Court File and Parties
Barrie Court File No.: 15-1338 Date: 2016-05-03 Ontario Superior Court of Justice
Between: 2152222 Ontario Limited and On-Track Door Systems Inc., Plaintiffs – and – 2173435 Ontario Inc. and Sheldon McPherson, Defendants
Counsel: M.A. Cummings, for the Plaintiffs K. Perron, for the Defendants
Heard: April 14 and 15, 2016
Reasons for Decision on Motion by Plaintiffs for an Interlocutory Injunction
Quinlan J.:
Overview
[1] The plaintiffs, 2152222 Ontario Limited. and On-Track Door Systems Inc., seek an interlocutory injunction to prevent the defendants, 2173435 Ontario Inc. and Sheldon McPherson, from directly or indirectly carrying on a competitive business or from using the trade name “On Track”, other than in the permitted territory. They also seek an order for production of records.
[2] The plaintiffs are in the business of purchasing, selling, installing and servicing automatic garage doors for residential and commercial buildings. In January 2015, the plaintiffs and the defendants entered into an agreement whereby the plaintiffs purchased the defendants’ interest in the company On-Track Door Systems Inc. In exchange for the purchase price of $100,000, the defendants covenanted not to compete directly or indirectly with the plaintiffs and not to solicit the plaintiffs’ customers. The non-competition and non-solicitation agreement (the Agreement) was subject to territorial restrictions. As a condition of the Agreement, the parties entered into a Licence Agreement, which restricted the defendants’ use of the words “On” and “Track” in any trade name outside the permitted territory after a certain time. In 2012, the parties had entered into a similar agreement for $600,000.
[3] The plaintiffs allege that the defendants have breached the Agreement by selling garage doors, either directly or indirectly through the defendants’ employee Scott Pakham or Mr. Pakham’s company, and by permitting others to use the trade name outside the permitted area. Scott Pakham has been employed by the defendants since at least 2013. In September 2015, Mr. Pakham incorporated 1938478 Ontario Inc. (193).
[4] The defendants’ position is that:
a. they are not selling or supplying products to customers outside the permitted area, and any sales outside the permitted area were either the result of a misunderstanding or were by mutual agreement between the parties;
b. although some of the defendants’ sub-contractors’ trucks display the defendants’ logo, which includes the words “On Track”, just because one of the trucks may be seen outside of the permitted area doesn’t mean it is doing business there; and
c. 193 is the defendants’ customer and is located within the permitted territory. It is not a direct or indirect breach of the Agreement if the defendants sell garage doors to 193 and 193 then sells to customers outside the permitted area.
Test to be Applied
[5] An injunction is an extraordinary remedy to be granted by a court only in the clearest of cases and in accordance with what are now well-established principles: Van Wagner Communications Co., Canada v. Penex Metropolis Ltd. , [2008] O.J. No. 190 (S.C.) at para. 30 .
[6] The Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101, gives the court authority to grant an interlocutory injunction where it is just or convenient to do so.
[7] The standard test for an injunction is articulated in R.J.R.-MacDonald Inc. v. Canada (Attorney General) , [1994] 1 S.C.R. 311 at p. 344, and requires the moving party to demonstrate the following:
(a) there is a serious issue to be determined;
(b) the moving party will suffer irreparable harm if the relief is not granted; and
(c) the balance of convenience favours the moving party.
[8] The standard test for interlocutory injunctive relief is modified somewhat where an injunction is sought to enjoin the breach of a restrictive covenant contained in an agreement for the sale of a business. The Divisional Court in Van Wagner Communications Co., Canada v. Penex Metropolis Ltd. , 2008 CarswellOnt 3899 (Div. Ct.) at para. 5 , quoted with approval the following test set out in Attorney-General of Canada et al v. Saskatchewan Water Corporation et al , 109 Sask. R. 241:
[36] …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 with only a prima facie case then more regard needs to be had to the balance of convenience and irreparable harm.
