COURT FILE NO.: 16-67606

DATE: 2020/12/23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: S.I. Systems Partnership, Plaintiff

AND:

Li Geng, Xin Xu a.k.a. Jimmy Xu, Quarksys Consulting Inc. and X & C Hi-Tech Inc., Defendants

BEFORE: Mr. Justice C. MacLeod

COUNSEL: Jason M. Berall & Andrew Sahai, for the Plaintiff

Melinda Layton, for the Defendants

HEARD: October 27 – 30, Nov 2,3 & 6, 2020

REASONS for judgment

Introduction

1This was a trial concerning the enforceability of a non-competition provision in a consulting agreement.

2The plaintiff is a supplier of Information Technology (I.T.) services to the Royal Canadian Mounted Police (RCMP). The defendants are I.T. consultants and their personal service corporations. Until the events giving rise to the litigation, the defendants’ services had been provided to the RCMP through sub-contracts with the plaintiff. On March 31, 2014, the defendants declined to renew the sub-contracts and instead entered into a new arrangement with a different service provider. The plaintiff alleges breach of contract and seeks damages.

3There are only two real issues. The first question is whether the non-competition provisions in the plaintiff’s contracts with these defendants are binding and enforceable? The second is an assessment of damages.

4As I will describe, the non-competition clause is an important part of the plaintiff’s business model and may well be justified in appropriate cases. To be enforceable, however, the parties must voluntarily and intentionally have agreed to it and the restriction must be reasonable in scope.

5For the reasons that follow, I have determined that the clause is not enforceable against these defendants but even if I had not reached that conclusion, the damages would be minimal. The plaintiff has failed to make a case for significant damages.

The Method of Trial

The Method of Trial

6Before turning to my analysis of the evidence and the law, I will briefly describe the nature of the trial. Due to COVID-19 restrictions, the trial took place in a virtual courtroom using the Zoom videoconferencing platform. Counsel, clients and witnesses testified remotely.

7The trial was also paperless. All of the documents were uploaded and shared on a cloud-based platform, Sync.com. Documents marked as exhibits were then emailed to the Registrar who marked them and placed them in an electronic exhibit folder on her courtroom computer. The exhibit list was updated and shared with counsel at the end of each day.

8Apart from a few necessary modifications imposed by the use of this technology, normal courtroom procedure was followed. The trial proceeded as a regular trial as the parties had not agreed to the Rule 76¹ format. In hindsight, evidence in chief by affidavit would have been more efficient.

9I heard evidence from two witnesses on behalf of the plaintiff, Brian Brady and John Beaupré, and four witnesses called by the defendants, Li Geng, Xin Xu, Stephen Archdeacon, and Robin Chahal.

10I do not intend to recount the evidence of each witness. There is little dispute about many of the events or the general chronology. I will refer to the evidence as necessary to explain my conclusions.

The Context and Background

The Context and Background

11To understand the context, it is necessary to describe the involvement of the parties in provision of I.T. services to the RCMP between 2009 and 2014. There was much detailed evidence about procurement and scope of work. For present purposes, a general overview will suffice.

12The RCMP is the custodian of large amounts of data used by law enforcement agencies in Canada and internationally. For example, the force is responsible for maintaining criminal records, fingerprint records, DNA records and the Restricted Firearms Registry. To be useful, legacy databases must be brought up to date so that the information from various systems may be organized, integrated, exchanged and accessed electronically and securely by numerous users in various locations in real time.

13In connection with maintaining, updating and modernizing these records, the RCMP has need of significant numbers of freelance I.T. consultants in addition to its own internal resources. Such work requires skilled and creative I.T. experts; experts such as the defendants.

14The RCMP does not contract directly with individual consultants. It operates under federal government procurement rules and a competitive bidding regime in which qualified businesses compete for the right to supply I.T. personnel. The plaintiff is one such business. There are several others operating in the same space. Essentially the plaintiff and its competitors fulfill a role similar to temporary staffing agencies but it is not an agency model. The service provider bills the government for I.T. services and retains individual I.T. consultants to provide those services. The consultants are under contract to the service provider and not the RCMP or the government itself.

15During the time in question, there were two different procurement vehicles available to the RCMP in obtaining such services. One method was the Supply Arrangement – Task Authorization model. Under this model, an interested service provider would answer a Request for Proposal (RFP) put out by Public Works and Government Services Canada for the provision of I.T. services in various categories at various rates “as-and-when requested”. The Government of Canada would then enter into a master contract with the successful bidder. Under that contract, or Supply Arrangement (“SA”), the department in question (the RCMP) was entitled to order I.T. services by issuing a Task Authorization (“TA”).

