ad idem with respect to, inter alia, the non-competition covenant at the time of execution, or ever. It also raises an issue concerning the enforceability of an onerous provision in a standard form contract against the non-drafting party.

[22] The plaintiff’s evidence suggests that the defendant speaks, reads and comprehends English, second language or otherwise. The plaintiff’s evidence also suggests that the defendant was provided with a copy of the agreement the day before execution and was allowed to keep it overnight for review.

[23] None of the affiants were cross-examined. The court is left with competing, untested and mutually exclusive versions of events surrounding the execution of the agreement. It is not possible to resolve those factual issues on the material before me.

(ii) The Identity of the Plaintiff’s Employer at Relevant Times

[24] There is conflicting evidence with respect to the date that the defendant was last employed by the plaintiff.

[25] In her original affidavit, Paramjit Pabla, the president of the plaintiff corporation, deposes that the defendant worked for the plaintiff for approximately two and a half years, until his termination on August 1, 2014. The balance of the evidence, including documentation prepared on behalf of the plaintiff, contradicts Ms. Pabla, on that point.

[26] The defendant avers to his employment history from mid-2012 to August 2014, and attaches three Records of Employment (“ROE”) that he received during that time.

[27] According to an ROE dated October 16, 2012, the defendant was employed by the plaintiff from June 2, 2012 until August 15, 2012. The ROE states that the plaintiff’s employment ended because of a “shortage of work/end of contract or season”. The ROE was issued on behalf of the plaintiff by a Ken Derbyshire, who certified that all statements made therein were true. Further, he acknowledged that he was aware that it is an offence to make a false entry on the ROE.

[28] The defendant testifies that after August 2012, he worked on a “cash” basis for the plaintiff. Specifically, he provided lessons to students on behalf of the plaintiff. The students paid the plaintiff in cash, and in turn, the defendant was paid by the plaintiff in cash. The reason the parties switched to a cash based system was not set out in the evidence.

[29] During submissions, the plaintiff’s counsel acknowledged that the parties did engage in “an off the books” remuneration system whereby the defendant was paid in cash for services he performed on behalf of the plaintiff. Particulars of the duration and frequency of the services performed by the defendant during the “off the books” phase of his tenure are not in evidence.

[30] An entity known as 1903279 Ontario Limited issued an ROE in relation to the defendant on August 25, 2014, which indicates he was in its employ from November 15, 2013 to June 30, 2014. The ROE states that his employment ended because of “illness or injury” (not termination). Mr. Derbyshire also issued that ROE.

[31] A second ROE was issued by 1930279 Ontario Limited on August 26, 2014, which indicates that the defendant was in its employ from July 16, 2014 to July 31, 2014. The ROE reflects that the defendant’s employment ended because he quit, not because he was terminated. Mr. Derbyshire also issued that ROE.

[32] Finally, the defendant deposes that he last worked for 1930279 Ontario Limited on or about August 15, 2014. To evidence his assertion he provides a pay stub from 1930279 Ontario Limited dated August 31, 2014 evidencing that he was paid for working 27 hours during the week ending August 15, 2014.

[33] In reply, Ms. Pabla says that the plaintiff carried on business as a driving school until September 30, 2014. However, on November 29, 2013 she incorporated 1903279 Ontario Limited. She states that on November 27, 2013 she caused all of the assets, vehicles, accounts receivable, choses in action and students of the plaintiff to be transferred to this new company.

[34] Ms. Pabla does not explain how she transferred the plaintiff’s assets to 1903279 Ontario Inc. two days before the latter came into existence. She does not explain how the plaintiff continued to carry on business after it was dispossessed of all of its assets and clients in November 2013.

[35] Most notably, she does not provide evidence that reconciles the content of the October 16, 2012 ROE, evidencing August 15, 2012 as the last recorded date that the plaintiff employed the defendant, with her sworn evidence that the defendant was employed by the plaintiff until August 1, 2014.

[36] The content of the Ms. Pabla’s original affidavit causes me concern. She swore, without exception, explanation or qualification, that the defendant was employed by the plaintiff until August 1, 2014. The plaintiff’s own documentary records and those of 1903279 Ontario Limited, contradict that proposition. She is an officer and director of each of those corporations. It is difficult to accept that she was not aware of the defendant’s actual employment history when she swore her original affidavit. However, in the context of this motion, Ms. Pabla has not had an opportunity to specifically explain the apparent discrepancy, and accordingly I cannot make a conclusive finding on that issue.

[37] I do, however, find that the plaintiff has not established a strong prima facie case that an employment relationship existed between the plaintiff and the defendant beyond August 15, 2012.

[38] Accepting the plaintiff’s own documentation, the truth of which was certified by Mr. Derbyshire, the last date the defendant was employed by the plaintiff was August 15, 2012.

[39] While the defendant states that he continued to provide services to the plaintiff for a period of time after August 15, 2012, on a cash basis, details of the relationship between the parties during that period are not in evidence. Accordingly, I am unable make a determination, even on a prima facie basis, whether the services during that time were performed by the plaintiff qua employee or qua independent contractor, and if the latter, whether the terms of the employment agreement extended to that new relationship. Finally, there is no evidence when the cash for services arrangement between the plaintiff and defendant ended.