[9] A negative covenant will give rise to a presumption of irreparable harm. Injunctive relief will be granted unless the responding party discharges the burden of proving that the covenant is invalid: Singh v. 3829537 Canada Inc. , 2005 CarswellOnt 2391 at para. 60 (S.C.) ; Canpark Services Ltd. v. Imperial Parking Canada Corp. , 56 O.R. (3d) 102 at para. 15 . The onus is on the responding party to satisfy the court that the covenant is so likely to be found to be in restraint of trade that it should be given no force or effect: Canpark , at paras. 17-18. Where there is a restrictive covenant in relation to the operation of a business, it is difficult to accurately assess the plaintiff’s loss: Miller v. Toews , 70 Man. R. (2d) 4 at p. 2.
[10] When any interim relief would essentially amount to a final determination of the issues between the parties, the “strong prima facie” test should be applied: Rothmans, Benson & Hedges v. Hard Rock Café , 2002 CarswellOnt 2644 (S.C.) at para. 12 ; T.S.I. International Group Inc. v. Formosa, 2015 ONSC 1138 at para. 86 .
Analysis
1. Is There a Serious Issue to be Tried?
[11] In determining whether there is a serious issue to be tried, the court must consider the strength of the plaintiffs’ case. The plaintiffs allege the following breaches:
Use of the “On Track” Trade Name
[12] The Licence Agreement between the plaintiffs and the defendants, dated January 23, 2015, provided that the defendants were permitted to use the trade name “On Track” for four months and then to use the words “On” and “Track” in any other business name identifier within the permitted territory. The defendants were not allowed to permit its name or any part thereof to be used or employed by any person engaged in, concerned with or interested in any aspect of garage door and opener sales, installation or servicing, outside the permitted territory. The defendants operate a company with the trade name “On Track Owen Sound”.
[13] The defendant McPherson deposed in an affidavit that:
Many of the sub-contractors who the corporate defendant works with have trucks which display the corporate defendant’s logo. It is absurd to think that the fact that one such truck that was spotted outside of the territory was either doing business there or was doing business on behalf of the corporate defendant there. I do not keep track and do not intend to keep track of these sub-contractors’ personal lives, travels or businesses.
[14] At the request of the plaintiffs, Paul Livingston, a non-party, was cross-examined. Mr. Livingston lives outside of the permitted area. Photographs taken on November 30, 2015 at Mr. Livingston’s property show a truck with the defendants’ logo on the door, which include the words “On Track”.
[15] Mr. Livingston testified that his doors were supplied by “On Track” and the salesman with whom he dealt was Scott Pakham. From Mr. Livingston’s evidence, an invoice Mr. Livingston received from 193, and the photographs, it is clear that Mr. Livingston thought he was dealing with the defendants’ company and that a truck with the defendants’ company logo was at his job site outside of the permitted area.
[16] It is the defendants’ obligation under the Licence Agreement to not permit its name to be used outside of the permitted area. Mr. Pakham is the defendants’ employee. Even accepting Mr. McPherson’s evidence that Mr. Pakham at times operates his own company (193), this use by Mr. Pakham of a truck at Mr. Livingston’s property with the restricted trade name while selling garage doors was a breach of the Licence Agreement between the plaintiffs and defendants.
Norwell Dairy Systems
[17] The plaintiffs allege that the defendants breached the Agreement by performing a service call at Norwell Dairy Systems in or about February 2015. The defendants admit that they serviced doors at Norwell, but say it was a technical breach: a misunderstanding that resulted in no damages and so cannot afford a basis for injunctive relief.
[18] The lack of clarity in the record as to exactly what transpired, the defendants’ understanding or lack thereof, and the delay by the plaintiffs to move promptly to seek injunctive relief in relation to any alleged breach concerning Norwell Dairy Systems lead me to the conclusion that I should not consider any interactions with Norwell in determining whether to grant injunctive relief.
Paul Livingston
[19] Mr. McPherson supplied a supplementary affidavit sworn February 8, 2016, just in advance of his cross-examination. He appended to it as an exhibit a witness statement of Paul Livingston dated February 5, 2016, in which Mr. Livingston denied ever having met Mr. McPherson. In addition, without attribution, Mr. McPherson included “an invoice confirming the work was performed by another company”. That invoice was from 193.
[20] On April 4, 2016, Mr. Livingston was cross-examined on his February 5 statement. As noted above, Mr. Livingston lives outside the permitted area. He testified that he dealt with “On Track” and purchased garage doors costing over $61,000 from Scott Pakham. He was then billed by 193 by invoice dated October 21, 2015.
