Jamuna Foods v. Meghna Pacific International Inc., 2016 ONSC 7625

CITATION: Jamuna Foods v. Meghna Pacific International Inc., 2016 ONSC 7625

COURT FILE NO.: CV-16-561585

DATE: 20161209

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1890194 ONTARIO INC., operating as JAMUNA FOODS Plaintiff/Moving Party

AND:

MEGHNA PACIFIC INTERNATIONAL INC., and SHAFIQUL ALAM KHAN Defendants/Responding Parties

BEFORE: Lederer J.

COUNSEL: Niiti Simmonds and Cenobar Parker, for the Plaintiff/Moving Party Alamgir Hussain, for the Defendants/Responding Parties

HEARD: November 28, 2016

ENDORSEMENT

[1] This is a motion for an interlocutory injunction. The moving party (the plaintiff in the action) is seeking to enjoin the defendant from selling white fish in contravention of a clause in an agreement which requires that the defendant not compete with the plaintiff.

[2] The plaintiff, 1890194 Ontario Inc., operates as Jamuna Foods (“Jamuna”) and is in the business of importing, selling and distributing frozen fish under the brand name, “Rose Brand”, in addition to other food products, such as frozen vegetables and snack foods. The plaintiff purchased Rose Brand, along with related inventory and assets, from the defendant, Meghna Pacific International Inc. (“Meghna”), on March 28, 2013. The purchase price was $900,000. Shafiqul Alam Kahn is a principal of Meghna. As a term of the agreement, both Meghna and Shafiqul Alam Kahn were prohibited from competing with Jamuna in the sale of white fish:

The Vendor shall have entered into a non-competition covenant and non-solicitation agreement on closing, for a term of (7) seven years within the territory of Canada, with respect to the business of the wholesale of white fish.[^1]

[3] A Letter of Intent had been executed between the parties on January 16, 2013. It specifically acknowledged that Meghna was, at that time, the lawful owner of the “Rose Brand frozen fish and other food products in the market”[^2] and that Meghna intended to sell all of its business assets to Jamuna. The Letter of Intent specifically provided that Jamuna was to “buy the business”, including its “total inventory” and complete operations. As demonstrated by the Letter of Intent and stated, on behalf of the plaintiff, the intention of the parties was that Jamuna would assume Meghna’s place in the market.[^3] Like the Purchase and Sale Agreement which followed it, the Letter of Intent included a commitment by the seller (Meghna), not to compete with the buyer (Jamuna):

Seller will furnish non-competing agreement for 7 years that the seller or any associated affiliate will not seek or supply any product to anyone other than the buyer that constitute competing in nature to the buyer’s business.[^4]

[4] In an affidavit, sworn on October 24, 2016, Iftikhar Hossain, the Director of Operations of the plaintiff (the moving party), deposed that shortly after the completion of the sale, Shafiqul Alam Kahn began interfering with the business. The affidavit recounts that, after the closing and separate from the agreement, the plaintiff agreed to make use of a warehouse that had been utilized by the defendant when it operated the business. It became apparent that the warehouse was inadequate for the purpose. It seems that when Shafiqul Alam Kahn became aware that the plaintiff had begun looking for alternative warehouse space, he arranged for the locks of the warehouse to be changed disrupting the operation of the business. The plaintiff commenced an action and obtained an injunction granting it access.

[5] Subsequently, in and around June 2013, it became apparent to the plaintiff that Shafiqul Alam Kahn was importing and distributing frozen fish products contrary to the terms of the Purchase and Sale Agreement. A second legal proceeding was commenced: this one to enforce the non-competition provision of the Purchase and Sale Agreement. There was a mediation. Both actions were settled. The settlement amended but confirmed the undertaking of the defendant not to compete. The parties agreed that:

Meghna and/or Shafiq [Khan] shall not compete with Jamuna for at least four (4) years from the date of this settlement, in the importation and distribution of white fish in Canada, under any brand name, directly or indirectly, whether in person or through corporate capacity or any other capacity, and whether as principal, consultant, agent, employee or director of a company, traveller, servant, or otherwise carry on, or be engaged or concerned or take part in the business of white fish sale and/or distribution in Canada. In the event that Meghna and/or Shafiq [Khan] shall fail to observe or perform this agreement Shafiq [Khan] and/or Meghna shall pay to Jamuna, its successors, assigns or other, a sum of money representing loss of revenue, profit and costs suffered by Jamuna for any disruption during the period of four (4) years for which this settlement runs, as liquidated damages.[^5]

[6] Despite these difficulties, effective October 1, 2013, the plaintiff hired Shafiqul Alam Kahn as its General Manager. Problems developed. Iftikhar Hossain concluded that Shafiqul Alam Kahn was doctoring invoices such that less was being charged by suppliers for inventory than Shafiqul Alam Kahn was using to pay for it. The concern was that he was keeping the excess for his own use. Shafiqul Alam Kahn was terminated on July 31, 2016.

