COURT FILE NO.: CV 17-225
DATE: 2018June5
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Robert Armes and 2331513 Ontario Inc. o/a Super Sneaky Co., Plaintiffs/Responding Parties
and:
Timothy Barlett and Super Sneaky Contract Division LLC., Defendants/Moving Parties
AND
Timothy Barlett and Super Sneaky Contract Division LLC., Plaintiffs by Counterclaim/Moving Parties
and:
Robert Armes and 2331513 Ontario Inc. o/a Super Sneaky Co., Defendants by Counterclaim/Responding Parties
BEFORE: The Honourable Justice. R. J. Harper
COUNSEL: Michael Jaeger, Counsel for the Defendants/Moving Parties
Aaron Rousseau and Lisa Tan, Counsel for the Plaintiffs/Responding Parties
HEARD: March 1, 2018 and May 16, 2018
ENDORSEMENT
Issues
[1] The moving party, defendants, (Barlett) seek an interlocutory injunction against the responding party, plaintiffs, (Armes).
[2] The responding party submits that the request for an interlocutory injunction must fail on two major grounds:
a. The Rules of Civil Procedure, Rule 40.03 requires a party who is seeking an interlocutory order to undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party. Unless the court orders otherwise. The moving party has not sought an order that the court relieve the moving party from this undertaking and the moving party has not provided any meaningful undertaking with respect to damages.
b. The moving party has not met the requirements set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385 in order to warrant the granting of an interlocutory injunction.
Background
[3] Barlett and Armes entered into a: “Distribution Agreement” on February 25, 2012. That contract was for the rights to distribute certain products related to but not limited to garage door hinges. The contract called for Barlett (also referred to in the contract as the Contractor) to have exclusive distribution rights for the specified products within Ontario that were sold in units that exceeded 31 units. (Wholesale Sales). Any of the specified products under 31 units were assigned to Armes. (Retail Sales) (also referred to in the contract as the Company). The contract further provided for the specified products to include: “all present and future products”.
[4] The contract also reads, in part:
The Company and Contractor will be exclusive users of Super Sneaky trademarks, logos and future patents without restriction. However, rights to confer usage of logos and the like may be conferred by the respective parties to their customers as required.
[5] The contract also provided that revisions to the agreement had to be in writing in order to take force. There was no termination clause set out in the contract.
[6] Armes and Barlett each incorporated companies in 2012. Armes incorporated 2331513 Ontario Inc. (233). This company operated as “Super Sneaky CO.” Barlett incorporated “Super Sneaky Contract Division LLC”. (SSCD).
[7] According to Armes, Barlett was responsible for calculating the net costs in order to determine what proportion of the profit would be shared between Armes and Barlett pursuant to the Distribution Agreement. However, after a period of time, Armes retained the services of a Gordon Wilson in order to investigate and review the accounting of Barlett. As a result of Wilson’s review, Armes and Wilson felt that Barlett was handling the accounts improperly. Armes was of the view that he should be getting more of the profits than he was allocated.
[8] As a result of the increasing distrust, the relationship between Armes and Barlett deteriorated by mid-June of 2015. Barlett claims that Armes stopped complying with the terms of the contract as of mid-June of 2015.
[9] It is significant to note that the contract provided that in the event of any disagreement of the parties, the parties were to submit their disputes to binding arbitration. A further clause in the agreement, under the heading: “Good Faith”, provided that while the parties were within the “Arbitration Process”, they would abide by the terms of the distribution agreement and both parties were bound to act in good faith toward the other.
[10] Neither party submitted their dispute to arbitration. Instead, Barlett started a Small Claims Court action in Brantford on March 11, 2016, as action #SC-16-169 against Armes. In that action Barlett claimed damages in the amount of $17,373.07.
[11] Armes waited until July of 2017, on the day the Small Claims Court trial was to start, to commence an action in the Superior Court in Brantford. The action put an end to the Small Claims Court matter. When the matter came to trial, Armes advised the Small Claims Court Justice that he has commenced an action in the Superior Court of Justice and the action in the Small Claims was therefore stayed.
[12] The Small Claims Court judges endorsement of July 12, 2017 reads:
Trial adjourned sine die returnable on 14 days’ notice as Mr. Armes just this morning filed a claim with the Superior Court of Justice (court file #CV 17-225). Defendant just this morning has complied with previous costs orders of prior Deputy Judges by handing bank draft in the amount of $700.00 to the Plaintiff. I will grant the adjournment because the Superior Court is proper jurisdiction to hear this matter. Plaintiff should have an opportunity to file a Defence to Claim they were served with this morning. Plain and simple the Defendant is gaming the system by intentional delay, ignoring orders from Deputy Justices to the last possible moment in the hopes of extracting some type of advantage.