[21] My assessment of the strength of this alleged breach will be dealt with later in my reasons.
Reuben Bauman
[22] In 2013 and 2014, the plaintiffs’ sales to Reuben Bauman were over $600,000. In 2015, the plaintiffs’ sales to Mr. Bauman were around $83,000. In the month of August 2015, sales had decreased to $33.74.
[23] In January 2016, the plaintiffs’ representative took photographs at Mr. Bauman’s property of boxes of doors labeled “On Track Reuben”, with scheduled dates of November 2015 on them. Mr. McPherson was cross-examined on February 8, 2016 about those photographs and asked who provided the doors to Mr. Bauman. The following exchange took place:
(Question 248)
Q. I’ve got your evidence; your evidence is that none of these were provided through you or through a company that you were indirectly involved with?
A. Definitely not through – through me.
Q. What about a company that you’re indirectly involved with?
A. Indirectly involved with?
Q. Sure.
A. I can’t answer that question.
Q. Why not?
A. Because I don’t know where the product goes after I sell it.
(Question 258)
Q. And do you agree or disagree with me that Sidney Bauman – the doors that Sidney Bauman has and Reuben Bauman has from Wayne Dalton they get through you?
A. They don’t get through me, no. I disagree with you.
Q. And do they get them through a company or an association that you’re indirectly –
A. That –
Q. Involved with?
A. - that’s something you’d have to ask those guys.
[24] Later in his cross-examination, Mr. McPherson was asked if Scott Pakham worked for him in 2013, and if he still worked for him. Mr. McPherson replied in the affirmative to both questions. Still later in the cross-examination, Mr. McPherson was asked how he obtained the invoice (with respect to the doors supplied to Mr. Livingston) that he had attached to his affidavit served that morning. Mr. McPherson testified that he received it from Scott Pakham. He was later asked who 1938478 Ontario Inc. was. Mr. McPherson responded “that’s a customer of mine” that supplied and installed doors. The following exchange then took place:
(Question 448)
Q. They install doors?
A. Yes.
Q. And you supply doors to the numbered company and then the numbered company goes and installs door [sic]?
A. I – I assume so, yes.
Q. At various places across Ontario?
A. I – I wouldn’t be able to answer that. I don’t know where they do their work.
Q. But did you make any inquiry of them before you install – supplied doors to them?
A. No.
Q. Do you have any interest in this company?
A. No, none whatsoever.
Q. Indirectly?
A. No.
[25] After Mr. McPherson’s cross-examination, the plaintiffs obtained 193’s Corporation Profile Report. The Report disclosed that 193 had been incorporated June 26, 2015 and Scott Pakham is 193’s officer and director. The Report was appended to the plaintiffs’ representative’s affidavit sworn March 9, 2016.
[26] On March 30, 2016, Mr. McPherson filed a further supplementary affidavit. He deposed that Mr. Pakham was a “part-time employee of the corporate defendant”. He was aware that Mr. Pakham owns and operates 193, a company that carries on business supplying and installing doors. Mr. McPherson deposed that Mr. Pakham does not conduct any business for 193 when he is working in the scope of his employment for the corporate defendant, and that the defendants have no involvement whatsoever in the operations of 193, have no interest or shares in it, had no involvement in its creation or incorporation and have never received any commissions from it. Mr. McPherson deposed that 193’s place of business is within the defendants’ permitted competition area.
[27] Mr. Bauman was cross-examined on April 6, 2016. At his cross-examination, he agreed that “all of a sudden” he was dealing with 193 instead of the plaintiffs; he did not know why. He testified that Scott Pakham introduced him to 193.
[28] Mr. Bauman produced invoices from 193 for the period from September 8, 2015 to March 8, 2016, and invoices he received from Scott Pakham from January to June 2015. The invoices total close to $400,000.
[29] Mr. Bauman was asked whether he agreed or disagreed with the allegation that he had told the plaintiffs’ representative that the defendants decreased their price by five percent to sell to him. He responded, “I don’t know”.
[30] My assessment of the strength of this alleged breach will be dealt with later in my reasons.
Post Construction
[31] The terms of the Agreement provided that the defendants could conduct business outside the permitted area “with prior written consent”. The defendants admit they have been supplying Post Construction outside the permitted area, and rely on an e-mail exchange in 2013 between a representative from Post and the plaintiffs’ operations manager that was carbon copied to Scott Pakham.
