COURT FILE NO.: CV-17-581470
DATE: 20180406
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N :
ENERGY EFFICIENT LIGHTING LTD.
Plaintiff
(Moving Party)
– and –
FRANCIS YIP HING CHAN, BOB MCGRAYNE, SERENE NG AND 982090 ONTARIO INC. CARRYING ON BUSINESS AS FACTORY DIRECT LIGHTING
Defendants
(Responding Parties)
Garth Low
for the Plaintiff (Moving Party)
Christopher A.L. Caruana
for the Defendants (Responding Parties)
HEARD: December 21, 2017
FAVREAU J.:
Introduction
[1] The plaintiff, Energy Efficient Lighting Ltd. ("Energy Efficient"), seeks an injunction against the defendants, Francis Yip Hing Chan ("Mr. Chan"), Bob McGrayne ("Mr. McGrayne") and 982090 Ontario Inc. carrying on business as Factory Direct Lighting ("Factory Direct") (collectively the "Respondent Defendants") to restrain them from using the plaintiff's confidential information and from soliciting business from the plaintiff's customers and suppliers.
[2] For the reasons that follow, the motion is dismissed. While the Respondent Defendants concede that the claim against them raises a serious issue to be tried, I find that the plaintiff has not demonstrated that it will suffer irreparable harm or that the balance of convenience favours the plaintiff.
Background
[3] Energy Efficient is in the business of designing and supplying lighting equipment.
[4] Mr. Chan, Mr. McGrayne and the defendant, Serene Ng ("Ms. Ng"), are former employees of Energy Efficient.
[5] Mr. Chan was the general manager of Energy Efficient from October 2002 to October 2016. In September 2016, Mr. Chan announced his retirement from Energy Efficient, and he left the company on November 30, 2016.
[6] Mr. McGrayne joined Energy Efficient in July 2013 as director of product and agent development, where he worked until January 2017. Mr. McGrayne resigned from his position at Energy Efficient on January 11, 2017.
[7] Ms. Ng worked for Energy Efficient from December 2015 to June 19, 2017 in the position of customer support supervisor. Ms. Ng resigned from her position at Energy Efficient in June 2017.
[8] In 2017, Mr. Chan and Mr. McGrayne founded Factory Direct, which is also in the business of designing and selling lighting. They are now principals of the company. After resigning from Energy Efficient, Ms. Ng went to work for Factory Direct where she is now an employee.
[9] On August 24, 2017, the plaintiff commenced an action against all defendants seeking an interim, interlocutory and permanent injunction precluding the defendants from soliciting the plaintiff's customers and suppliers and from using the plaintiff's confidential information for the purpose of soliciting the plaintiff's customers and suppliers. In the alternative, the plaintiff seeks $1,000,000 in damages on the basis of allegations of breach of fiduciary duty, breach of confidence and passing off.
[10] The claim alleges that Mr. Chan and Mr. McGrayne owed the plaintiff a fiduciary duty given their positions of responsibility with the plaintiff, and that Ms. Ng owed the plaintiff a duty of confidentiality based on an agreement she signed at the time of her employment with the plaintiff.
[11] The claim also alleges that Mr. Chan and Mr. McGrayne started Factory Direct after they left Energy Efficient, and that Factory Direct is in direct competition with the plaintiff. The claim further alleges that the Responding Defendants improperly solicited Energy Efficient's customers and vendors, and that they have copied some of Energy Efficient's products.
Procedural background
[12] The motion was originally scheduled for September 14, 2017, but it was adjourned on consent to December 21, 2017, to give the plaintiff an opportunity to file reply materials.
[13] The motion originally sought interim and interlocutory injunctive relief against all defendants, but by the time of the hearing of the motion, the plaintiff dropped its claim for injunctive relief against Ms. Ng, and before me only sought the following remedies against the Respondent Defendants:
a. An interim and interlocutory injunction enjoining the defendants Mr. Chan, Mr. McGrayne and Factory Direct from using the confidential information of the plaintiff and directly soliciting the customers and vendors/supplies of the plaintiff; and
b. An interim and interlocutory injunction enjoining the said defendants from soliciting or otherwise communicating with the plaintiff's customers and vendors/suppliers.
