CITATION: Edgetch HVAC Services Ltd. v. Ubhi, 2016 ONSC 7564

COURT FILE NO.: CV-16-559622

DATE: 20161207

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

EDGETCH HVAC SERVICES LTD., 2399704 ONTARIO INC., 2307199 ONTARIO INC., RANDY TAYLOR and THOMAS PRAKASH

Plaintiffs

– and –

JASWINDER SINGH UBHI, also known as JESSE SINGH UBHI, NEHA UBHI, ROVIND BAHRA, AMANJOT SINGH SWAICH, also known as AMAN SINGH SWAICH, ARJUN BAHRA, SURINDERJIT SINGH, also known as VIC SINGH, HARMINDER SINGH BHINDER, also known as MICKY SINGH BHINDER, JAMES HUANG, EXTREME GAS DETECTION INC., EXTREME GAS CALIBRATIONS INC., JOHN DOE, JANE DOE, and other persons unknown who have conspired with the named Defendants

Defendants

James Zibarras and John Philpott, for the Plaintiffs

Gregory M. Sidlofsky, for the Defendants

HEARD: November 21, 2016

V.R. CHIAPPETTA j.

Reasons for judgment

Introduction

[1] The plaintiffs seek an interim injunction restraining the defendants from competing against Edgetch HVAC Services Ltd. (“Edgetch”) and from soliciting clients and employees of Edgetch. The plaintiffs state that the defendants worked together to effect an orchestrated plan to use its confidential and proprietary information and solicit its clients and compete against Edgetch through a company called Extreme Gas Detection Inc (“Extreme”).

[2] The defendants fall into three categories. Jesse Ubhi (“Jesse”) is a one-third owner of Edgetch. He submits that he was wrongfully excluded from the business. He has commenced an application seeking relief from oppression. James Huang (“James”) and Extreme Gas Calibrations Inc. were independent contractors for Edgetch. Their position is that they do not owe Edgetch any duties whatsoever. The remaining defendants are former employees of Edgetch, none of whom, it is argued, were subject to any restrictive covenants and who left Edgetch because of non-payment of salary and bonuses and because of a racist workplace further poisoned by nepotism.

[3] The plaintiffs state that Jesse orchestrated the resignation of the former employees, the incorporation of Extreme and the possession and control of Edgetch’s confidential information for the purpose of competing against Edgetch with Extreme. Jesse denies any involvement with Extreme. He denies diverting customers from Edgetch or informing Edgetch customers that Edgetch was closing or not in business. But for Neha Ubhi, Jesse’s wife, the former employees and James admit to be working with Extreme but deny their possession, control or use of Edgetch’s confidential information in their efforts to earn a livelihood.

Background

[4] In 2008, Jesse founded Edgetch with the plaintiffs Randy Taylor (“Randy”) and Thomas Prakash (“Thomas”). Edgetch is an authorized sales and service distributor for gas detection products manufactured by Honeywell Analytics (“Honeywell”). These products are warning systems that detect toxic and flammable gas leaks in buildings. Jesse was responsible for outside operations.

[5] From 2008 to 2014, Edgetch was solely in Jesse’s name, as Randy and Thomas continued to work at Honeywell. In January 2014, after Randy and Thomas were laid off from Honeywell, the three of them engaged in a corporate reorganization of Edgetch and executed a unanimous shareholder agreement (“USA”). The USA states in relevant part:

11.1 Each of the Principals covenants and agrees that he will not, during the term of this Agreement and for a period of Three (3) years after the date as at which said Principal ceased to be, either directly or indirectly, personally, through a partnership or a corporation, a shareholder, director, officer, employee, consultant or otherwise of the Corporations, compete with Edgetch by participating, directly or indirectly, alone or in association with any individual or entity, in any capacity whatsoever, in any enterprise, employment, business or other activity engaged, even partially, in a business which can reasonably be considered to be competitive with the business of Edgetch, within the territory of Canada.

11.2 Without limiting the generality of Section 11.1 above, the Principals may not, directly or indirectly, at any time while employed by, or while being a director or officer of any of the Corporations, or while being, directly or indirectly, a Shareholder, and for a period of Three (3) years from the date of termination of this Agreement:

a) solicit, or attempt to solicit, any Person who is an employee, an agent or a salesperson of any of the Corporations from and after the date of this Agreement to leave or resign from any of the Corporations, or otherwise take any action with the intention that, by doing so, the relationship or dealings of any of the Corporations with such Person may be impaired;

b) solicit, or attempt to solicit, any Person who is a contractor, client, supplier or dealer of the business of Edgetch from and after the date of this Agreement, or who was so within the Two (2) years period prior to the date of this Agreement, to stop selling to or stop buying from any of the Corporations, or otherwise cease dealing with any of the Corporations, or otherwise take any action with the intention that, by doing so, the relationship or dealings of any of the Corporations with such Person may be impaired; or

c) induce, solicit or attempt to induce solicit any contractor, client, supplier, agent or dealer of or relating to any of the Corporations from and after the date of this Agreement, to provide products or services to or accept business of Edgetch from any Person engaged in any aspect of the business of Edgetch, other than any of the Corporations.

11.3 The Principals acknowledge that they may have come into the possession of information about certain matters and things relating to the business of Edgetch or any of the Corporations, which are confidential to any of the Shareholders or of the Corporations, including but not limited to:

a) their marketing techniques and strategies;

b) the names, addresses, buying habits and preferences of present and prospective clients;

c) their pricing and sales policies, techniques and concepts;

d) financial information relating to any of the Corporations;

e) the names, addresses, individual contact information and preferences of suppliers; and

f) any other confidential information whatsoever concerning the business, affairs, operations, or financing of any of the Corporations.