[32] The e-mail is ambiguous at best. Post speaks of maintaining their contact with Scott Pakham for the “next couple months”. The plaintiffs’ operation manager responded that he understood, “Scott Pakham is a professional and it [didn’t] surprise [him] that [Post] want[s] to maintain that relationship”. However, the plaintiffs’ operations manager then indicated he would still like to introduce Post to Scott’s replacement, which I infer was an attempt to secure Post’s business on an ongoing basis.
[33] In Mr. McPherson’s affidavit sworn January 29, 2016, he deposed that due to changes in the plaintiffs’ account representatives, the plaintiffs’ operations manager “asked Scott Pakham to take back the Post account and continue to manage it as the plaintiffs could not handle it. The corporate defendant did so. In addition, Post requested to the plaintiffs that Post continue to work directly with Scott Pakham”.
[34] I cannot see how the email exchange on its own can support “prior written consent” for the defendants to continue to supply a company outside the permitted area. The only real support for any form of prior consent is found in Mr. McPherson’s affidavit concerning discussions between Scott Pakham and the plaintiffs’ operations manager. However, this critical evidence is hearsay. Mr. Pakham is the person with direct evidence to give about any purported agreement concerning Post Construction: the nature, extent and term of any agreement or consent between Post, the plaintiffs and the defendants are within Mr. Pakham’s knowledge. I will consider later in these reasons if an adverse inference should be drawn for any failure to provide an affidavit from Mr. Pakham, in determining whether there is prima facie evidence of the breach of the Agreement with respect to Post, and the strength thereof.
[35] The letter from Post’s owner dated February 1, 2016, which is appended to Mr. McPherson’s affidavit, does not say who gave the purported “permission to deal with Scott Pakham” and so does not assist in determining the issue of “prior written consent”.
[36] The defendants argue that the plaintiffs’ failure to move promptly to seek injunctive relief in relation to Post Construction bars this court from granting an injunction. They rely on Rothmans , at paras. 5 and 8. However, at the time the motion was filed, the plaintiffs only had “an understanding” that the defendants were doing all of the installations for Post, having seen two buildings completed by Post with doors installed by the defendants. There is no evidence as to when the plaintiffs saw those buildings. I find that the plaintiffs have moved sufficiently promptly in relation to any alleged breach concerning Post Construction. This is not a basis to bar this court from granting injunctive relief.
[37] My assessment of the strength of this alleged breach will be dealt with later in my reasons.
Necessary Findings
[38] The defendants argue that I should not make findings of credibility on this motion. They argue that this should be reserved for the trial judge after hearing witnesses, that it would be highly prejudicial to the defendants, and that it would effectively amount to a final determination of the issues. However, an assessment of the strength of the plaintiffs’ case cannot be made without the court drawing factual inferences from the body of conflicting evidence before it. Those inferences must, of course, be ones which can be reasonably and logically drawn from a fact or group of facts established by the evidence: R. v. Morrissey , 22 O.R. (3d) 514 at p. 12.
[39] The defendants argue that the plaintiffs’ allegations in relation to certain purported customers of the defendants are speculative. I have reviewed the plaintiffs’ affidavits. In one instance, the plaintiffs’ representative was clear that he was speculating. With respect to some of the other allegations, the plaintiffs’ representative admitted on cross-examination that he had no evidence to support his claims. In determining whether an injunction should be granted, I am not basing my assessment of the strength of the case on any speculative claims, but rather, on the supported evidence, including evidence provided on cross-examinations by third parties, photographs and invoices. I will also consider the role that any adverse inference plays in my findings.
Adverse Inference
[40] In deciding the strength of the plaintiffs’ case, the plaintiffs ask that I draw an adverse inference from the failure of the defendants to deliver an affidavit from Scott Pakham. In Parris v. Laidley, 2012 ONCA 755 at para. 2 , the Court of Appeal considered when it is appropriate to draw an adverse inference:
Drawing adverse inferences from failure to produce evidence is discretionary. The inference should not be drawn unless it is warranted in all the circumstances. What is required is a case-specific inquiry into the circumstances including, but not only, whether there was a legitimate explanation for failing to call the witness, whether the witness was within the exclusive control of the party against whom the adverse inference is sought to be drawn, or equally available to both parties, and whether the witness has key evidence to provide or is the best person to provide the evidence in issue.