Issue on the motion
[14] The only issue on the motion is whether the plaintiff has met the three part test in RJR MacDonald v. Canada, 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at para. 43, for the issuance of an injunction:
a. Is there a serious issue to be tried?
b. Will the plaintiff suffer irreparable harm if the injunction is not granted?
c. Which party will suffer greater harm from granting or refusing to grant an injunction pending a decision on the merits of the action?
[15] The Respondent Defendants concede that the plaintiff's claim raises a serious issue to be tried against them. However, they take the position that the plaintiff has failed to adduce any evidence that it will suffer irreparable harm and they argue that the balance of convenience favours them rather than the plaintiff.
Analysis
Serious issue to be tried
[16] As indicated above, originally the motion for injunctive relief was brought against all defendants. While the claim against Mr. Chan and Mr. McGrayne is based on allegations that they owed the plaintiff a fiduciary duty, the claim against Ms. Ng is that she breached a contractual duty of confidentiality. As set out in Aon Consulting Inc. v. Watson Wyatt & Co., [2005] O.J. No. 3472 (Sup. Ct.), at para. 12, different thresholds apply to the first branch of the RJR MacDonald test given the differing allegations against the individual defendants:
12 In most cases, in order to obtain an interlocutory injunction, the plaintiff must show that there is a serious issue to be tried; that it will suffer irreparable harm if the injunction is not granted; and that the balance of convenience favours the granting of the injunction (RJR Macdonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385 (S.C.C.) at 410-11). However, in the enforcement of restrictive covenants in employment contracts, the courts have often adopted a higher threshold, requiring the plaintiff to show that it has a strong prima facie case (see, for example, Sheehan & Rosie Ltd. v. Northwood, [2000] O.J. No. 716 (S.C.J.) at para. 18). Where there is an alleged breach of fiduciary duty, it has been held, as well, that the test is whether there is a serious issue to be tried (Matrix Photocatalytic Inc. v. Purifics Environmental Technologies Inc. (1994), 1994 CanLII 7433 (ON SC), 58 C.P.R. (3d) 289 (Ont. Ct. (Gen. Div.)).
[17] Had the motion continued against Ms. Ng, it would have been necessary to determine whether the plaintiff has a strong prima facie case against her given that she was allegedly subject to a restrictive covenant. However, given that the motion has only proceeded against the Respondent Defendants, and that the allegations against Mr. Chan and Mr. McGrayne are that they are in breach of fiduciary duties owed to the plaintiff, the question is whether the claim against them raises a serious issue to be tried. . In RJR MacDonald v. Canada, supra, at para. 44, the Supreme Court held that the threshold for determining whether there is a serious issue to be tried is low. In Schofield v. Schofield, 2007 CanLII 48661 (Sup. Ct.), at para. 15, Himel J. explained the threshold as follows:
[15] In answering the first branch of the test, generally, the courts have said that on motions for injunctive relief, the standard is whether there is a serious issue to be tried rather than the higher standard of the "strong prima facie case". The court must make a preliminary assessment of the merits of the case but is not to embark upon a prolonged examination of the merits. So long as the court is satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third branches of the test. The threshold for this question is a low one.
[18] On the motion, the Respondent Defendants have put forward evidence in response to the merits of the claim against them. For example, Mr. Chan and Mr. McGrayne have both sworn affidavits in which they dispute that they have used any information that is unique or proprietary to the defendant. Rather they claim that the information they have used is standard in the industry, broadly available or information obtained from other sources. In addition, while they acknowledge that they have had some contact with the plaintiff's customers and vendors, they dispute that there was anything unlawful about such contacts.