[7] It is said, on behalf of the plaintiff, as the moving party, that in the months since his termination, Shafiqul Alam Kahn has been competing with the plaintiff in breach of the Purchase and Sale Agreement and the Minutes of Settlement. It is on this basis that the interlocutory injunction is sought.

[8] At the outset, the plaintiff sought an injunction, not only with respect to the sale of white fish but also other products, particularly frozen vegetables. There is a difference. Unlike white fish, frozen vegetables were not the subject of the non-competition clause found in the Purchase and Sale Agreement or the Minutes of Settlement. The imposition of non-competition is a form of restraint of trade. The court is cautious about imposing such limitations. Counsel for the plaintiff proceeded only with respect to white fish.

[9] The test for an interlocutory injunction is well-known. There are three questions:

(a) Is there a serious issue to be tried or, where applicable, is there a strong prima facie case?

(b) Is the applicant likely to suffer irreparable harm if the injunction is not granted?

(c) Does the balance of convenience favour the applicant?[^6]

(a) Is there a serious issue to be tried or is this a case where a strong prima facie case is required?

[10] Generally, the first question reflects on the strength of the case of the plaintiff. For most cases, the test is whether there is a serious issue to be tried. This is a low threshold. It concerns whether the plaintiff or applicant has a viable claim. There are cases where a higher threshold is to be met. In such circumstances, the question is whether a strong prima facie case is demonstrated. “The strong prima facie standard is the measure used for the determination whether it is appropriate to enforce a restrictive covenant by an injunction that would restrain an individual’s ability to make a living and to use his or her knowledge and skills to obtain employment.”[^7] At first, this might seem to apply the higher standard to this case; in particular, to the impact of the injunction on Shafiqul Alam Kahn. It does not. The cases differ as to the impact of a non-compete clause, found in an employment contract, on a departing employee and the impact of this kind of clause on a contract that informs a commercial transaction such as the sale of a business.

[11] In Payette v. Guay[^8], the Supreme Court of Canada considered the reasonableness of a non-competition covenant in an asset purchase agreement in which the vendor subsequently became an employee of the purchaser. The Supreme Court held that, despite the presence of a subsequent employment relationship, the reasonableness of the non-competition covenant was to be assessed solely using the criteria applicable in commercial law. The basis for finding such covenants to be reasonable will be much broader in the commercial context that in the context of a contract of employment. In a commercial context, a restrictive covenant is presumed to be lawful unless it can be established on the balance of probabilities that its scope is unreasonable.[^9] The idea is that the upholding of a non-competition covenant in a commercial context is less stringent than when dealing with the immediate employment of an individual.

[12] This being so, it stands to reason that the same analysis would apply in considering the test applicable to such a clause when the issue at stake is an interlocutory injunction. To my mind, the lower test applies: Is there a serious issue to be tried? Even if I am wrong in this, it does not matter. In the circumstances of this case, the plaintiff (the moving party) has demonstrated a strong prima facie case.

[13] Prior to his termination, Shafiqul Alam Kahn arranged for the purchase of a container of white fish ostensibly on behalf of the plaintiff. He used $10,000 belonging to the plaintiff to make the required down payment.[^10] Subsequent to his termination, he took over the container and sold its contents because he “was in big trouble, no money…”.[^11] The money was used to pay charges against the credit cards of his wife.[^12] The white fish was sold for a total value of $124,191.41.[^13] The affidavit of Iftikhar Hossain, sworn on October 24, 2016 includes as an exhibit a copy of a “product label” with a production date of July 25, 2016 showing that the product it represents was imported by the plaintiff. It was not. In his affidavit, Iftikhar Hossain deposes that when he attended at the store operated by a client of the plaintiff, he saw frozen fish which he identifies as having been sold from this container, by Shafiqul Alam Kahn, contrary to the non-competition agreement to which he was subject.[^14]

[14] This is evidence which demonstrates that there is a serious issue to be tried. In fact, this circumstance is demonstrative of a strong prima facie case. Counsel for the defendants does not agree. He says that the credit card debt which was paid off arose because the plaintiff refused to accept the container, thus leaving it to Shafiqul Alam Kahn to deal with. Counsel submitted that Shafiqul Alam Kahn did this by completing the purchase, through use of the credit card, selling the product and paying off the debt associated with the purchase. There is no evidence confirming this other than an unsubstantiated statement that “[t]he defendants made several attempts to contact the plaintiff but failed. Finding no other alternative, the defendants made the shipment on behalf of Meghna and paid penalties from his own pocket.”[^15] So far as I can see, the exhibit referred to as support for this does not do so.[^16] Iftikhar Hossain does say that Shafiqul Alam Kahn sent him a text message indicating that he had a container for which the plaintiff had paid the $10,000 deposit. Iftikhar Hossain goes on to explain that it could not be accepted by the plaintiff unless Shafiqul Alam Kahn could provide the original documentation. Without it, Iftikhar Hossain advised that it should be returned to the supplier.[^17] This does not stand as a waiver of the non-competition clause.

