Court File and Parties

COURT FILE NO.: CV-19-00616605 DATE: 20190430 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PRODUCT PRO INDUSTRIAL SUPPLIES INC., Plaintiff AND: SHEAM YEE WANG, KTS CONSULTING, 1889886 ONTARIO LTD. O/A PERSEUS GROUP, SIGNAL FLOW ELECTRIC INC., ILLUMINERIS INC., and NIAGARA INDUSTRIAL CONTROLS INC., Defendants

BEFORE: Cavanagh J.

COUNSEL: Alastair J. McNish, for the Plaintiff Ruzbeh Hosseini and Sakina Babwani, for the Defendants, Sheam Yee Wang and KTS Consulting

HEARD: April 29, 2019

Endorsement

[1] The plaintiff Product Pro Industrial Supplies Inc. (“Product Pro”) moves for an interlocutory injunction for a period of eighteen months from March 21, 2019 or until trial to address alleged breaches of fiduciary duties and the duty of good faith as well as other alleged misconduct against the defendant Sheam Yee Wang (who goes by the name Steven Wang) and the business that he carries on using the trade name “KDS Consulting” (“KTS”) (together, the “Wang Defendants”).

[2] Prior to 2017, the business of Product Pro was carried on as a sole proprietorship which began in 2011. The principal of the Product Pro business is Ryan Valle. Product Pro is in the business of providing industrial supplies and services to businesses and commercial properties in Ontario.

[3] Product Pro began by sourcing mechanical products and supplies from manufacturers and resellers to end-customers such as manufacturing plants, warehouses, auto-repair shops and other light-industrial businesses. Through that work, Product Pro became involved with the “Save on Energy” program run by the Independent Electricity System Operator (“IESO”), a provincial Crown corporation responsible for operating the electricity market in Ontario. This program included a rebate program for businesses to encourage them to switch to more energy efficient operations.

[4] Mr. Valle met Mr. Wang in late 2015 when he worked as a supplier of energy efficient lighting. Over the course of several conversations, Mr. Valle decided to go into business with Mr. Wang. Mr. Wang’s evidence is that in December 2015 there was an oral agreement whereby a corporation would be formed to carry on the business, Mr. Valle would receive 60% of the shares in this corporation, and Mr. Wang would receive 40% of the shares, and both would have equal management authority. It was agreed that Mr. Wang would provide services to Product Pro through KTS and that KTS would invoice Product Pro for Mr. Wang’s services. Beginning on December 29, 2015, Mr. Wang provided services to the Product Pro business through KTS. Mr. Wang was not an employee of the business.

[5] Mr. Valle and Mr. Wang agreed that Mr. Wang would be given the title of “Director of Operations”. Mr. Wang was given responsibility for dealing with customers for Product Pro’s energy efficient lighting supply and retrofit projects. Mr. Wang handled at least 90% of the energy rebate applications that Product Pro prepared for customers. Mr. Wang was the primary contact for Product Pro’s lighting customers.

[6] Product Pro Mr. Valle entrusted Mr. Wang to deal with customers directly and, in most cases, exclusively. Mr. Valle sent Mr. Wang new customer leads and contacts and he trusted and expected Mr. Wang to follow-up with those contacts on behalf of the Product Pro business.

[7] Product Pro was incorporated on January 20, 2017. This was done without the knowledge of Mr. Wang. Mr. Valle was appointed as the sole director of Product Pro without calling a shareholders’ meeting for this purpose. According to Mr. Wang’s evidence, he objected to the fact that Mr. Valle was the sole director.

[8] A Shareholders Agreement was entered into between Mr. Valle and Mr. Wang in July 2017. Mr. Wang was involved in negotiating the terms of this Shareholders Agreement. The Shareholders Agreement provides Mr. Valle holds 60 of 100 common shares and Mr. Wang holds the remaining 40 of 100 common shares. Mr. Valle remained as the sole director.

[9] The Shareholders Agreement provides, in section 2.3 (b) that “[e]ach Shareholder and Director shall use his/her best efforts, skill and abilities to promote the interests of the Company”.

[10] Section 2.3 (d) of the Shareholders Agreement provides that “[e]very Director of the Company shall exercise the powers and discharge the duties of his/her office honestly, in good faith and in the best interests of the Company, and in connection therewith shall exercise the degree of care and diligence and skill that a reasonably prudent person would exercise in comparable circumstances”. The Shareholders Agreement provides that directors will not serve on the board of any company that competes with Product Pro nor will they provide any advisory or consulting services to such companies while they are directors of Product Pro.

