CITATION: Biosweep Canada Corporation v. 2314515 Ontario Inc., 2017 ONSC 946
COURT FILE NO.: CV-16-558790
DATE: 20170210
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Biosweep Canada Corporation, Plaintiff
AND:
2314515 Ontario Inc., Defendant
BEFORE: S.F. Dunphy, J.
COUNSEL: Chris Shorey, for the Plaintiff
undefended
HEARD: February 7, 2017
judgment
[1] This is the second attempt of the plaintiff to obtain default judgment on this claim. The first attempt was dismissed save and except two items on which I ruled. My order of December 22, 2016 was without prejudice to the plaintiff bringing back its motion on further and better evidence to obtain some or all of the balance of the relief sought but not granted. The plaintiff has now done so. Having reviewed the supplementary evidence filed, the plaintiff has not established facts on the basis of which judgment can be granted over and above the order made by me on December 22, 2016. This remainder of this action is accordingly dismissed. My reasons for so ruling follow.
[2] While a defendant noted in default is deemed to admit all of the factual allegations in the statement of claim, this deemed admission does not extend to conclusions of law. These must be well-founded based upon the facts pleaded failing which the claim must be dismissed even if undefended. The entire premise of the plaintiff’s claim is the erroneous assumption that the defendant has no legal right to possess and use equipment it had lawfully purchased from the plaintiff. The plaintiff’s rights in the equipment extended only to a contractual re-purchase option that it simply failed to exercise in accordance with its own contract. The plaintiff’s attempt to assert proprietary rights over the knowledge gained by the defendant in how to use the equipment it owned cannot succeed at law, by default or otherwise. There is no covenant pleaded or shown governing the use of the purchased equipment and attempts to characterize a “license” over simple know-how acquired from experience cannot be morphed into one.
Factual background
[3] The facts are those as pleaded in the statement of claim subject to the caveat that conclusions of law are not facts and evidence of pleaded facts may be given by way of affidavit if the claim is for unliquidated damages: Rule 19.05(2) of the Rules of Civil Procedure.
[4] The plaintiff Biosweep Canada Corporation is in the business of licensing, selling, using and marketing air and surface decontamination equipment known as the Biosweep Model 900. Biosweep Canada has the exclusive rights to the Biosweep trademark in Canada.
[5] The defendant 2314515 Ontario Inc. entered into two substantially identical License Agreements with Biosweep Canada on February 15, 2012 and February 21, 2012 becoming thereby an authorized licensee of Biosweep Canada in Peel Region and Toronto West region respectively.
[6] Each of the License Agreements was for a term of three years, expiring on February 15, 2015 and February 20, 2015 respectively. Both licenses were renewed in 2015 for one year.
[7] Pursuant to the License Agreements, the defendant purchased twelve Biosweep Model 900 machines for US$4,200 each ($50,400) and agreed to pay a monthly licensing fee of US$1,500 (US$18,000 per year).
[8] Each License Agreement provided in paragraph 4(a) thereof that “in the event that the agreement is terminated, for any reason whatsoever, [Biosweep Canada] shall have a first option to assume any and all Biosweep Equipment owned by 2314515 at the time the agreement is terminated. The option to purchase the BioSweep Equipment shall be exercised by [Biosweep Canada] within 60 days following termination of this agreement by notice in writing by [Biosweep Canada] to 2314515 of its intention to purchase…”
[9] Pursuant to the License Agreements, the license granted to 2314515 was “to sell the BioSweep Services and the trademarks, trade names and other commercial symbols” in the defined territory. The term “BioSweep Services” is defined as “certain processes and techniques pertaining to the Biosweep Equipment as set out in Exhibit “A”. Exhibit “A” reads as follows:
“BioSweep Operation Manual which includes descriptions of processes and techniques for use of the BioSweep Equipment”.
[10] The plaintiff has neither pleaded nor proved any particulars as to what constitutes the “Biosweep Services”. The BioSweep Operations Manual is not in evidence nor are any particulars of it pleaded.
[11] 2314515 stopped paying the monthly license fees and went into default by July 2015.
[12] In December 2015, 2314515 is alleged to have asserted that it was not bound by the License Agreements and it is pleaded that these were repudiated by 2314515 at that time. The statement of claim does not allege that the repudiation was accepted by the plaintiff.
[13] The License Agreements were not renewed in accordance with their terms in February 2016. The statement of claim does not specify whether the plaintiff claims the agreements were terminated in December 2015 or February 2016. Absent pleading of repudiation being accepted or the plaintiff having engaged the formal termination provisions of the two License Agreements, I have inferred from the pleading that the two License Agreements were terminated by reason of non-renewal in February 2016.
[14] The plaintiff began this action by way of a statement of claim issued on August 17, 2016.