I made this crystal clear to the Defendant. His tactics are not fooling anyone. A pre-trial management conference took place on May 25, 2017 and Deputy Justice Stillman made this pre-emptory. Defendant waited till the last possible moment to notify Plaintiff of adjournment request which was a waste of everyone’s time.
[13] The Deputy Justice awarded costs of $500.00 payable in 10 days.
[14] When Armes subsequently filed a claim against Barlett in the Superior Court at Brantford, Barlett filed a Defence and he brought a Counter Claim that stated, in part, at paragraph 12:
“Further the Plaintiffs gave no regard to the Distribution Agreement specifically calls for Arbitration of any disputes between the parties. Essentially the Plaintiffs took the law into their own hands which continues to the present day.”
[15] Both parties had the right and ability to take use of the Arbitration clause in the contract. They both chose not to do so. When they were asked at the outset of this motion if either party was seeking a stay of the proceedings in order to send the matter to Arbitration, as provided for in the Agreement, both indicated that they were waiving the right to the Arbitration process.
[16] Barlett did not seek an interlocutory injunction against Armes until this motion that was originally made returnable on November 17, 2017. This was two years and five months after, Barlett claimed that Armes was breaching the Distribution Agreement.
The Law Interlocutory Injunctions
[17] The test for whether an interlocutory injunction should be granted was set out in American Cyanamid Co. v. Ethicon Ltd., 1975 CanLII 2598 (FC), [1975] A.C. 396 (H.L.) and adopted by the Supreme Court in Manitoba (Attorney General) v. Metropolitan Stores Ltd., 1987 CanLII 79 (SCC), [1987] 1 S.C.R. 110, 46 Man. R. (2d) 241; and RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385 where, at page 334, Sopinka and Cory JJ. summarized the test as follows:
First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
The Three Essential Elements Applied to this Case
1. Serious question to be tried
[18] Counsel agree that the case law makes it clear that this part of the test is not a high hurdle.
[19] In this case, Barlett claims that he and his company has suffered damages as a result of breach of the contract by Armes and his corporate entities commencing in June of 2015. (The Distribution Agreement).
[20] Armes claims that there was no contract to breach as the contract was terminated at least by August 14, 2015. The contract had no termination clause. Barlett claims that the Distribution Agreement was intended to be in perpetuity. Armes claims that there was no such intention and that the contract could be terminated upon reasonable notice.
The Law Relating to Termination of the Contract
[21] In Bernard--Norman Specialties Co. v. S.C. Time Inc. (H.C.J.), 1989 CanLII 4143 (ON SC), O’Driscoll J. considered the issue of a distribution agreement that had no termination clause. He stated commencing at paragraph 3:
- The agreement, it will be seen, has no provision for the termination of the distributorship agreement upon notice when there is "no cause" alleged.
IV The issue
In the absence of "cause", is the distributorship agreement perpetual or, upon a true construction of the agreement, is it terminable by either party upon reasonable notice to the other? Is it necessary, in order to give business efficacy to the agreement, to imply a term entitling the parties to terminate the agreement upon reasonable notice?
(a) Robinson v. Galt Chemical Products Ltd., [1933] O.W.N. 502 (C.A.)
In that case, the written contract between the plaintiff and the defendant read, in part:
"This agreement as signed, is effective from November 1st, 1925, until such time as may be deemed expedient to have said agreement mutually dissolved by both parties concerned."
Riddell J.A. at p. 504:
This is a business contract; and such contracts must be interpreted in a business way; and it would be a palpable absurdity to consider such a contract as a perpetual chain on the defendant to oblige it for all time to continue the plaintiff in such work; the only reasonable way of interpreting it is to consider it as terminable on reasonable notice. Reference to 7 Halsbury, 2nd ed., pp. 182 and 183. So that, in any view, the question simply is, Was the notice given a reasonable notice?
[22] In Bilcentre AB v. Chrysler Canada Ltd. (6611/85), released November 6, 1985 [summarized 33 A.C.W.S. (2d) 303], in dismissing the plaintiff's application for an interlocutory injunction restraining the defendants in various ways from terminating an alleged agreement before the end of the 1987 model year, Callaghan A.C.J.H.C. said at p. 7:
Whereas here, the sole question will turn on the reasonableness of the notice, then I cannot conclude that damages are not an adequate remedy or that the plaintiff has any real prospect of succeeding in its claim for a permanent injunction at trial.
Reasonable Notice in this Case
[23] The evidence establishes that the parties’ business relationship was deteriorating by mid June 2015. It is clear from the email stream between Armes and Barlett during the months of July and August that there was a growing realization that the old distribution agreement that they had entered into was ending.
[24] On June 29, 2015 Barlett sent an email to a customer (Erias), advising him that Robert (Armes) was: “assuming all admin functions of Super Sneaky so remove me from the PayPal shipping reports and start reporting all work done etc. to Robert only”.