[11] There are no non-competition or non-solicitation provisions in the Shareholders Agreement.

[12] Mr. Wang held himself out as a partner in Product Pro and signed commercial documents on behalf of Product Pro as its Director of Operations or Operations Manager.

[13] In December 2018, Mr. Wang attempted to have the phone number associated with his mobile phone transferred from Product Pro’s business account to a personal account. This incident, coupled with an earlier incident in which Mr. Valle learned that Mr. Wang had made a submission to the Save on Energy program through KTS, instead of through Product Pro, caused Mr. Valle to have suspicions about Mr. Wang’s good faith and loyalty to Product Pro. In January 2019, Product Pro obtained access to Mr. Wang’s laptop computer that he used for his work with Product Pro (the cost of which was charged as an expense to Product Pro) and obtained a copy of the contents of the “Documents” folder on this laptop as well as email files for two email accounts that he maintained: a Product Pro email account and a KTS email account.

[14] Upon reviewing the content of these files, Product Pro discovered that Mr. Wang had been operating a parallel business for his own benefit through KTS and that he was providing services and products to customers and on projects through KTS instead of through Product Pro. The parties disagree with respect to the value and extent of the business that was carried on by Mr. Wang through KTS. Mr. Valle’s evidence is that Mr. Wang misappropriated over $1.3 million in projects from Product Pro since 2016, with a gross profit on those projects estimated to be $596,266.63. Mr. Wang’s evidence is that the value of this work is very modest, and does not exceed $6,000 in profits. It is not necessary for me to resolve this issue on this motion.

[15] At approximately two o’clock p.m. on March 21, 2019 Mr. Valle seized the Product Pro laptop and cell phone in Mr. Wang’s possession, and served him with the statement of claim in this action, together with a notice of motion in respect of a motion seeking interim and interlocutory injunctive relief. Product Pro provided evidence that by the evening on that day, Mr. Wang had sent a text message to contacts on his cell phone, including numerous Product Pro customers and suppliers, which reads “Hey. It’s Steven Wang. This is my new number. Please delete my old one. Thanks.” Three different Product Pro customers contacted Mr. Valle to alert him that they had received this text message. Mr. Valle also provided evidence that he contacted customers of Product Pro and, through these contacts, he learned that Mr. Wang had arranged to have site meetings with at least two Product Pro customers on March 22, 2019 or early the following week.

[16] On March 27, 2019, Product Pro attended in court, on notice to the Wang Defendants, to seek an interim injunction. That morning, the Wang Defendants, who were represented by counsel, consented to an interim order that, among other things, prohibited Mr. Wang from contacting Product Pro customers and business partners. This interim order was extended and remained in force until the hearing of this motion. At the hearing of the motion, I made an order extending the interim order until further order of the court.

[17] On a motion for an injunction, there is a three-part test. The court must determine whether the moving party has shown (a) that there is a serious issue to be tried, or, in some cases, a strong prima facie case; (b) whether, absent injunctive relief, the moving party is likely to suffer irreparable harm; and (c) that the balance of convenience favours the granting of an injunction. In this case, the moving party argued the motion on the basis that there was a requirement to show a strong prima facie case because of the nature of the relief sought.

[18] Product Pro submits that it has shown on this motion that there is a strong prima facie case that Mr. Wang owed fiduciary duties to it.

[19] In Guzzo v. Randazzo, 2015 ONSC 6936 Whitten J. addressed the criteria to be considered in order to determine whether there is a fiduciary relationship:

The three hallmarks of a fiduciary relationship which emerged from these [Supreme Court of Canada] decisions were:

1. the fiduciary has scope for the exercise of some discretion or power,
2. the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interest, and
3. the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power (as set out in para. 49 of Imperial Sheet Metal Ltd., supra).

[20] The Wang Defendants submit that Mr. Wang was not an employee and that his relationship with Product Pro as a contractor was not one where he agreed to relinquish his own self-interest or to act solely for the benefit of Product Pro.

[21] In V.P.N. Marketing v. Jenne, 2018 ONSC 4627 Mulligan J. addressed the principles that apply to whether a contractor is in a fiduciary relationship:

It is well settled that fiduciary duties can apply to contractors as well as employees. In Professional Court Reporters v. Carter, 1993 ONSC 17488, [1993] O.J. No. 673 (Ont. Gen. Div.), Ferguson J. touched on this point at para. 15: “The case law has also established certain duties owed by some persons who have a formal relationship which is not one of employment”.