[41] In The Law of Evidence in Canada , the test for drawing an adverse inference is described as follows:
In civil cases, an unfavourable inference can be drawn when, in the absence of an explanation, a party litigant does not testify or fails to provide affidavit evidence on an application, or fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party. In the same vein, an adverse inference may be drawn against a party who does not call a material witness over whom he or she has exclusive control and does not explain it away. Such failure amounts to an implied admission that the evidence of the absent witness would be contrary to the party’s case or at least would not support it. (Lederman, Bryant & Fuerst, The Law of Evidence in Canada , 4th ed. (Markham: LexisNexis, 2014) §6.450)
[42] The defendants did not provide an affidavit from Scott Pakham. The plaintiffs sought to cross-examine Mr. Pakham before the motion and the defendants refused to produce him. The defendants argue that the plaintiffs were incorrect when they identified the basis for the cross-examination as being “that the invoice [from 193 for the work at Mr. Livingston’s] was not identified as Mr. Pakham’s invoice”. I do not agree. The invoice was from 193 and was attached without attribution as an exhibit to Mr. McPherson’s affidavit sworn February 8, 2016. It was not identified as Mr. Pakham’s invoice but rather as “an invoice … [from] another company”. There was no mention of Mr. Pakham in that affidavit. At his cross-examination on February 8, 2016, Mr. McPherson again referred to it as an invoice “from another company”. He testified that he got the invoice from Scott Pakham (but Mr. Pakham had approached Mr. Livingston for the statement so that did not add anything) but did not in any way make reference to 193 as Mr. Pakham’s company. Mr. McPherson testified that 193 was his customer, again not in any way linking 193 to Mr. Pakham. There was in fact nothing linking 193 to Mr. Pakham in any of the defendants’ affidavits filed before the plaintiffs conducted a corporate search which disclosed that Scott Pakham was the officer and director of 193.
[43] From the wording of Mr. McPherson’s affidavits and the manner in which he testified, I can only infer that Mr. McPherson was attempting to hide Mr. Pakham’s involvement in 193 and the sales of garage doors by Mr. Pakham and 193 outside the permitted area.
[44] Mr. Pakham’s involvement did not end there. In Mr. McPherson’s affidavit sworn January 29, 2016, Mr. McPherson deposed that he contacted Mr. Bauman to obtain a statement; however, on cross-examination, Mr. McPherson testified that Scott Pakham approached both Mr. Bauman and Mr. Livingston for a statement. Mr. Pakham sold garage doors to Mr. Livingston while driving a truck with the defendants’ corporate logo, leading Mr. Livingston to conclude that Mr. Pakham was representing the defendants’ company. Mr. Pakham gave an invoice to Mr. Livingston from his recently incorporated company, 193.
[45] Mr. Pakham did a substantial amount of business with Mr. Bauman, first in his own name, and then through 193, a company incorporated a week after the plaintiffs’ representative witnessed a shipment of goods to Mr. Bauman from a company that supplied doors to the defendants. The shipment of doors to Mr. Bauman was labeled “On Track”.
[46] Mr. Pakham gave the defendants the e-mails relating to Post. Mr. Pakham allegedly told Mr. McPherson that the plaintiffs’ operations manager asked Mr. Pakham to take back the Post account because the plaintiffs could not handle it and that Post had no intention of doing business with the plaintiffs.
[47] In his affidavit sworn March 30, 2016, Mr. McPherson denied any involvement with 193. An affidavit from and cross-examination of Mr. Pakham on this assertion and the matters set out above would have been directly relevant to the issues on this motion and this application.
[48] Mr. Pakham is the defendants’ employee. He is within the exclusive control of the defendants and has key evidence to provide. Given his efforts thus far on behalf of the defendants, it can be assumed that he would be willing to assist them.
[49] When I consider the evidence in relation to:
(i) Post Construction and the purported “consent” to which Scott Pakham was the witness;
(ii) Paul Livingston and the evidence that Mr. Livingston dealt with Mr. Pakham, thought he was dealing with the defendants’ company “On Track”, and then received an invoice from 193; and
(iii) the photographs of doors at Mr. Bauman’s labelled “On Track” and the invoices to Mr. Bauman from Scott Pakham and 193.