11.4 The foregoing obligations regarding confidentiality shall not apply to any information which:

a) is now or hereafter becomes part of the public domain or available to the public through no fault of the parties;

b) is not confidential or proprietary in nature; or

c) can be inferred from public or trade sources.

11.5 The foregoing obligations regarding confidentiality shall not be limited in time.

11.6 The Principals hereby agree, confirm and acknowledge that the undertakings referred to in Section 11 hereof are reasonable and valid, and that a breach thereof will cause irreparable harm to the Corporations and that consequently, monetary damages will be insufficient. Accordingly, should any of the Principals breach any of the aforementioned undertakings, it shall be reasonable and valid for the Corporations to seek injunctive relief, and the breaching Principal shall be liable to pay the Corporations the sum of $200,000.00 for each such breach as liquidated damages and not as a penalty, the whole without prejudice to the right to injunctive relief and all other recourses at law otherwise available to the remaining parties hereto.

[6] At all relevant times, the defendants Arjun Bahra (“Arjun”), Neha Ubhi (“Neha”) and Surinderjit Singh (“Vic”) were part of the sales team. The defendants Rovind Bahra (“Rovind”), Harminder Singh Bhinder (“Micky”) and Amanjot Singh Swaich (“Aman”) were part of the technical team. The defendant James worked for Edgetch as an independent contractor through his company, Extreme Gas Calibrations Inc. Extreme Gas Calibrations Inc. was not an authorized sales and service distributor for Honeywell gas detection products.

Factual Analysis

[7] The parties have different narratives about the events of July 2016 through to today. The plaintiffs’ narrative is one of being the victim to Jesse’s plan to direct the other defendants to use proprietary information to solicit clients and compete against Edgetch in a way that did not overtly offend his obligations as set out in the USA. Jesse’s narrative is one of the victim as well. He states that he is the victim of exclusion by the plaintiffs who purposely denied him his rights under the USA and are now relying on it to prevent him from earning a livelihood with his recently formed company. Jesse submits that the plaintiffs cannot seek to enforce the restrictive covenants in the USA, as the plaintiffs effectively repudiated the agreement and excluded him from the business improperly. The former employees’ narrative is one of good, honest people with no choice but to leave Edgetch to join Extreme in order to earn a livelihood, given the stresses created by nepotism and racism at Edgetch. James’ narrative is one of an entrepreneur expanding his business, renaming it and rebranding it to ensure potential clients fully appreciate that his business in not limited to calibrations.

[8] The factual context is a significant finding on this motion. It is the foundation which informs the analysis of the well-established legal test for granting an injunction.

[9] In my view, on a balance of probabilities, it is the plaintiffs’ narrative that is supported and demonstrated by the evidentiary record on this motion. I do not accept that Jesse was a victim of exclusion by Randy and Thomas. I accept that the exclusion efforts were conduct reactive to Jesse’s efforts to defeat Edgetch by soliciting its clients and competing against it with the assistance of former employees. The defendants suggest that Arjun acted in isolation. Such a conclusion defies logic. Jesse has been in the business since 2008. Jesse attempted to buy out Randy’s and Thomas’ interests. Jesse offered to relinquish his interest in return for waiving his restrictive covenants. Arjun is Jesse’s nephew. He is 23 years old. He is a part-time student. He was paid $16 per hour by Edgetch and now claims to be working for free at Extreme. It is far more probable that Arjun was directed by Jesse, as part of the latter’s efforts to divert clients and former employees from Edgetch to Extreme. The documentary evidence supports Jesse’s involvement to this extent.

[10] Further, I do not accept that the former employees left Edgetch en masse without notice or transition because of nepotism or racism. While Thomas admitted he was aware of complaints of nepotism, the timing of the resignations coincides too conveniently with Jesse’s efforts to have the restrictive covenants in the USA waived, and none of the letters of resignation detail nepotism or racism as the reason for leaving Edgetch. I find on a balance of probabilities that the former employees left to assist Jesse with his efforts to compete against Edgetch through Extreme. The documentary evidence supports this, particularly as it pertains to Arjun and Rovind.

[11] Finally, I do not accept that James decided to rebrand and expand his business around the same time that Jesse was negotiating a way out of his restrictive covenants and the former employees resigned without notice. Considering the documentary evidence as a whole, there is only one conclusion that fails to defy common sense. It is that Jesse took intentional and covert steps to coordinate with James and Edgetch employees in order to compete with Edgetch through Extreme.

[12] The parties’ stated evidence is naturally self-serving and designed to support their respective narratives. My conclusion is primarily based, therefore, upon the logical consideration of the documentary evidence. Some of the documentary evidence is hearsay and deserving of little weight on a stand-alone basis. The hearsay documents are well supported, however, by the direct documentary evidence and submitted business records. Taken together with admissions made on cross-examination and considering the limitation in evidence as a natural consequence of both the nature of this litigation and its early stages, the documentary evidence sufficiently demonstrates the plaintiffs’ narrative on a balance of probabilities. This is highlighted by a chronological review of the documentary evidence as effectively presented by counsel for the plaintiffs:

1. On or about April 19, 2016, Jesse offered to buy out Randy and Thomas’ shares in Edgetch.
2. On June 22, 2016, the offer was rejected. A counter offer was made and rejected.
3. On July 18, 2016, Extreme was incorporated. Arjun and James are the publicly listed directors. James terminated all his technicians and used the accountant that Arjun recommended.
4. On July 26, 2016, Neha, Jesse’s wife, sent to Arjun an email in which was attached a Yukon Application for Name Reservation and other Yukon forms filled out for Extreme.
5. On August 2, 2016, Vic resigned effective immediately. Vic is a long-time friend of Jesse’s. He worked out in the field with Jesse, securing new business and interfacing with clients. He stated that he made the decision to leave in July. Extreme was incorporated in July.
6. On August 7, 2016, James emailed Arjun a list of Extreme clients for Arjun to arrange service. Arjun was still working with Edgetch.
7. On August 7, 2016, the same day, Micky, a technician with Edgetch, resigned. Micky joined Edgetch through being a friend of Jesse’s friend. His reasons were stated as “to further advance my career which I don’t believe will be available to me at edgetch.” The resignation coincided with Arjun’s need to arrange service for Extreme’s clients.
8. On August 8, 2016 and August 9, 2016, Certificates of Insurance were made, certifying to numerous former and current Edgetch clients that Extreme was insured.
9. On August 8, 2016, Jesse sent an email to Colin Young (“Colin”), from the Government of Yukon (“Yukon”), from his Edgetch email address. The subject line was “Contract Changes”. Jesse asked therein if Colin received an email from Rovind regarding changes to the contract. Jesse was a shareholder of Edgetch at the time and Rovind was an employee of Edgetch, employed as a technician. Rovind is Arjun’s relative. On August 11, 2016, Jesse sent an email to Colin. The subject line was “Service of gas detection systems”. Jesse asked Colin to give him a call when he was in the office that day. On August 24, 2016, Colin received an email from service@extrememe-gas.com, in which was attached a copy of the certificate of registration for Extreme and asking, “[W]hen can we expect the contract to be switched over to us so that we can start working on the schedule.” On September 14, 2016, Faye Doiron, Manager, Finance and Admin from the Government of Yukon wrote in an email to Sheila Stockton, Director Capital Development, that “[a] request was made by Jesse Ubhi and Rovind Bahra to change to the contract C00033517 from Edgetch to Extreme Gas. This was not done, as no legal documentation has been provided” (emphasis in original). Jesse denies having a conversation with Yukon and states that it was Rovind. On September 14, 2016, Blair Rawlings, Superintendent of Maintenance, sent an email to Sheila Stockton saying that he knew that on August 8, 2016, Colin was contacted by Jesse and Rovind and said that Edgetch was restructuring and had changed its name to Exteme Gas Detection.
10. On August 10, 2016, Arjun and Vic attended a meeting with an Edgetch client, the City of Brampton. Vic had resigned on August 2, 2016, and was working with Extreme. The minutes of the meeting reflect that the client was told that Edgetch was closing out and passing on all responsibilities to Extreme, that Edgetch staff was moving over to Extreme and that Jesse was the only contact currently with Edgetch. Jesse states that the Minutes of the meeting are “a fraudulent document created by someone”. Arjun states that the Minutes of the meeting contain falsehoods.
11. On August 11, 2016, Arjun emailed a client, from arjun.bahra@extreme-gas.com, to confirm a servicing on August 17, 2016. On August 18, 2016, Arjun sent an email from the same email address to the client, with a report confirming the gas servicing. In an earlier email to the same client, on August 11, 2016, James, from his extremecalibrations.com email address, referred to Arjun as “our service manager”.
12. On August 11, 2016, Arjun signed a subcontractor safety agreement between Extreme and one of Edgetch’s clients.
13. On August 11, 2016, Jesse’s wife, Neha, left for one week of vacation. She never returned to Edgetch. Neha states that she does not know what Extreme is.
14. On August 11, 2016, a client of Edgetch sent an email to Jesse requesting additional work to be completed. On August 16, 2016, Jesse responded (to the same firm but to a different employee) by writing, “We are not going to be providing anymore services to [the client] so please go ahead and cancel this account.” On one of the laptops returned by the defendants in accordance with my previous order, contract application forms for this client were prepared by Extreme on August 15, 2016, with James listed as the contact.
15. On August 14, 2016, Arjun sent an email to an Edgetch client soliciting work on behalf of Extreme. He wrote, “[Y]ou are probably already aware of the changes that are happening at Edgetch. If you have any further questions, then please speak to Jesse by calling him on his cell phone”. Arjun’s email address is listed as arjun.bahra@extreme-gas.com and his signature line includes his contact information at Extreme. Arjun was still an employee of Edgetch.
16. On August 16, 2016, someone using the email address service@extreme-gas.com emailed an Edgetch client regarding business that Extreme was doing for them. Arjun’s Edgetch email account was copied on the e-mail.
17. On August 18, 2016, James sent an email to the regional sales manager of Honeywell thanking him for signing Extreme up as a distributor for Honeywell and enclosing a purchase order for parts, at least some of which were required as soon as possible.
18. On August 19, 2016, Arjun and Rovind penned letters of resignation. Arjun’s letter was to the effect that his last day would be August 19, while Rovind’s letter stated that his last day would be August 21. Aman submitted an undated letter of resignation. Aman is a family friend of Jesse’s. In terms of these resignations, the stated reasons include the ongoing conflict with the partners, to further advance a career and “other factors” that have affected employee growth with Edgetch. The resignations coincide with Extreme becoming an authorized distributor for Honeywell. The letters were received on August 22, 2016. Arjun states that he, Vic, Rovind, Aman and Micky all left Edgetch around the same time and all started working for Extreme. He further states that they had no discussions about it and that he had no idea why the other employees left. Arjun also claims that he is working for free at Extreme and that he has never sent a client to Extreme. Jesse admits that he refused to let Edgetch hire new technicians in accordance with the USA, despite a clear need to.