[19] While the Respondent Defendants have put forward evidence in support of their defence, for the purposes of the motion they conceded that the plaintiff's claim against them raises a serious issue to be tried. I agree. The claim against these defendants is not frivolous or vexatious, and therefore the real focus of this motion is whether the plaintiff has established that it will suffer irreparable harm and whether the harm it will suffer is greater than the harm that the defendants would suffer if the injunction is granted.
Irreparable harm
[20] In RJR MacDonald, supra, at para. 59, the Supreme Court described irreparable harm as follows:
59 "Irreparable" refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), 1988 CanLII 5042 (SK QB), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, 1985 CanLII 154 (BC CA), [1985] 3 W.W.R. 577 (B.C.C.A.)). The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).
[21] The case law has also established that the moving party is required to put forward clear and convincing evidence of harm; speculative evidence is not sufficient. For example, in Airport Limousine Drivers Assn. v. Greater Toronto Airports Authority, [2005] O.J. No. 3509 (Sup. Ct.), at para. 132, the Court held as follows:
132 The key element of this test requires that the party claiming injunctive relief not merely argue that harm may result, but that it must convince the Court that it will result. Expressed another way by the Divisional Court in the Kanda decision, supra, the Court said that evidence of irreparable harm must be "clear and not speculative".
[22] In this case, the plaintiff has put forward evidence that the defendants have approached some of their purchasers and vendors. However, the plaintiff has not identified a single instance in which it has lost any business. On the contrary, the plaintiff's evidence is that its customers are very loyal.
[23] On the motion, the plaintiff has put forward two affidavits sworn by Frank Chun Wan Luk ("Mr. Luk"), who is the president of Energy Efficient. In his affidavit, Mr. Luk provides evidence of information he has obtained from third parties about contacts between the Respondent Defendants and some of the plaintiffs' customers, suppliers and agents. However, he has not provided any examples of situations where the plaintiff has lost any business. On the contrary, Mr. Luk's evidence is that the plaintiff's customers, suppliers and agents have reported these contacts to him, and made promises or undertakings to continue doing business with the plaintiff. While this evidence may ultimately assist the plaintiff with its position at trial, it does not establish that the plaintiff has suffered or will suffer any harm, let alone irreparable harm, as a result of the Respondent Defendant's actions.
[24] The only evidence from Mr. Luk that purports to directly address irreparable harm is the following bald statement in one of his affidavits:
I verily believe that to the extent the Defendants continue to directly solicit [Energy Efficient]'s customers that such actions will inevitably lead to loss of sales for [Energy Efficient] and possibly put into jeopardy the good relationship it has established with its trade suppliers.
The harm suffered by Energy Efficient will be irreparable, for which damages will not be able to compensate the plaintiff.
[25] This speculative statement is similar to the evidence considered in Jet Print Inc. v. Cohen, [1999] O.J. No. 2864 (Sup. Ct.). In that case, Nordheimer J. dealt with a similarly worded affidavit and found that the plaintiff had not demonstrate that it would suffer irreparable harm if an injunction was not granted:
19 […] The only affidavit evidence filed in support of the plaintiffs' motion came from Jacques Ponte who is the secretary of Jet Print and the President of Jet Copy. Mr. Joe Cohen holds the corresponding positions, that is, he is secretary of Jet Copy and President of Jet Print. Mr. Joe Cohen did not file any affidavit in this proceeding. In Mr. Ponte's first affidavit, he says at paragraph 91:
"I do verily believe that if the injunctions requested herein are not granted, Jet will suffer irreparable harm that will not be adequately compensated by damages. Jet has incurred substantial losses to date as a direct result of Moses' and Isaac's solicitation of Jet's clients, and is also at risk of future losses of its traditional clients, goodwill and market share. If the said losses persist or worsen over time, Jet's future will be at risk, and the jobs of its 45 full-time and 6 part-time employees may be in jeopardy."