More recently in 720014 Ontario Inc. v. 7669623 Canada Ltd., 2016 ONSC 3201, 266 A.C.W.S. (3d) 721 (Ont. S.C.J.), Myers J. stated at para. 2:

The plaintiff has established a serious issue to be tried as to whether the defendant Macklin and his company owed fiduciary duties to the plaintiff. While Mr. Macklin says that his company was an independent contractor to the plaintiff, he concedes that he functioned as the “de facto general manager” of the plaintiff’s business. The interposition of a corporation does not prevent the recognition of fiduciary duties any more than it prevents a claim by the contractor for damages for lack of notice of dismissal. The court will look at the substance of the relationship rather than its form [citations omitted].

[22] I am satisfied on the evidence that Product Pro has shown that there is a strong prima facie case that Mr. Wang owed fiduciary duties to Product Pro. Mr. Wang was the primary representative responsible for a significant part of Product Pro’s business, and Product Pro was dependent upon him to carry out his services in good faith and in the best interests of Product Pro. Mr. Wang was in a position where he could exercise discretion or power unilaterally to affect Product Pro’s interests, and Product Pro was vulnerable to him in this regard. Further, Mr. Wang contractually agreed in the Shareholders Agreement that he would use his best efforts, skill and abilities to promote the interests of Product Pro. Although Mr. Wang provided services to Product Pro as a contractor, through KTS, his role was one that was akin to a “key employee”.

[23] Product Pro submits that it has also shown that it is likely to suffer irreparable harm if an injunction is not granted to restrain Mr. Wang and KTS from unfairly competing with by soliciting customers of Product Pro.

[24] In KJA Consultants Inc. v. Soberman, 2002 ONSC 49613, 2002 CarswellOnt 467 Molloy J. addressed the question of whether breaches of a defendant’s fiduciary obligations by soliciting business from customers of the employer give rise to irreparable harm:

In my view, the type of harm the plaintiff will sustain by the defendant’s breach of fiduciary obligation is irreparable and cannot be compensated for by damages. It is not simply a matter of disgorging the profit received from projects that are now ongoing between Mr. Soberman and clients of KJA. As a result, at least in part, of his breach Mr. Soberman will now have the opportunity to nurture a relationship with those clients and, if he impresses them with his work, KJA may lose the client forever. It is not possible now to determine if that would have happened in any event. The loss of goodwill and potential loss of market share are the kinds of harm that have long been recognized as appropriately protected by injunctive relief because damages alone would not be inadequate remedy: [citations omitted].

[25] These principles apply to this case. I am satisfied that Product Pro has shown that it is likely to suffer irreparable harm in the form of loss of goodwill and loss of market share if injunctive relief is not granted restraining the Wang Defendants from unfairly competing with Product Pro by soliciting its customers in breach of fiduciary duties that Product Pro asserts exist. See also Canadian Hedge Watch Inc. v. Street, 2015 ONSC 454 at paras. 46-50.

[26] With respect to the balance of convenience, Product Pro seeks injunctive relief to enforce the fiduciary obligations that it says are owed to it by Mr. Wang. Product Pro has shown that, while he was operating as the Director of Operations for Product Pro, Mr. Wang actively took steps to solicit business to be performed through KTS, instead of through Product Pro. It does not matter that these customers or prospective customers were persons or businesses with whom Mr. Wang may have had dealings before he became the Director of Operations for Product Pro. When he joined forces with Mr. Valle and became Product Pro’s Director of Operations and, later, subject to the Shareholders Agreement, Mr. Wang was required to develop business for the benefit of Product Pro, and not for his own benefit.

[27] In John A. Ford & Associates Inc. (c.o.b. Training Services) v. Keegan, 2014 ONSC 4989, [2014] O.J. No. 3995, Price J. explained the scope of the duties owed by former employees (or contractors) who owe fiduciary duties:

Even former employees who are fiduciaries are not prohibited from competing with their former employer altogether, provided they do so “fairly”. Even a fiduciary employee, absent a valid agreement or statutory restriction, has the right to compete directly against his former employer. A fiduciary, under some circumstances, may even do business with a former employer’s customer when the customer has sought out the fiduciary. If a customer of the former employer comes to the fiduciary from the former employer because of the fiduciary’s reputation, or the customer’s personal relationship with the fiduciary, there is generally no breach of the employee’s fiduciary duty. The mere fact that a former customer of the employer becomes a customer of the employee very soon after the termination of the employee’s employment is not sufficient, in and of itself, to establish solicitation by the employee.