19. On August 19, 2016, Edgetch stopped paying Jesse’s salary. Edgetch also stopped Jesse’s and his wife’s medical benefits. IT changed the passwords to Jesse’s Edgetch email account. Edgetch opened a new bank account without notice to Jesse and upon which he has no signing authority.
20. On August 22, 2016, Jesse was overheard by an investigator retained by the plaintiffs. He stated, “I spoke with Honeywell this morning, they told me they don’t care about the internal problems happening at Edgetch right now, they are happy to have Extreme be a supplier for them.” He further stated, “I don’t care about the 1.5 million dollars, I can make that back in no time with Extreme, there is so much business out there.” On the same day, Jesse and another were observed going to Arjun’s residence and being given a brown box. Jesse and Arjun were observed speaking briefly.
21. On August 23, 2016, Jesse was observed by an investigator retained by the plaintiffs being picked up by Micky with his car. Later that day, Jesse was observed going to the residence of Arjun. He was seen to be there for about two and a half hours and Micky was briefly there as well.
22. On August 23, 2016, an Edgetch client sent an email to Jesse (at his Edgetch email address) writing, “Further to our telephone conversation this morning, this is to confirm that PO 5561 has been cancelled. In addition, all future inspection work has also been cancelled.” Jesse forwarded it to Randy’s Hotmail address.
23. On August 24, 2016, an investigator retained by the plaintiffs observed Rovind meeting Arjun briefly at Arjun’s residence.
24. On August 24, 2016, Jesse sent an email to Thomas asking him to handle an Edgetch client, “[A]s I am no longer going to be here.”
25. On August 25, 2016, a third party was observed by an investigator retained by the plaintiffs leaving Arjun’s residence with a box with “Honeywell” on it.
26. On August 25, 2016, Arjun sent an email to an Edgetch client writing, “As per our discussion, please see all our company information below.” The contact information for Extreme was listed. Arjun writes further, “As I mentioned, the pricing will remain the same as before.” On September 29, 2016, the client sent an email to Randy. She wrote, “I had received a phone call … stating that the company Edgetch was no longer in service, but had broken up into two new companies. Extreme gas being one of them. The PO # that he quotes is a PO I gave Edgetch back in July. So I wasn’t too concerned when he called in August because I hadn’t heard back from anyone at Edgetch about a service call date and a split up of a company would explain the delay.”
27. On August 26, 2016, Aman was observed by an investigator retained by the plaintiffs going to an address and telling a security guard that he was changing sensors in an underground parking lot. On August 28, 2016, the investigator documents that Extreme service stickers had been placed on numerous sensors at this address. The investigator removed one sticker completely, which revealed an Edgetch sticker underneath; two more Extreme stickers were partially removed, which also revealed Edgetch stickers underneath.
28. On August 26, 2016, Jesse sent Thomas and Randy a letter of intent agreeing to sell his one- third interest in Edgetch for $10, in exchange for a release indemnifying him from his legal obligations to Edgetch. The letter of intent included an agreement that Jesse would not be required to sign any documents which restrict him from competing with Edgetch and would be allowed to openly compete with Edgetch without restriction or conditions.
29. On August 30, 2016, Arjun sent an email to an Edgetch client, writing, “Due to the ongoing issues between Shareholders & Directors of Edgetch, key sales personnels and technicians that have been taking care of your sites are all at Extreme Gas Detection Inc. … Rest assured, we will continue to provide and support the service we have been providing in the past at the same price. I would also like to inform you that Extreme Gas Detection Inc is an authorized Honeywell Analytics distributor and service provider.” On September 8, 2016, another representative of the same client emailed Randy to say that Jesse had said to contact Arjun, “[I]f I have issues with getting work done”, although Jesse had not stated that Arjun was with Extreme.
30. On August 31, 2016, Jesse sent an email to an Edgetch client from his Gmail account cancelling outstanding purchase orders with Edgetch. He wrote, “I will have someone email you the revised POs to service the systems at 3 Bay and FESTI and a separate quote to replace the 14 CO2 sensors at Cargo.”
31. On September 1, 2016, Jesse was served with the Statement of Claim. Jesse states that he only became aware of Extreme through the litigation.
32. On September 15, 2016, Jesse incorporated Gasense Inc. (“Gasense”). Jesse states that he is competing with Edgetch through Gasense but that he is entitled to do so as the plaintiffs have effectively repudiated the USA. Jesse also admits to having used Aman as a contractor for Gasense on one job.
33. On September 15, 2016, Jesse provided his legal counsel with two purchase orders for Edgetch clients. Jesse’s counsel emailed the purchase orders to plaintiffs’ counsel, asking him to confirm that Edgetch will attend to the work.
34. On September 21, 2016, Jesse emailed an Edgetch client from jesse.ubhi@gasense.ca, saying, “I am no longer managing Edgetch. My new company name is Gasense Inc … I have the staff that have been looking after your sites and access to the Honeywell product line. We would like the opportunity to continue to look after your sites as we have in the past.”
35. On September 22, 2016, Jesse sent an email from the gasense.ca address to thank a client for “choosing to continue to work with me.” Attached was a quote for the “supply and installation of new CO system.”
36. On September 27, 2016, Randy spoke with a client who advised him that he had been buying equipment from Extreme and stated that “the reason for that is I didn’t think you guys were around anymore”. He went on to state, “I just assumed that, you know, Jesse was going over to Extreme Gas Detection and that’s where the business was headed, and that’s where I was going to go because Jesse was my contact and he was the only one that I knew from your company.”