[15] This was not the first container which raised a concern as to the continuing activities of Shafiqul Alam Kahn. A container had been shipped on July 18, 2015 from May Yu Marine Products Co., Ltd. It had been ordered by Shafiqul Alam Kahn. The initial invoice presented by Shafiqul Alam Kahn to Iftikhar Hossain indicated a purchase price of $93,372 for 1,259 boxes of fish.[^18] The packing list which was also supplied indicated that 50 boxes of Balachung fish had been included in the shipment. These 50 boxes were not referred to on the invoice.[^19] The unpacking report provided by the warehouse of the plaintiff recorded having unloaded 1,208 boxes of fish.[^20] Where are the missing 50 boxes? The implication drawn by the plaintiff is that they were retained by Shafiqul Alam Kahn to be sold, by him, in violation of the obligation not to compete.[^21] This additional evidence strengthens the prima facie case already demonstrated.

[16] There was yet another container which was of concern to the plaintiff. It was ordered by Shafiqul Alam Kahn on behalf of the plaintiff from a company, located in Bangladesh, and operated by the brother-in-law of Shafiqul Alam Kahn. The container was ordered, on or around July 17, 2016. The plaintiff paid $42,800 as a deposit.[^22] Shafiqul Alam Kahn provided the plaintiff with an invoice for this container. It stated that 1,762 boxes were being shipped for a total price of approximately $96,758.[^23] Iftikhar Hossain was concerned as to the accuracy of this invoice. He asked Shafiqul Alam Kahn for the original invoice from the supplier. This one indicated that approximately 1,600 boxes of product was purchased for a total price of about $87,654.[^24] On being asked about these discrepancies, Iftikhar Hossain reported in the affidavit he deposed that Shafiqul Alam Kahn threatened to sell the container to someone else if full payment was not provided right away.[^25]

[17] The response of counsel for the defendants was to say only that there was no evidence in support of the allegations concerning the further two containers.

[18] To my mind, they serve to confirm that there is a serious issue to be tried, namely, whether the defendants breached the non-competition clauses of the Purchase and Sale Agreement and the Settlement. A strong prima facie case has been presented.

(b) Is the applicant likely to suffer irreparable harm if the injunction is not granted?

[19] The plaintiff purchased the business. In order to ensure that it could maintain its place in the market, it required the inclusion of the non-competition clause. If the defendants are allowed to continue to sell white fish in the face of this clause, it will be difficult to sustain that position and impossible to recover it once the time limitation that is part of the clause has passed. In effect, the plaintiff will lose precisely what it contracted for when it bought the business.

(c) Does the balance of convenience favour the applicant?

[20] The balance of convenience is connected to the concern for irreparable harm. There is evidence that the defendant has continued to be active in the applicable market, as part of his employment by the plaintiff subsequent to the transaction being completed, and, it would seem, his activities outside that employment. The mediation resulted in the settlement that took place “[i]n and around September 2013”.[^26] The Minutes of Settlement are undated. Assuming they were signed at or shortly after the mediation, it would seem that the four-year term imposed through the settlement will expire less than a year from now (the fall of 2017). Thus, the time that Shafiqul Alam Kahn will be out of the business will, in the end, be quite short. His risk is relatively small. If there is no injunction and Shafiqul Alam Kahn is permitted to compete, the impact on the plaintiff will continue and the opportunity to recover rendered smaller than it is today, much less what was initially expected. The balance of convenience lies with the plaintiff.

[21] For the reasons reviewed herein, the motion is granted. The defendants are both enjoined from competing with the plaintiff in the sale of white fish. The injunction order will issue only if it is accompanied by a written undertaking as to damages made by the plaintiff to the court in respect of any damages that may be caused to the defendants in the event that, at the end of this proceeding, they are found not to be bound by or, if bound, not to have breached the non-competition clause.