[28] Product Pro submits that the Wang Defendants are free to compete fairly, to seek out new customers and sources of customers, and to build a new business that may well compete directly against Product Pro. I find that it is not unduly onerous for an order to be made to restrain the Wang Defendants, for a reasonable period of time, from unfairly competing by soliciting customers of Product Pro.

[29] I am satisfied that Product Pro has shown that the balance of convenience favours the granting of an interlocutory injunction.

[30] The Wang Defendants submit that Product Pro is not entitled to the equitable remedy of injunctive relief because it does not come to court with clean hands. In this regard, the Wang Defendants submit that (i) Product Pro overstated, misstated and incompletely stated its case before the court, (ii) Mr. Valle did not honour the oral agreement with Mr. Wang to equally share operational control when he appointed himself as the sole director of Product Pro upon its incorporation; (iii) Product Pro improperly gained access to Mr. Wang’s laptop; and (iv) Mr. Valle made allegations of wrongful conduct against Mr. Wang in relation to submission of rebate applications without stating that these actions are “normal industry practice” and that Mr. Valle engaged in similar conduct himself.

[31] I do not agree that Product Pro egregiously overstated its case, as the Wang Defendants submit. The three examples of such alleged overstatements found at para. 69 of the Factum of the Wang Defendants do not qualify as significant overstatements. I do not agree that the evidence discloses that Mr. Valle acted improperly when Product Pro was incorporated and, in any event, Mr. Wang later signed the Shareholders Agreement in which it was acknowledged that Mr. Valle would remain as the sole director. The evidence discloses that the cost for Mr. Wang’s laptop was charged to Product Pro and that this laptop was used for the business of Product Pro. I do not find that Product Pro acted improperly in accessing this property. Finally, I do not rely upon the allegations made by Product Pro with respect to Mr. Wang’s conduct in relation to the submission of rebate applications, and I note that Mr. Valle provided explanatory evidence with respect to the allegations of improper conduct made against him. I do not find any conduct on the part of Product Pro that disqualifies it from seeking equitable relief on this motion.

[32] The form of order provided by Product Pro is modelled on the form of interim order that is in place. In my view, certain provisions of the proposed form of order are unduly broad. In this case, there is a strong prima facie case that the Wang Defendants owe fiduciary duties that survive the termination of Mr. Wang’s relationship with Product Pro as its Director of Operations (which occurred on March 21, 2019) not to solicit customers of Product Pro, or persons or businesses who Mr. Wang contacted while he was the Director Operations of Product Pro, for a reasonable period of time.

[33] Given the length of the relationship between Mr. Wang and Product Pro and the nature of this relationship, and taking into account the conduct of Mr. Wang in soliciting and performing services for businesses on his own behalf, through KTS, instead of through Product Pro (which I regard as an aggravating factor because of the harm to Product Pro before March 21, 2019 which put Product Pro into a more vulnerable position than it would otherwise have been) the reasonable period of time for an interlocutory injunction to be in effect is 12 months from March 21, 2019. This is significantly shorter than the 18 month period requested by Product Pro, and longer than the two month period suggested by the Wang Defendants (if I were to hold that an interlocutory injunction should issue). See KJA Consultants Inc. v. Soberman, 2002 ONSC 49613 at para. 12.

[34] For these reasons, I grant an interlocutory injunction restraining the Wang Defendants from, directly or indirectly, soliciting customers of Product Pro, or potential customers of Product Pro with whom the Wang Defendants had been in contact on or before March 21, 2019, for a period of 12 months or until trial. At the hearing of this motion, I suggested that counsel agree upon a list of such customers and potential customers to be included in any formal order to be issued so that there would be clarity with respect to what is required to comply with the order. If there is any difficulty with respect to settlement of the formal order to be issued, I may be spoken to.

[35] If the parties are unable to agree on costs, Product Pro is to provide written submissions within 14 days. The Wang Defendants are directed to provide responding submissions within 14 days thereafter. Product Pro is at liberty to provide brief reply submissions, if so advised, within five days thereafter.

Cavanagh J. Date: April 30, 2019