[15] The defendant did not defend the action and was noted in default. The plaintiff brought its motion for default judgment before me on December 22, 2016. It sought:
a. The Canadian dollar equivalent of US$10,500 for unpaid monthly license fees up until the expiry of the License Agreements;
b. $450,000 in damages;
c. An injunction barring the defendant from holding itself out as an authorized licensee of the Biosweep name; and
d. An order for recovery of the Biosweep Equipment.
[16] I allowed the claim for the unpaid license fees and issued a modified and reduced version of the injunction requested based upon the factual admissions in the statement of claim. I dismissed the balance of the motion without prejudice to the motion being brought back on further and better evidence. My handwritten endorsement of December 22, 2016 reads in part:
“2. The right to the return of the equipment is subject to paragraph 4(a) which requires a notice to repurchase. There is no evidence this has been done and thus no evidence the plaintiff has any right to possession of the equipment the defendant had paid for in full subject only to a repurchase right in favour of the plaintiff.
The license is for the Biosweep Services and does not apply to use of the equipment itself which is lawful and permissible by the owner thereof until validly repurchased by the plaintiff.
The economic claim is wildly out of proportion to the fees earned by the plaintiff under the now terminated contract and are utterly incredible, particularly in light of my comments in (2) and (3) above. Annual fees paid by the defendant pre-termination were only US$18,000 per year. The damages claim and disgorgement claim of $456,353 represents several decades’ worth of fees. “
[17] The plaintiff filed an additional affidavit and has brought this motion for judgment seeking the relief I did not grant on December 22, 2016.
Issues to be argued
[18] This motion raises the following issues:
a. Is the plaintiff entitled to possession of the Biosweep Equipment?
b. Is the defendant entitled to use the Biosweep Equipment?
c. Has the plaintiff proved any damages not related to possession and use of the Biosweep Equipment?
Analysis and discussion
(a) Is the plaintiff entitled to possession of the Biosweep Equipment
[19] The plaintiff asserts in paragraph 31 of the statement of claim that the defendant ‘is not permitted to use the Biosweep Equipment”. It was urged upon me that I am obliged to accept that as an admitted fact.
[20] The argument confuses admissions of fact with conclusions of law.
[21] Pursuant to Rule 19.02(1)(a) of the Rules of Civil Procedure, a defendant noted in default is deemed to admit the truth of all allegations of fact made in the statement of claim.
[22] The statement of claim pleads that the Biosweep Equipment was sold to the defendants. It pleads the fact of the purchase option in the License Agreements but does not plead that the purchase option was ever in fact exercised.
[23] I provided the plaintiff with an opportunity to prove that fact. Of course, had the plaintiff done so, I should have had to consider whether an amendment to the pleading was required to make that claim, which amendment would have been required to be served upon the defaulting defendant: Rule 19.02(3)(a) of the Rules of Civil Procedure.
[24] The plaintiff suggests that its pleaded demands for return of the equipment should somehow be construed by me as being “equivalent” to exercising the purchase option. I cannot agree with that position. The road to ownership and control of the subject Biosweep Equipment could not have been simpler and more direct. The plaintiff had only, by the terms of its own form of contract, to issue a notice in writing exercising the right and to do so within sixty days of termination. I have given the plaintiff the benefit of the doubt by fixing the termination date in February 2016 despite the pleaded repudiation in December 2015.
[25] The plaintiff was unable to prove that it had satisfied any of the conditions for exercising the purchase option for the Biosweep Equipment owned by the defendant as provided for in its own standard form of agreement. I can only conclude that the purchase option was never in fact exercised and that the defendant is now the true and lawful owner of the equipment that is no longer subject to any purchase option of any sort.
[26] Having pleaded and admitted that the defendants are the owner of the Biosweep Equipment subject only to an unexercised right of repurchase, the pleading in paragraph 31 of the statement of claim that the defendant “is not permitted to use the Biosweep Equipment” is nothing more than a bare conclusion of law unsupported by any fact. I am not bound by it.
[27] Despite my having raised the purchase option issue quite explicitly in my endorsement of December 22, 2016, the plaintiff’s counsel sent an entirely baseless demand letter to the defendant on January 12, 2017 purporting to exercise the now expired purchase right and demanding delivery of the equipment by January 26, 2016. I expect that the plaintiff’s counsel will correct the record by sending a copy of this endorsement to the defendant.
[28] I find that the plaintiff has no rights in the Biosweep Equipment purchased by the defendant.
(b) Is the defendant entitled to use the Biosweep Equipment?
[29] Notwithstanding that 2314515 owns the equipment, the plaintiff sought to argue that the defendant nevertheless has no right to use the equipment it owns and that the assertion in paragraph 31 of the statement of claim might be able to be justified thorough this back-door means.