I find there is no legitimate explanation for failing to provide an affidavit from Mr. Pakham and/or to produce him for cross-examination. Accordingly, I am satisfied it is appropriate to draw an adverse inference from the defendants’ failure to do so. I find that this amounts to “an implied admission” that Mr. Pakham’s evidence would either be contrary to the defendants’ case or at least would not support it.
Enforceability of the Restrictive Covenant
[50] One of the considerations as to whether there is a serious question to be tried is the enforceability of the restrictive covenant: BMR Bath Master Reglazing Ltd. v. Watson, 2010 BCSC 1170 at para. 48 . In this case, the covenant was negotiated between Mr. McPherson, a sophisticated businessman with the advantage of legal advice, and the plaintiffs’ representative. The plaintiffs paid a significant amount of money for the defendants’ shares, in return for a non-competition, non-solicitation agreement and an agreement respecting a trade name, which were both limited in time and space. As noted in Canpark , at para. 18, “In face of the presumptive harm which arises from the language of the covenant, [the responding party] must establish at least a strong likelihood that it is void and of no effect.” The defendants have failed to do so. I find that, insofar as it is necessary for me to make a finding on this issue, the restrictive covenant was reasonable between the parties and reasonable with reference to the public interest: see BMR , at para. 14.
Conclusion on Serious Issue to be Tried
[51] Considering the sales by the defendants to Post, the sales by Mr. Pakham and 193 to Messrs. Bauman and Livingston, the use of the trade name by Mr. Pakham and 193 and the adverse inference I draw from the failure to provide an affidavit from Mr. Pakham and/or produce him for cross-examination, I am satisfied that the plaintiffs have established a strong prima facie case that the defendants have in those sales and use of the trade name, directly or indirectly through Scott Pakham and 193, breached the restrictive covenant. As noted by the Divisional Court in Van Wagner , given that the plaintiffs have a strong prima facie case, an injunction ought to be granted without much regard to the balance of convenience and irreparable harm. I turn now to a consideration of those issues.
2. Irreparable Harm
[52] The plaintiffs purchased a long-established business and customer base for a significant amount of money. The plaintiffs’ representative deposed that:
(a) the plaintiffs’ goodwill is premised on the basis that the plaintiffs service their installations;
(b) the plaintiffs have no way of maintaining their standards if there are installations for which they are not responsible;
(c) the use of the trade name outside the permitted area will cause confusion in the marketplace and the plaintiffs may be called upon to respond to installations or service that they have not performed;
(d) the plaintiffs have not been able to compete because of the activities of the defendants and they continue to lose revenue from those customers; and
(e) the financial health of the plaintiffs is based not only on its ability to gain new customers, but also to maintain its existing customers; the actions of the defendants have impaired this.
[53] As I indicated, the court need not have “much regard” to the issue of irreparable harm. As noted in Miller , at p. 5:
[W]hen a negative covenant of this kind is reasonable on its face, the person who gave it will have a heavy burden to show that his escape from the bargain will not cause irreparable harm to the convenantee and that the balance of convenience so substantially favours him (the person who gave the covenant) that it would be unjust to restrain his activities until the trial.
[54] I accept that it is reasonable to infer that the plaintiffs will suffer loss as set out in the affidavit referenced in para. 52 of these reasons. In addition, the evidence supports that:
(a) the actions of the defendants caused the plaintiffs to have to decrease their prices to remain competitive with respect to an existing customer outside the defendants’ permitted area. Were this not true, it could have easily been refuted by Mr. Bauman;
(b) the plaintiffs’ sales to Mr. Bauman in 2015 decreased significantly;
(c) the plaintiffs lost their sales to Post Construction; and
(d) the plaintiffs missed out on a sale to Mr. Livingston.
[55] In view of all of the foregoing, I find that the plaintiffs’ loss will likely be incapable of accurate assessment. Damages would not be an adequate remedy.
[56] The defendants argue that I should draw an adverse inference from the plaintiffs’ failure to provide financial statements. However, the plaintiffs have provided documentation outlining their sales in 2015 to Mr. Bauman. They have no records for Post Construction or Mr. Livingston. Any further records would not have assisted in a determination of the issues I need to resolve on this motion.