[40] In the result, based on the evidence before me, I cannot determine, even on a prima facie basis, that the non-competition covenant, even if otherwise enforceable, expired any later than August 15, 2013 (one year after the defendant’s last recorded date of employment with the plaintiff).

[41] For that reason alone, I am not persuaded that the plaintiff has demonstrated a strong prima facie case against the defendant.

(iii) Enforceability of A Covenant in Restraint of Trade

[42] The plaintiff has not put forth evidence to support a strong prima facie case that the subject restrictive covenant is enforceable.

[43] In general, restrictive covenants which result in a restraint of trade are inconsistent with the public interest and are therefore unenforceable. However, restrictive covenants between an employee and employer will be enforceable if the employer can demonstrate that the terms of the covenant are reasonable as between the parties, particularly in regard to its temporal and spatial features, considering the nature of the plaintiff’s protectable business interest: see 1003126 Ontario Ltd., at para. 22.

[44] The term of the non-competition covenant is one year. Plaintiff’s counsel argues that one year is a reasonable term, because that is the amount of time required to locate, hire, train and qualify another Mandarin speaking driving instructor. However, the plaintiff offers no evidence to support that contention. Indeed, the plaintiff has not tendered any evidence addressing the reasonableness of the proposed one year term.

[45] Further, by the express terms of the agreement, the spatial feature of the covenant is ambiguous. A number of unspecified incorporated and unincorporated entities collectively referred to in the agreement as “Delta” are said to be the beneficiaries of the protection offered by the non-competition covenant. The covenant is said to apply within a 20 km radius of the principal place of business of all of these unspecified entities. The agreement does not, however, set out where the unspecified entities’ principal places of business are said to be. There is nothing in the agreement that restricts the spatial feature of the non-competition covenant to Essex County, the Province of Ontario, or even North America.

[46] Given the contractually-defined broad, fluctuating and amorphous scope of the entities which comprise “Delta”, it is impossible to determine the specific spatial reach of the covenant, at any point in time, by reference to the terms of the agreement alone.

[47] The plaintiff submits that for the purpose of this motion it only seeks to enjoin the defendant from competing within a 20 km radius of an office located on Dougall Avenue in Windsor, Ontario. That may be. However, in determining whether the non-competition covenant is enforceable at trial, the court will have to examine the language and scope of the provisions of the agreement itself. It will either be found reasonable in all of the circumstances, based on the evidence, or it will not.

[48] On the evidence before me, I do not find that the plaintiff has established a strong prima facie case that the temporal and spatial features of the non-competition covenant are reasonable.

2. Irreparable Harm

[49] There is no evidence that an award of damages will not be an adequate remedy, if the plaintiff is successful at trial.

[50] Ms. Pabla deposes that “[t]he Plaintiff is suffering economic loss” as a result of the defendant’s alleged breach of contract. There is no evidence that the alleged economic loss cannot be quantified.

[51] The plaintiff is concerned that the defendant will not be collectible, should an award of damages be made at trial. Its apprehension in that regard is solely founded in the defendant’s evidence that he “needs income to support [his] family.” I do not find that lone statement to be sufficient evidence to support a finding that any award of damages that may be made against the defendant at trial is destined to remain unsatisfied.

[52] As this was the plaintiff’s only stated concern regarding the remedial adequacy of a damages award at trial, and given the lack of any evidence put forth by the plaintiff to establish the contrary, I find that a damages award, in the measure recoverable at common law, will be an adequate remedy if the defendant is found liable in contract.

[53] There is no evidence that the plaintiff will suffer irreparable harm if an interlocutory injunction is not granted.

[54] In order to ensure that a damages award can be properly quantified the defendant shall maintain a record of the names of all his driving instruction clients, the dates and times that instruction is provided to each client, together with the amount charged to, and the amount paid by, each client. That information will be subject to production in accordance with the defendant’s discovery obligations in this action.

3. Balance of Convenience

[55] Ms. Pabla avers that the plaintiff is suffering unspecified economic loss because of the defendant’s alleged breach of contract. That evidence is difficult to reconcile with her subsequent evidence that the plaintiff did not provide driving instruction under authority of the Ministry of Transportation Ontario after September 30, 2014.

[56] Conversely, the defendant deposes that the he needs the income generated from driving instruction to support his family.

[57] Overall, the balance of convenience favours the defendant.

Conclusion

[58] For the foregoing reasons, the plaintiff’s motion is dismissed. Based on the costs submissions made by both parties, the plaintiff shall pay the defendant the all-inclusive sum of $ 1,500, payable forthwith, as costs of this motion on a partial indemnity scale.

[59] Subject to further order of this court, the defendant shall maintain accurate and complete records of the information outlined at paragraph 54 of these reasons.

Original signed “Verbeem J.”

Gregory J. Verbeem

Justice

Date: January 7, 2015