[13] The following are admissions made on cross-examination:

1. Jesse admits he approached Edgetch customers after he got set up with Gasense.
2. Jesse admits that Gasense has done business for a former Edgetch client.
3. Jesse admits Gasense is in the same business as Edgetch.
4. Jesse admits that he may do business in the future with an Edgetch client.
5. Jesse admits that he sent work to Extreme before the litigation began.
6. Jesse admits that after starting to operate Gasense, he used Aman as a contractor for one job.
7. Arjun admits that he, Vic, Rovind, Aman, and Micky all left at around the same time and started working for Extreme.
8. Arjun admits that he went to the City of Brampton prior to his resignation and that he took Vic, even though he was already working at Extreme.
9. Arjun admits that he helped Extreme get an Edgetch client to help Vic.
10. Arjun admits that he and James check the service@extremegas.com email account.
11. Arjun admits that another Edgetch client started using Extreme after Arjun left Edgetch and he says that Vic set this up.
12. Arjun admits to contacting an Edgetch client for Extreme while working at Edgetch, using the arjunbahra@extremegas email account.
13. Micky admits to “going to some of the same customers” that he used to see while at Edgetch, for Extreme, under the direction of Arjun, “because a lot of the customers deal with the same buildings.”
14. Micky admits that Jesse told him, “Delete everything”, in relation to his Edgetch laptop before returning it.
15. Aman admits that he has worked for Extreme and Gasense.
16. Aman admits that he is servicing former Edgetch clients while at Extreme.
17. James admits he is working with Jesse.
18. James admits that Vic recommended he get access to Honeywell products.
19. James admits to providing services through Extreme for former Edgetch clients that were brought over by Arjun and Vic.

[14] Counsel for the defendants argues that there are no proprietary marketing or business techniques that Edgetch used to solicit customers. He submits that Edgetch’s start up and service reports contain information that is easily obtained directly from customers and is generally offered by customers, upon request, to any service providers, especially competitive service providers who request it, as this facilitates customers’ efforts to secure competitive quotes from different service providers before awarding the work. I disagree. Edgetch recorded their clients’ specific products, pricing and servicing requirements. I accept that it is information critical to the company, permitting it to know the clients’ needs and when these needs must be addressed. It is not sufficient to say that the remaining shareholders could have called their clients to ask about products, pricing or when servicing was due.

[15] Neha and Arjun worked for Edgetch from Jesse’s home office. Neha had the database of all clients, which included all upcoming scheduling for servicing, and she would update the database every evening. The documentary evidence reflects the use of this information, including service reports, start-up reports and the excel service database to solicit business on behalf of Extreme. I do not accept Arjun’s claim to recall highly particular pieces of confidential information from memory. In cross-examination, Arjun was not able to advise what client required service the next week. Jesse and Arjun both refer to “records” when approaching Edgetch clients on behalf of Extreme, to advise that service is due or a contract was expiring. Edgetch or previous pricing is referred to in emails soliciting Edgetch clients for Extreme.

[16] The defendants competed with Edgetch through Extreme. It is not sufficient for the defendants to now say that the remaining shareholders could have just called their clients to retrieve information tracked and saved by Jesse and former employees for the benefit of Edgetch. The documentary evidence reflects the use by the defendants of Edgetch’s proprietary information to solicit Edgetch’s clients and compete with its business. It put them in a position to harm the business of Edgetch as it gave them the opportunity to reach out and schedule the service required in accordance with the information retained.

Legal Analysis

[17] I have found that the evidentiary record on this motion demonstrates that in August 2016 and contrary to the USA, Jesse took active steps to solicit Edgetch’s employees and James and Edgetch’s clients and compete with the business of Edgetch through Extreme with the use of confidential information. It is within this factual context, therefore, that the relevant legal tests on this motion are analyzed.

[18] The issue before the court is whether an interim injunction should be granted against the defendants, and if so, on what terms.

[19] The plaintiffs’ motion was served prior to the incorporation of Gasense. The plaintiffs therefore seek an order granting leave to add Gasense as a defendant to the proceeding, along with the appropriate amendments to the allegations set out in the Statement of Claim. I see no reason not to grant the plaintiffs’ request in this regard in accordance with rr. 5.04(2), 5.03(4) and 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. I heard no opposition to this request expressed by counsel or the defendants.

[20] The moving party seeks injunctive relief to restrain the responding parties from possessing or using Edgetch’s confidential information and an interim order enforcing the pertinent clauses of the USA against Jesse. The plaintiffs seek a further interim order enjoining the remaining defendants from competing with the business of Edgetch for a period of 12 months.

[21] The test for an injunction requires the party seeking an injunction to establish the following:

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

(b) that the party seeking the injunction will suffer irreparable harm if the injunction is not granted; and

(c) that the balance of convenience favours the party seeking the injunction pending trial of the issues between the parties: RJR – MacDonald Inc. v. Canada (A.G.), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at p. 334.

(a) Serious Issue to be Tried

[22] Depending on the circumstances of the case, the first branch of the RJR – MacDonald test involves either a low threshold, requiring only that the plaintiffs show that their claim is not frivolous or vexatious and stands a reasonable chance of success at trial or a higher threshold of a strong prima facie case.