[57] I am satisfied that the plaintiffs have established they would suffer irreparable harm if the injunction were not granted.
3. Balance of Convenience
[58] In R.J.R.-MacDonald , the Supreme Court stated that the balance of convenience analysis involves a determination of which of the two parties would suffer the greater harm from the granting or refusal of an interlocutory injunction, pending a decision on the merits. Here, the plaintiffs purchased the goodwill to a long-standing business. The defendants were allowed the opportunity to continue to carry on business in a specified and limited area.
[59] The defendants argue that the balance favours them; Mr. McPherson deposed that “the business is [his] primary source of income”. The following comments of the Manitoba Court of Appeal in Miller , at p. 5, provide an answer to the defendants’ argument:
In the case at bar, the defendants say that the balance of convenience is substantially in their favour. In saying that, however, the defendants rely on the situation in which they find themselves as a result of their deliberate breach of their own covenant. A party cannot tip the scales of convenience in his favour by such deliberate misconduct. …
To repeat the words of Megarry J.:
I see no reason for allowing a covenantor who stands in clear breach of an expressed prohibition to have a holiday from the enforcement of his obligation until the trial.
[60] I find the balance of convenience favours the plaintiffs.
Conclusion
[61] Accordingly, considering all of the factors, I am satisfied that the plaintiffs have met their onus in establishing that an interlocutory injunction should issue.
Terms of the Injunction
[62] The defendants argue that the terms of the injunction sought by the plaintiffs are too broad, and that they unreasonably restrict trade. However, I am satisfied that enjoining the defendants in the terms of the Agreement, which include the defendants’ employees, is not overly broad, does not restrict trade and is no more than what the defendants agreed to when they sold their shares. This will necessarily enjoin the defendants from selling to 193 if 193 is then selling outside of the permitted area.
Production
[63] The plaintiffs also seek:
(i) production by the defendants of their general ledger and customer lists for all entries for sales or servicing from January 23, 2015 on; and
(ii) an order compelling the defendants’ employee, Scott Pakham, to deliver any records relating to any sales to customers outside the permitted area.
[64] The defendants’ position is that production should be dealt with after examinations for discovery by way of another motion. If I order production, it should be a mutual exchange of client lists for either review by the court or review by counsel, subject to a confidentiality agreement.
[65] The plaintiffs’ customer list is irrelevant to this proceeding: the plaintiffs are not restricted by the terms of the Agreement to any territory. There is no basis to delay production and require a further motion. The defendants’ cases in support of a review by the court or by counsel arise in very different factual circumstances and do not assist in a case such as this where there is no “confidential business information”.
[66] I am satisfied that an order for production of the defendants’ general ledger and customer lists is reasonable in the circumstances. However, although the plaintiffs have established a strong prima facie case that the defendants are breaching the Agreement not only directly but indirectly through Mr. Pakham and 193, Mr. Pakham should be allowed an opportunity to make submissions before a production order against him is made. The plaintiffs are not foreclosed from bringing a motion to compel production of records from Scott Pakham and 193, should they decide to do so.
Conclusion
[67] Accordingly, this court orders:
(i) an interlocutory injunction restraining the defendants Sheldon McPherson and 2173435 Ontario Inc. from directly or indirectly, including through Scott Pakham or any other employee or through 1938478 Ontario Inc., carrying on the business of garage door and opener sales, installations and servicing, or permitting the trade name “On Track” to be used in any aspect of such business, other than within the area permitted by the non-competition and non-solicitation Agreement entered into between the parties; and
(ii) the defendants to deliver to counsel for the plaintiffs a copy of the general ledger and customer lists of the defendants for all entries for sales and/or servicing from January 23, 2015 to the present.
Costs
[68] If the parties are unable to agree on costs, I will receive written submissions from the plaintiffs by May 17, 2016, followed by responding submissions from the defendants by May 26, 2016. Costs Submissions shall be no more than three pages in length, exclusive of any Costs Outline or Offers to Settle. If no submissions are received by May 26, 2016, the issue of costs shall be deemed to have been settled as between the parties.
Quinlan J.
Released: May 3, 2016