[25] On July 13, 2015 Armes sent an email to Barlett stating:
I don’t have a problem with that, but no contingencies. Old deal is dead, but I still have grievances that require resolution.
[26] On August 12, 2015, Armes sent an email to Barlett that stated:
Super Sneaky will cease and desist all any and all business matter relating to Super Sneaky. I am ending our relationship due to your highly unethical business practices as I have outlined in previous e-mails. Additionally it has been brought to my attention that it appear you have not as an American corporation charged or remitted state taxes or reported them to the IRS. Therefore I would not be interested in purchasing your business as I feel there will be serious legal tax issues associated with it.
[27] During the period from August 12, 2015 and through to the present, any business that was conducted between Barlett and Armes was to complete contracts that already existed.
[28] From August 12, 2015, Armes refused to ship any further product to Barlett.
[29] I find that the distribution agreement was terminated as of August 12, 2015.
[30] The only issue that I find the remains as a serious question to be tried is whether or not the termination as of August 12, 2015 amounted to reasonable notice in the circumstances of this case. The period found to constitute reasonable notice would constitute an essential element to the calculation of damages.
Irreparable Harm
[31] Barlett should have placed the matter into Arbitration as per the contract. He should have, as of August 12, 2015, sought any injunctive relief at that time. He chose not to. He chose to issue a claim in Small Claims Court for minimal damages. If he felt that irreparable harm was being thrust upon him due to the improper actions of Armes by terminating a contract that he had no right to terminate, he also had the choice of bringing an action for specific performance and for an injunction in order to preserve the status quo in August of 2015. He chose not to do that. I am of the view that in the circumstances of this case, Barlett has not demonstrated that he will suffer irreparable harm if the interlocutory injunction is not granted
[32] It is also materially significant to me that Barlett’s action in Small Claims Court in 2016 claimed a specific amount of damages. It was not until November of 2017 that Barlett claimed that damages would not be quantified and that an interlocutory injunction must be granted.
Balance of Convenience
[33] Given my findings as set out above, the only prejudice would be to Armes, if an injunction is granted. Over two years have gone by since the termination of the contract. New business relationships have been entered into. An injunction would not be preserving a status quo but creating a new status quo. That is not the purpose of injunctive relief.
[34] According to Armes his damages would be in excess of $340,000 if an injunction were to be granted until this matter went to trial. The litigation is still in the early stages. There has been no affidavit of documents. Discoveries have not been scheduled.
[35] Barlett has not shown, on the balance of probabilities, that the balance of convenience would favour him.
Undertaking for Damages
[36] In addition, although Barlett has given an undertaking with respect to damages as required by the Rules of Civil Procedure, he only shows that he has assets in the approximate amount of $150,000. Armes counsel submits that Barlett’s undertaking with respect to damages must be meaningful and this undertaking is not meaningful. I agree! Barlett has not provided any meaningful undertaking with respect to damages and his claim for injunctive relief should also be dismissed on this ground.
Interference with Economic Relationships and Defamation
[37] Barlett also claims that Armes has conducted himself in a manner that has interfered with economic relationships that he has with multiple clients that he had developed over the years. He alleges that Armes has and continues to spread false allegations about him to numerous individuals.
[38] This is a claim that derives its roots from evidence of the conduct of Armes and his company during the period of time from the beginning of 2017.
[39] Some examples of such conduct that may be considered to be interference with economic relations. They are as follows:
Service Spring Corp:
a. Barlett claims that Armes told an agent of Service Corp that Barlett had shipped the company stolen goods.
DH Pace Co.
b. Barlett claims that Armes sent an email to this prospective customer of Barlett the impact of which veered that customer away from Barlett;
Bluehost
c. Bluehost is a US website hosting services. On June 20, 2017 Armes sent a notice to Bluehost claiming a copyright infringement. The communication went on to claim that the matter was currently in the Canadian courts because of a criminal act against the Trademark Holder (Armes)
Retail Distribution Contract – Tyler Douglas
d. Tyler Douglas is a customer of Barlett. Barlett claims that an agent of Armes communicated with Tyler Douglas and made numerous false allegations against Barlett that included a claim that the “Department of Homeland Security has a complete investigation dossier on him.” (Barlett). Wilson also claimed that Barlett had credit issues all over the place and that he (Barlett) is a con man.
Port Welding;
e. Barlett has used this company for many years to manufacture product. On September 1, 2017 Barlett contacted this company in order to place an order. Port Welding informed him that they would not fulfil the order due to a claim of copyright and other infringements by Barlett against Armes.
[40] Justice Nordheimer in Janssen-Ortho Inc. v. Amgen Canada Inc., 2003 CanLII 26024 (ON SC) stated at paragraph 58:
In order to establish the tort of intentional interference with economic relations, Janssen must be able to establish three things[2]:
(a) an intention to injure the plaintiff;
(b) interference with another’s method of gaining his or her living or business by illegal means; and
(c) economic loss caused thereby.