[23] In GDL Solutions Inc. v. Walker, 2012 ONSC 4378, at para. 28, the court recognized that at that time “the caselaw is divided as to whether the ‘strong prima facie case’ or the ‘serious issue to be tried’ standard is applicable to restrictive covenants.” At para. 29, the court indicated that one line of cases held that the stronger standard should be applied in “the context of an employment agreement and of a sale of a business”, but where it is met, the second and third parts of the test carry less “emphasis” (citations omitted).

[24] This was largely reiterated in the more recent decision in TSI International Group Inc. v. Formosa, 2015 ONSC 1138, at para. 84, where the court stated that in terms of restrictive covenants in employment agreements or where a business has been sold that “if the higher standard is met, less emphasis is placed on the second and third parts of the injunction test” (citations omitted).

[25] In Accreditation Canada International v. Guerra, 2016 ONSC 3595, at para. 40, the court stated the following:

Courts have been divided on whether the “serious question” or “strong prima facie case” test should apply when considering restrictive covenants in the employment context. Most recently, Ontario courts have adopted the stricter “strong prima facie case” test (See: Ontario Graphite Ltd. v. Janik, 2016 ONSC 716, at para 50; Lockwood Fire Protection Ltd. v. Caddick, 2015 ONSC 6320, at paras 34-37). [Emphasis added.]

[26] Similarly in FLS Transportation Services Inc. v. Charger Logistics Inc., 2016 ONSC 3652, at para. 18, the court broadly stated that the strong prima facie test applies “where an employer seeks to place restrictions on a person’s ability to engage in their chosen vocation and to earn a livelihood” (footnotes omitted). The court went on to state, at para. 18, that this standard is the correct one “regardless of whether the basis for the restriction on an employee is based on a contract or a common law cause of action such as breach of fiduciary duty or breach of confidence” (footnotes omitted).

[27] In FLS Transportation, the court had cited the earlier decision in Optilinxs Systems Inc. v. Fiberco Solutions Inc., 2014 ONSC 6944, 123 O.R. (3d) 602, a case which shares some similarities to the present one. In Optilinxs, the plaintiff sought an injunction prohibiting two former employees from selling to two of its customers. The court, at para. 2, noted that one of these employees, despite never having signed a non-competition or non-solicitation agreement and not being “senior management”, was alleged to have breached his fiduciary duty. The court went on to state, at para. 2, that the other employee was “just a former employee” who was accused of assisting the other’s fiduciary breach. Despite the absence of a non-competition or non-solicitation agreement or shareholder agreement, the court, at paras. 6-8, adopted the strong prima facie test, noting that this “is the measure used for determining whether it is appropriate to enforce a restrictive covenant in an employment context and thus interfere with an individual's cherished ability to make a living and to use his or her knowledge and skills obtained during employment” (citations omitted).

[28] The cases focus on the result of the enforcement of the covenant when adopting the strong prima facie test. In my view, it is the result, interfering with an individual's ability to earn a livelihood, that properly informs the analysis. In this case, the restrictive covenant was agreed to by shareholders of equal bargaining power in a commercial context and not by an employee as a condition of employment or in the context of a sale of business. I conclude nonetheless that the strong prima facie test still applies as the consequence remains consistent in that the shareholder is restricted in his ability to make a living.

[29] Considering the pleadings and the relief sought on this motion, therefore, it is the higher threshold of a strong prima facie case that is applicable to the first branch of the RJR MacDonald test.

Jesse

[30] Jesse is the only defendant that was contractually prohibited from soliciting Edgetch’s clients or employees. He is the president and director of Edgetch. As set out above, I have concluded that the evidentiary record before me establishes on a balance of probabilities that Jesse breached the USA and his fiduciary duties as shareholder and director by soliciting clients and employees of Edgetch and using confidential information to compete directly against Edgetch. While the evidence remains in its early stages and there has been some reliance on hearsay, the plaintiffs have established a strong prima facie case as against Jesse.

[31] I make this conclusion in the context of what I find to be reasonable restrictive covenants in the USA. In Wild Rose, at para. 53, the court found on a prima facie basis that a three year restriction on competition and solicitation resulting from restrictive covenants in a shareholders’ agreement were enforceable. Specifically, as the court stated, at para. 40, since Andres Incorporated had been a shareholder of a successful business for eight or more years, “In that context and given the constraints of this kind of business, a three-year prohibition on competition and solicitation of customers after it ceases to be a shareholder would be reasonable” and, at para. 45, “Mr. Andres was more than an employee: he was one of the founding shareholders of the business. This was not a conventional employment relationship.”

[32] Further, in Brand Solutions By Promotion Solutions Inc. v. Elsey, 2015 ONSC 2895, the court found, at para. 46, that a five year restrictive covenant in a shareholders agreement was reasonable. The court indicated, at para. 45, that there was no “sale of assets” and that the agreement “was of a commercial nature,”…“both parties to the agreement operated separate businesses. They entered into an arrangement under which both parties brought different attributes to the table, but hoped that the synergy between the businesses operated by each party would result in increased business and increased revenue.”

[33] In this case, the USA is a commercial contract amongst business partners of equal bargaining power bringing different and complimenting skills to the relationship. At the commencement of their relationship, the partners negotiated and agreed to the terms therein. It must be presumed that they did so with knowledge of the industry and in a manner that reasonably reflects the risks inherent in their business. The court ought not to impose its views on reasonableness years later upon the breakdown of the relationship, unless the contract was entered into unfairly or circumstances occurred in the interim that could not have been reasonably foreseen at the time of the contract. There is no such evidence on this motion. Further, the territorial scope is limited and does not extend to all territories within which Edgetch does business.