[30] I am not aware of any principle of law by which a vendor of personal property may place a perpetual restrictive covenant on its use thereafter. However, whether or not such a provision is possible or enforceable, I can find no pleaded facts before me from which such an unlikely conclusion could legally flow. The License Agreements do not contain any clear statement of purporting to prohibit use of the purchased equipment following termination.
[31] The License Agreements clearly recognized the problem and sought to finesse the evident problems with restricting use of the equipment by licensing something described as the “Biosweep Services”. However, the definition of that term is hopelessly vague and unenforceable, referring only to the “Biosweep Operation Manual which includes descriptions of processes and techniques for the use of the Biosweep Equipment.” The Biosweep Operation Manual is not in evidence nor are its contents pleaded.
[32] Obviously, intellectual property cannot be claimed over something as simple as the knowledge gained about how to use a piece of equipment lawfully owned and possessed by the defendant. Copyright may preclude reproduction of the manual; it does not preclude making use of the knowledge gained by having read it still less from having absorbed the training in the use of the Biosweep Equipment received pursuant to s. 3(h) of the Licensing Agreements. I can find nothing in the defined term “Biosweep Services” that is capable of being the object of property rights beyond simple copyright.
[33] I conclude that the plaintiff has failed to plead and prove any facts that would support limitations on the actual use of the Biosweep Equipment itself by the owner thereof. The defendant was and remains entitled to possess and use the Biosweep Equipment it has lawfully purchased. If the plaintiff has intellectual property in something beyond the Biosweep name, it has neither pleaded nor provided evidence of what those rights are with sufficient precision to enable me to identify a breach of those rights or assess any damages arising from their breach.
(c) Has the plaintiff proved any damages not related to possession and use of the Biosweep Equipment?
[34] I have carefully reviewed the balance of the statement of claim to determine (a) what claims remain legally tenable; and (b) if so, has the plaintiff led any evidence to substantiate a damage claim? The plaintiff is not entitled to judgment unless the facts pleaded entitle the plaintiff to judgment: Rule 19.06 of the Rules of Civil Procedure.
[35] Clearly the claim for “conversion and detinue” cannot succeed as this is premised on the plaintiff’s baseless claim to ownership of the equipment.
[36] The plaintiff advances a claim for passing off that is premised on “the unauthorized use of the Biosweep trademark, Biosweep Process and Biosweep Equipment”. The claim for unlawful interference with economic interests is premised on “the unauthorized use and/or sale of Biosweep Equipment, Biosweep Process and Biosweep name and the failure to return the Biosweep Equipment”. The unjust enrichment claim is premised on “improperly, and in breach of contract, obtained a benefit by using and/or selling the Biosweep name, Biosweep Equipment, Biosweep Process and Biosweep Services”.
[37] Each of the three legal theories pleaded is thus built on the foundation of the supposed inability of the plaintiff to use the equipment that it owns. The only part of these legal theories that survives the destruction of that erroneous premise is the allegation of unauthorized use of the Biosweep name with the intention of causing confusion in the marketplace.
[38] The evidence produced by the plaintiff to sustain its claim is hopelessly inadequate to the task of proving a claim for unliquidated damages arising from that narrow surviving premise of the claim. The entire damages claim was built on the flawed foundation of a supposed inability to use the Biosweep Equipment. It is impossible to extract from what remains anything concrete.
[39] The affidavit of John Evans sought to estimate profits from the defendant’s use of the trademark, equipment and services by comparing the defendant to revenues earned by another Biosweep licensee in Vancouver. In addition, the plaintiff attempted to guesstimate what profits the defendant might have earned during the Fort McMurray emergency. In my view, the exercise is so speculative and hypothetical as to be entirely useless.
[40] Notably absent from the evidence tendered by the plaintiff is any concrete information of any actual damages from use of the name as opposed to use of the equipment. Although the defendant is deemed to admit the legally tenable aspects of the claim of passing off (as regards use of the name and trademark), the plaintiff has been unable to produce any concrete examples of customers who were actually confused or any instances of actual use of the plaintiff’s name in soliciting business. The evidence of a single instance of a small ($300) invoice rendered by the defendant using its former trade name “Biosweep Peel & West Toronto” in March 2016 (for services that may well have been rendered before termination of the License Agreement) proves nothing about how the business was solicited or is being solicited.
[41] I was asked to order the defendant to produce an accounting. I decline to do so in the absence of any evidence that the defendant has anything at all to account for.
[42] I granted the plaintiff partial judgment on December 22, 2016 with leave to bring its motion for default judgment back on further and better evidence. I am not satisfied that the plaintiff has proved any damages that are legally tenable beyond the judgment already granted. Pursuant to Rule 19.05(3) of the Rules of Civil Procedure, I am dismissing the balance of the plaintiff’s claim. The plaintiff had an onus to prove unliquidated damages that it has failed on two occasions to discharge. There is no requirement to give the plaintiff a third try.
S.F. Dunphy, J.
Date: February 10, 2016