Costs

[22] The moving party is the successful party. A Costs Outline has been presented. It seeks costs on a partial indemnity scale of (fees: $27,900, disbursements: $1,310.27 and H.S.T.: $3,797.33 totalling) $33,007.58. For his part, counsel for the responding party had no Bill of Costs or Costs Outline but indicated that, if successful, he would seek costs of $10,000.

[23] What is asked for is not outside the range of what would be reasonable in the circumstances. Nonetheless, the issue was, to my mind, quite narrow. A more careful analysis would have simplified the argument. Costs are payable by the responding party to the moving party in the amount of ($20,000 for fees and $1,310.27 for disbursements, totalling) $21,310.27, plus the applicable H.S.T.

LEDERER J.

Date: 20161209

[^1]: Purchase and Sale Agreement, at para. 3(c). [^2]: Agreement Between Meghna International Inc. And SIM Canada Impex Corp. (or a new entity to be incorporated) (the Letter of Intent) at the referral clause. [^3]: Factum of the Plaintiff/Moving Party, at para. 9. [^4]: Agreement Between Meghna International Inc. And SIM Canada Impex Corp. (or a new entity to be incorporated) (the Letter of Intent), at para. 13. [^5]: Minutes of Settlement (Court file numbers: CV-13-479626 and CV-13-488012), at para. 4. [^6]: RJR-MacDonald v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, at p. 334. [^7]: Morden and Perell, The Law of Civil Procedure in Ontario, Second Edition, LexisNexis Canada Inc. 2014, at p. 201 (para. 3.32) referencing Gerard v. Century 21 Armour Real Estate Inc., 1991 7104 (ON SC), [1991] O.J. No. 261, 4 O.R. (3d) 191 (Ont. Gen. Div.); Jet Print Inc. v. Cohen, [1999] O.J. No. 2864 (Ont. S.C.J.); Creditel of Canada Ltd. v. Faultless, [1977]; O.J. No. 2474, 1977 1043 (ON SC), 81 D.L.R. (3d) 567 (Ont. H.C.J.); Cantol Ltd. v. Brodi Chemicals Ltd., 1978 1377 (ON SC), [1978] O.J. No. 3671, 94 D.L.R. (3d) 265 (Ont. H.C.J.); Mercury Marine Ltd. v. Dillon, 1986 2602 (ON SC), [1986] O.J. No. 957, 56 O.R. (2d) 266 (Ont. H.C.J.); W.R. Grace & Co. of Canada v. Sare, 1980 1568 (ON SC), [1980] O.J. No. 2599, 28 O.R. (2d) 612 (Ont.H.C.J.); Kohler Canada Co. v. Porter, [2002] O.J. No. 2418 (Ont. S.C.J.); ADGA Systems International Ltd.v. Valcom Ltd., 1992 15384 (ON SC), [1992] O.J. No. 11, 40 C.P.R. (3d) 395 (Ont. Gen. Div.); 1259695 Ontario Inc. v. Guinchard, [2005] O.J. No. 2049 (Ont. S.C.J.); Sherwood Dash Inc. v. Woodview Products Inc., [2005] O.J. No. 5298 (Ont. S.C.J.); Boehmer Box L.P. v. Ellis Packaging Ltd. [2007] O.J. No. 1694 (Ont. S.C.J.). [^8]: 2013 SCC 45, [2013] 3 S.C.R. 95. [^9]: Ibid, at paras. 57-58. [^10]: Transcript: Cross-Examination of Shafiqul Khan at Q. 619-620 and Q. 637-639. [^11]: Ibid, at Q. 647. [^12]: Ibid, at Q. 686-687. [^13]: During his cross-examination, Shafiqul Alam Kahn undertook to provide the total value received for the sale of the fish. The court was provided with that information, being $124,191.41. [^14]: Affidavit of Iftikhar Hossain, sworn on October 24, 2016, at paras. 56, 57, 58, and Exhibit “S”. [^15]: Affidavit of Shafiqul Alam Kahn, at para. 18. [^16]: Ibid, at Exhibit 11. [^17]: Affidavit of Iftikhar Hossain, sworn on October 24, 2016, at para. 57. [^18]: Ibid, at para. 52 and Exhibit “J”. [^19]: Ibid, at para. 52 and Exhibit “K”. [^20]: Ibid, at para. 52 and Exhibit “L”. [^21]: Ibid at para. 52. 1,259 minus 50 equals 1,209, not 1208. I am unable to account for the remaining missing box. It is not referred to or explained in the record. [^22]: Ibid, at para. 53. [^23]: Ibid, at para 53 and Exhibit “M”. [^24]: Ibid, at para. 53 and Exhibit “N”. [^25]: Ibid, at para. 53 and Exhibit “O”. [^26]: Ibid, at para. 24.```