The Remaining Defendants

[34] None of the remaining defendants were contractually prohibited from soliciting Edgetch’s clients or employees or prohibited from competing with Edgetch upon leaving the company. As set out at paras 46 to 51, however, as they assisted Jesse in the breach of his fiduciary duties, they too are liable for the breach.

[35] The remaining defendants have denied possessing or misusing any information belonging to Edgetch and submit that the information at issue in this proceeding is neither confidential nor proprietary. For reasons noted above, I disagree. The documentary evidence demonstrates a strong prima facie case that Neha, Arjun, Vic and Rovind misused confidential information for the benefit of Extreme. Aman, Vic and Micky resigned their positions without notice, in order to work for Extreme. James incorporated Extreme. Extreme’s business was founded, at least in part, on the misuse of confidential information. By their very employment with Extreme, therefore, the former employees can be said to have misused confidential information for the benefit of a competitor. The plaintiffs have established a strong prima facie case that the defendants have misused confidential information.

(b) Irreparable Harm

[36] As the plaintiffs’ have established a strong prima facie case, the second and third branches of the RJR – MacDonald test carry less emphasis.

[37] As the Supreme Court in RJR – MacDonald found, at p. 341, irreparable harm refers to the type of harm in question, not the amount; irreparable harm exists where the harm is financially unquantifiable or is unfixable once it has occurred. The Supreme Court went on to say, at p. 341, that unquantifiable harm includes cases “where one party will be put out of business by the court’s decision” and “where one party will suffer permanent market loss or irrevocable damage to its business reputation” (citations omitted).

[38] The defendants submit that any proven harm to the plaintiffs can be quantified by either calculating the income that the defendants would have earned for Edgetch, based on historical performance or the income earned by the defendants from any clients of Edgetch that the defendants are found to have improperly solicited. I disagree. Determining the harm to a company as a result of the misuse of confidential information to solicit clients and compete is more complex than a mathematical calculation. It involves an assessment of intangibles such as permanent loss of market share.

[39] At his cross-examination, Taylor testified that Edgetch now has approximately 11 employees and 2 independent contractors and has the work to support those employees. Before the law suit, Edgetch had approximately 11 staff members. Taylor was requested to produce Edgetch’s monthly sales and expense reports from July to the present, but this was refused. The defendants argue that this demonstrates that there is no evidence that Edgetch is actually suffering any financial harm.

[40] Irreparable harm, however, refers to the nature of the harm suffered. It is harm that cannot be quantified in monetary terms or which cannot be cured. The defendants used confidential information to solicit Edgetch’s clients and compete against it. In doing so, they increased Edgetch’s competition and consequently reduced its market share. The extent of this damage cannot be quantified.

[41] I have concluded for these reasons that the plaintiffs have suffered irreparable harm.

(c) Balance of Convenience

[42] As the Supreme Court in RJR – MacDonald found, at p. 342, the third element of the test involves determining which of the parties will suffer the most harm from either granting or refusing the injunction. The Supreme Court went on to say, at p. 342, that the factors to be analyzed in the test are “numerous and will vary in each individual case.”

[43] Edgetch was founded in 2008. The USA was executed in January 2014 by three shareholders with knowledge and expertise in the line of business. It can be presumed that the restrictive covenants were contracted as a result of such knowledge and expertise. Edgetch developed its client base and business over its years of operation. It prepared its confidential information and worked continuously to keep it current and relevant to servicing the clients’ needs.

[44] Extreme was incorporated in July 2016. Edgetch’s former employees and one of its directors established the company, at least in part, to use Edgetch’s confidential information to solicit its clients and compete with Edgetch. Some of the solicitation took place prior to the employees leaving the company. The evidence before me demonstrates a strong prima facie case for the plaintiffs’ position as set out above. The plaintiffs have given an undertaking to abide by any order of the court concerning damages arising from the enforcement of this order.

[45] In my view, with respect to Jesse, the balance of convenience favours the plaintiffs.

[46] The plaintiffs seek an order enjoining the remaining defendants from competing with the business of Edgetch for a period of 12 months. They rely on case law that supports the proposition that employees who assist others in the breach of their fiduciary duties are also liable for the breach. Specifically, the plaintiffs rely upon Alberts v. Mountjoy (1977), 1977 CanLII 1026 (ON SC), 16 O.R. (2d) 682 (H.C.); and GDL Solutions.

[47] GDL Solutions involved GDL (an IT services business) seeking an interlocutory injunction, after discovering that Walker, the seller and former employee of that business, had, with other former employees, entered into direct competition and was soliciting firm clients. In that case, Walker had agreed to non-competition and non-solicitation clauses, as part of the agreement to sell the business, which prohibited his competition with GDL for three years after his termination and prohibited solicitation of clients and employees for five years.

[48] Following the sale of the business and after some time, Walker and other employees left the company, joining a competitor, Hudson. Hudson offered an IT service provided by only four IT companies, including GDL. The court found, at para. 86, that a prima facie case that the ex-employees other than Walker were fiduciaries was unnecessary since “there is a strong prima facie case that Walker is a fiduciary of GDL and the other named defendants are impressed with fiduciary duties by joining Walker at Hudson in a competing business.”