20 In making that assertion at the time, Mr. Ponte was relying on a decline in sales in both plaintiff companies from December, 1997 to December, 1998. However, on his cross-examination, Mr. Ponte admitted that he had no evidence to tie that decline in sales to any activities on the part of the defendants. Indeed, Mr. Ponte said that he "assumed" the defendants were part of the problem. There is very limited financial information that has been forthcoming from the plaintiffs in this proceeding. What financial information there is shows that both plaintiff companies had experienced a downturn in their financial performance before the departure of the individual defendants. For example, Jet Print went from a profit of $62,645 for the fiscal year ending September 30, 1997 to a loss of $61,444 for the fiscal year ending September 30, 1998. Jet Copy saw its profit decline from $86,633 for the fiscal year ending January 31, 1997 to $19,469 for the fiscal year ending January 31, 1998. Obviously there were other factors affecting the financial performance of the plaintiff companies in the relevant time frame.
21 No other evidence is offered by the plaintiffs in support of their contention that they would suffer irreparable harm if an injunction is not granted. There is clearly an onus on a party seeking an injunction to place sufficient evidence before the court on which a finding can be made that irreparable harm will be sustained if the injunction is not granted. As stated by Molloy, J. in Chen v. Canada Trustco Mortgage Co. (1997), 13 C.P.C. (4th) 186 at p. 188:
"The onus is on the person seeking the injunction to establish irreparable harm. This must be based on evidence before the court. As stated by Epstein J. in 754223 Ontario Ltd. v. R-M Trust Co., [1997] O.J. No. 282 (January 20, 1997) Doc. 96-CU-114787, RE 7166/96 (Ont. Gen. Div.), 'Irreparable harm cannot be founded upon mere speculation'."
22 Again, in my view, the evidence proffered by the plaintiffs in support of their assertion that they will suffer irreparable harm if an injunction is not granted falls well short of what would be necessary for me to come to that conclusion.
[26] In this case, as in Jet Print Inc. v. Cohen, the plaintiff's evidence falls well short of establishing irreparable harm. While the plaintiff has put forward evidence that Mr. Chan and Mr. McGrayne have contacted some of the plaintiff's customers and vendors, there is no evidence that they have succeeded in taking business away from the plaintiff; on the contrary, it is evident that the plaintiff's customers and vendors have remained loyal to the plaintiff. Not only has the plaintiff failed to put forward any evidence of irreparable harm or harm that cannot be compensated in damages, it has in fact not put forward any evidence of harm. Mr. Luk's language is telling; he speculates that the Respondent Defendant's actions will "inevitably" lead to financial losses and "possibly" jeopardize relationships with customers and suppliers. However, this speculative language is not backed up by evidence of actual irreparable harm.
[27] In Schofield v. Schofield, supra, at paras. 26 to 28, the Court also dealt with a claim based on allegations of improper solicitation by former employees who had formed their own company. In that case, the Court did find that the plaintiff had established irreparable harm, describing the evidence that led to that conclusion as follows:
[26] In support of its position, Hargraft points to evidence that in November 2006, it began to receive a number of notices of change of representative advising that clients had moved their accounts. The commercial insurance business is very competitive and the trucking insurance business comprises approximately 40 to 50 per cent of its commissions annually. Hargraft says that it lost $170,000 from commission income from three clients who were serviced by Schofield when he was chairman at Hargraft and who have removed their business. Schofield is now chairman of Edgehill where he is responsible for commercial accounts. Hargraft points to evidence that Schofield has placed approximately ten commercial accounts including two transportation companies and one construction company and has secured a brokerage agreement with a company for commercial trucking insurance. Hargraft submits that the damage to its reputation and to its financial position continues. In April 2007, Schofield and Hull attended the Canadian Trucking Association Convention in Arizona which is attended by transportation carriers and suppliers form Canada. It is alleged that Schofield met with several Hargraft clients, saying he had been wrongfully dismissed by Hargraft. Edgehill became a member of the Ontario Trucking Association on July 2, 2007. It is alleged that Schofield is targeting the trucking industry for sales. All this evidence is being led to corroborate the plaintiff's position that it is suffering irreparable harm.