[41] With respect to defamation Justice Nordheimer also had to deal with that claim in Janssen-Ortho Inc. (Supra)
[42] He stated at para 60:
[60] Finally, the tort of defamation requires Janssen to prove[3]:
(a) the words are defamatory, in that they tend to lower the plaintiff in the estimation of right-thinking members of society, or to expose the plaintiff to hatred, contempt or ridicule; and
(b) the defamatory statement was published.
[43] At Para 61 the Nordheimer J. set out the degree to which the court needs to analyse the first test of serious issue to be tried:
It must be remembered that Janssen does not have to establish that it will succeed in its claims nor is it necessary for the court, at this stage, to engage in a detailed analysis of the facts which underlie those claims. The court on a motion such as this merely has to be satisfied that there is a serious issue to be tried. It is recognized that the requirement of a serious issue represents a low threshold. In considering this aspect of the test, I am mindful of what Justices Sopinka and Cory said in RJR-Macdonald Inc. v. Canada (Attorney General), supra, at para. 50:
A prolonged examination of the merits is generally neither necessary nor desirable.
[77] There is another problem which is appropriately addressed under this factor and that is the vague and overbroad language used in the relief sought by Janssen. Were an injunction to be granted in the terms sought by Janssen, its enforcement would become extremely problematic. Further, the existence of the injunction would make it extremely difficult, if not impossible, for anyone effected by it to gauge their proposed conduct against its terms. If the court is to grant such extraordinary relief, then it must be in terms which others can easily determine whether their conduct, if taken, will or will not offend the order. As stated in Sharpe, Injunctions and Specific Performance, (loose-leaf edition) at ¶1.390:
Janssen complains that to require it to put such evidence before the court places an impossible burden on a plaintiff seeking an injunction in this type of case. I do not agree. I do accept that it places a very heavy burden on a plaintiff but, given the extraordinary relief which an injunction represents, in my view, the burden ought to be a heavy one, especially in a case such as this where the effect of the relief, if granted, necessarily involves some infringement of the constitutionally protected right to free speech. In this regard, I adopt the observation of Mr. Justice Rothstein in Effem Foods Ltd. v. H.J. Heinz Co. of Canada (1997), 1997 CanLII 26681 (FC), 75 C.P.R. (3d) 331 (F.C.T.D.) where he said, at p. 333:
Sophisticated participants in the market place such as these litigants should be able to provide the Court with an indication of loss based upon historical experience and a mathematical or statistical analysis of the circumstances demonstrating that the loss is not reasonably calculable which would give the Court some degree of confidence that the kind of loss being alleged would indeed occur and cannot be
I accept that there may be reason to believe that the business reputation of Janssen may be damaged by false statements. Nonetheless, I am not satisfied that Janssen has shown, at this stage, that any such damage will be irreversible. It must be remembered that it is not just any damage which will justify the granting of an injunction. It must be shown that irreparable damage will occur. It has not been established that Janssen cannot counter the effects which it says are arising from the conduct of the defendants. I would note that Janssen has, to date, been able to enlist the support either of Health Canada or of PAAB, or both, to require Amgen to correct its conduct.
[74] I have concluded, therefore, that Janssen has failed to establish that it will suffer irreparable harm from the defendants’ activities.
[44] Like in the Janssen case, the moving party Barlett has not demonstrated that the conduct complained about will cause irreparable harm to Barlett. I agree with counsel for Armes that since the distribution agreement was terminated in August of 2015, and Barlett did not seek an injunction until November of 2017, any business relationship with the parties has been destroyed. There are no ongoing relationships identified by Barlett that can be put at irreversible risk.
[45] This case is distinguishable from the case of Sheehan & Rosie v. Northwood, [2000] PO.J, No. 716. In that case there were contracts with customers that were being interfered with. A former employee was using customer lists of his former employer to compete in the same business. In this case all of the business was being done by purchase orders and by the time the injunction request was made by Barlett he had already lost all of the customers. There were only two purchase orders made in 2016 and one in 2017. The evidence did not disclose that there were business relationships that an injunction would preserve. Barlett is seeking to have his old business back, not to have his ongoing business preserved.
[46] Barlett’s own evidence is that most of his customers won’t even talk to him now. I agree with the submission of counsel for Armes that it is not proper to give an injunction on the speculation that business would return to Barlett. In my view if there was a potential for irreparable harm, that would have occurred approximately three years ago in August of 2015.
[47] For the above reasons I would dismiss the claim for an interlocutory injunction relative to all of the claims advanced by Barlett.
[48] If costs cannot be agreed upon counsel may submit written submissions within 30 days.
The Honourable R. J. Harper
Date: June 5, 2018