[49] In Alberts, a senior employee and director, Mountjoy, left an insurance agency to start a competing firm, accompanied by more junior employees. Mountjoy was found by the court, at p. 692, to have been a fiduciary of the former employer. Moreover, the court, at p. 692, found that the lower ranked employee’s act of joining Mountjoy in a business which was taking opportunities from the previous employer “fixed him with the same fiduciary duty as Mountjoy.”

[50] Jesse was an owner and director of Edgetch. His efforts to thwart the obligations of his restrictive covenants were not only assisted by the remaining defendants; the success of his efforts depended entirely on the participation of the remaining defendants. The remaining defendants are not relieved of their critical conduct because their employment status may otherwise be something less than a fiduciary. Rather, it is the conduct itself that attaches them to the fiduciary (Jesse) and absorbs them as if they were a fiduciary themself.

[51] In terms of the remaining defendants however, which of the parties will suffer more harm from granting the injunction? Jesse contracted his restrictive covenant equipped with knowledge and expertise of the industry gained over almost seven years. The former employees resisted signing a restrictive covenant. James was an independent contractor with no restrictions on competition. If the plaintiffs’ request is granted, the remaining defendants will be left without an ability to earn a livelihood in their chosen line of business for a period of 12 months. In my view, this would result in harm to the remaining defendants far greater than the consequence of their choice to use confidential information and start a new company to assist Jesse. The plaintiffs submit that unless the remaining defendants are enjoined as requested, Jesse will be permitted to do indirectly what he is not permitted to do directly because of the USA. This concern can be addressed, however, in a less restrictive manner that balances the legitimate concern of the plaintiffs with the need of the remaining defendants to earn a livelihood. The remaining defendants will be enjoined from using confidential information to compete with Edgetch and enjoined from competing with Edgetch in association with or on behalf of Jesse, Extreme or Gasense.

Order to Go:

[52] Order to go as follows:

(a) An interim and interlocutory injunction restraining the defendants, Jaswinder Singh Ubhi, Surinderjit Singh, Neha Ubhi, Rovind Bahra, Amanjot Singh Swaich, Arjun Bahra, Harminder Singh Bhinder, James Huang and Extreme Gas Detection Inc. and any and all persons acting on behalf of the Defendants, from directly or indirectly, by any means whatsoever, possessing, disclosing, using, copying, transmitting, publishing or divulging to any third party in any way any of Edgetch’s confidential and proprietary information including, but not limited to, Edgetch’s: (i) trade secrets; (ii) marketing techniques and strategies; (iii) pricing and sales policies, techniques and concepts; (iv) information of present and prospective clients including: (A) names, addresses and other contact information; (B) buying information and history, including any product upgrade information; (C) service information and history; (D) buying and service habits and preferences; (E) products and models installed, site of installations, and location of installations; (F) warranty information; (G) invoicing, pricing and payment information; and (H) prior quotation history; (v) accounting and financial information; (vi) names, addresses, individual contact information and preferences of suppliers; (vii) reports, excel databases or spreadsheets containing any of the above information; and (viii) other confidential information whatsoever concerning the business, affairs, operations, or finances of Edgetch (the “Confidential Information”);

(b) an order that, to the extent it has not been delivered, by no later than December 16, 2016, the Defendants shall deliver to the lawyers for Edgetch any and all copies of the Confidential Information, whether in electronic or other form, that they took from Edgetch or that was divulged to them in any way, and that is in the possession of the Defendants;

(c) an order, for a period of three years restraining the defendant, Jaswinder Singh Ubhi, from: (i) any direct or indirect competition with the business of Edgetch within the territory of Canada, including through Extreme Gas Detection Inc. and Gasense Inc.; (ii) any direct or indirect attempt to solicit any employees – including Surinderjit Singh, Neha Ubhi, Rovind Bahra, Amanjot Singh Swaich, Arjun Bahra, Harminder Singh Bhinder – agents, or salespersons or otherwise take any action with the intention that, by doing so, the relationships or dealings of Edgetch may be impaired; (iii) any direct or indirect attempt to solicit any contractor, client, supplier, or dealer of Edgetch to stop selling to, buying from, or dealing with Edgetch or otherwise take any action with the intention that, by doing so, the relationships or dealings of Edgetch may be impaired; or (iv) any direct or indirect attempt to solicit or induce any contractor, client, supplier, agent or dealer of or relating to Edgetch to provide products or services to or to accept business, unless it is for Edgetch.

(d) an order enjoining the defendants, Surinderjit Singh, Neha Ubhi, Rovind Bahra, Amanjot Singh Swaich, Arjun Bahra, Harminder Singh Bhinder, James Huang and Extreme Gas Detection Inc. from competing with the business of Edgetch within the territory of Canada on behalf of or in association with Extreme Gas Detection Inc. and Gasense Inc. and Jasminder Singh Ubhi;

(e) an order enjoining the Defendants from using the Confidential Information to, directly or indirectly, on their own behalf, or on behalf of or in association with Extreme or any third party individual or entity, to compete with Edgetch;

(f) an Order granting leave for the plaintiffs to add Gasense Inc. as a defendant to this proceeding along with the appropriate amendments to the allegations set out in the Statement of Claim;

(g) an Order extending the time for service of the Amended Statement of Claim for 90 days after the date of the Order;

(h) The court will receive written submission on the costs of this motion should the parties not be able to agree on an appropriate costs award. Submissions shall be served and filed by the Plaintiffs within 30 days followed by the Defendants within 20 days thereafter. A reply, if any, shall be served and filed within 10 days.

(i) I shall remain seized of any issue pertaining to the enforcement of this order.

V.R. Chiappetta J.

Released: December 7, 2016