[27] This is a case where it may be difficult at trial to assess damages in a way that there is adequate compensation for the harm suffered. There is no suggestion that Hargraft will be put out of business if the injunction is refused. However, it may be that it will suffer permanent market loss or damage to its reputation if the harm alleged continues. Furthermore, Edgehill is a new company and may not have sufficient assets to cover a damage award if the plaintiff is successful at trial.
[28] Evidence of irreparable harm must be clear and not speculative: Syntex Inc. v. Novopharm Ltd. (1991) 1991 CanLII 14290 (FCA), 36 C.P.R. (3d) 129. In my view, this is a case where there is evidence of clients having been solicited and losses having been suffered. The loss of reputation in the industry may be complicated to quantify. In this case, evidence of irreparable harm is clear and not speculative.
[28] Here, I note that the plaintiff had an opportunity to fix this defect in its case, and that it failed to do so. In advance of the motion originally scheduled to be heard on September 14, 2017, the parties had exchanged materials and the defendants' factum alerted the plaintiff to its position that the plaintiff had failed to put forward evidence of irreparable harm. The motion was adjourned for the purpose of allowing the parties to file additional materials. However, while the plaintiff filed an additional affidavit replying to some of the defendants’ evidence, the plaintiff did not take the opportunity to file additional evidence in support of irreparable harm.
Balance of convenience
[29] While the lack of irreparable harm to the plaintiff is sufficient to dispose of the motion, in my view the balance of convenience also favours the Responding Defendants.
[30] Energy Efficient is a new business. Both Mr. Chan and Mr. McGrayne have put forward evidence of Factory Direct's significant inventory, and evidence that any restriction on their ability to sell their inventory could lead to financial ruin for the company.
[31] In contrast, as indicated above, the plaintiff has not put forward evidence of any damage it will suffer if the injunction is not granted.
[32] In Universal Showcase Ltd. v. Alliance Store Fixtures Inc., [2002] O.J. No. 733 (Sup. Ct.), at para. 10, the Court considered the effect on a start-up business of granting an injunction:
In any event, even if the plaintiff could satisfy the requirement of irreparable harm, I would not conclude that the balance of convenience favours the plaintiff. If an injunction is granted, it is apparent that the business of Alliance would be significantly impacted with consequent negative effects on the employees of Alliance. It is self-evident that such a result would be of particular consequence to a new or start-up business. On the other hand, the plaintiff is part of a conglomerate, namely idX Corporation, which had sales in 2001 of US$150 million. The plaintiff itself had sales of US$42.7 million in 2000 and US$29 million as at November 30, 2001. It is also evident that, notwithstanding the events that form the subject matter of this action, the plaintiff has continued to compete in the marketplace and to obtain business, both from Whitehall and from others. I assume that the plaintiff will be able to continue to do so while this action moves toward a trial. The balance of convenience, therefore, favours the defendants.
[33] In my view, similar considerations apply in this case, and the balance of convenience clearly favours the Responding Defendants.
Conclusion
[34] For the reasons set out above, the plaintiff's motion for an injunction is dismissed.
[35] Costs to the defendants in the amount of $15,290.72, in accordance with the costs outline provided by their counsel at the end of the hearing. This amount is almost identical to the amount sought in the plaintiff’s costs outline and is reasonable in the circumstances. Costs are payable within 30 days.
FAVREAU J.
RELEASED: April 6, 2018
COURT FILE NO.: CV-17-581470
DATE: 20180406
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N :
ENERGY EFFICIENT LIGHTING LTD.
Plaintiff
(Moving Party)
– and –
FRANCIS YIP HING CHAN, BOB MCGRAYNE, SERENE NG AND 982090 ONTARIO INC. CARRYING ON BUSINESS AS FACTORY DIRECT LIGHTING
Defendants
(Responding Parties)
REASONS FOR JUDGMENT
FAVREAU J.
RELEASED: April 6, 2018