16A “TA” is essentially a purchase order authorizing the service provider to furnish the requested resource for a defined number of hours. Theoretically this model was used where there was a definite need for I.T. services but the precise nature and timing of the need was not defined when the bid was solicited.

17Another procurement model was referred to as Task Based Informatics Professional Services (“TBIPS”). Under TBIPS, prequalified bidders would be invited to bid on providing one or more consultants to a specific project for a specific period of time. The successful bidder on a TBIPS would enter into a contract with the RCMP for the work set out in the TBIPS. Typically, that involved a defined task for a defined period of time with specific deliverables.

18There is some difference between the manner in which SAs and TBIPs were funded and in how the procurement was done but those differences are not germane to the issues before me. It is fair to say that in general TAs resulted in a series of short term contracts whereas a TBIPS resulted in a longer term and more stable contract but the distinction is not a rigid one. The two procurement vehicles could overlap and both could be extended or renewed. It was entirely possible for consultants to be working on a project for months or years under a series of TAs and to then continue that work under a TBIPS.

19For that matter consultants supplied under a TBIPS could be working alongside other consultants whose services were supplied pursuant to a TA and also alongside RCMP employees. The main difference is that in a SA, the scope of the work to be done is defined by the TAs as and when they are issued whereas in the TBIPS, the scope of the work is defined in the contract itself.

20An aspect of this model of periodic RFPs and competitive bidding was that an incumbent contractor could be unsuccessful in the next round of bidding. As a consequence, consultants might be working on a project with the RCMP and might find that the contractual vehicle under which those services were provided had come to an end. In some cases, the consultant would be replaced but in other cases, the consultant would sign with the new service provider and continue doing the same work.

21In some cases the RCMP might request the new provider to take on the existing consultant. The plaintiff’s witnesses, Mr. Brady and Mr. Beaupré, explained that in some cases even though the RCMP did not specify a consultant by name, the bid document or the TA might be drafted with such precision or such a unique combination of requirements that you “could smell the cologne”. In other words, the requested skill set might be so specific that it could only be satisfied by the incumbent consultant.

22The stock in trade of a service provider in this model is its ability to source and provide qualified consultants. There would be no point bidding on a contract if the service provider could not provide consultants with the necessary qualifications. It was the plaintiff’s evidence that the company did not simply bid on every opportunity. The cost of putting together a bid could be as much as $50,000.00. It would be the responsibility of the bidder to ensure that it could provide consultants who were suitably qualified and experienced and who met insurance and security requirements.

23Once a bid was awarded, the service provider took responsibility for all aspects of contract administration and human resources. It is for this reason that the plaintiff and its competitors often sought to bind their consultants with non-competition or non-solicitation agreements. As the evidence disclosed, however, experienced consultants were much in demand and in that case a non-competition agreement might be unattractive to the consultant.

Relationship Between the Parties

Relationship Between the Parties

24Between 2009 and 2014, the plaintiff had partnered with another service provider to bid on a particular Supply Arrangement. S.I. had signed an agreement with ADGA Group Consultants Inc. (ADGA). Under this arrangement, it was agreed that ADGA would bid on an RFP for Enterprise Computing Professional Services (ECPS) for the RCMP and that ADGA and S.I. would each provide 50% of required resources.

25The structure was that S.I. was subcontractor for ADGA so that when ADGA received a TA from the RCMP, ADGA would in turn issue a Purchase Order to the plaintiff for half of the necessary resources. For example, if four consultants were required, S.I. would provide two of them to ADGA and ADGA would provide the four consultants to the RCMP. S.I.’s consultants would bill S.I., S.I. would bill ADGA and ADGA would bill the RCMP.

26During much of the time in question, this is how Mr. Xu and Mr. Geng were providing their services to the RCMP. They were consultants to S.I. and they worked on TAs issued to ADGA. The last of their contracts with S.I. expired on March 31, 2014. At that time, they were working on the RCMP “CJIMS” project.

27During the months leading up to March 31, 2014, Mr. Geng and Mr. Xu had, been involved with other consultants and with Zylog Systems (Ottawa) Ltd. (Zylog) in preparing a bid on an anticipated TBIPS for work on the CJIMS project. When Zylog was awarded the TBIPS, Mr. Geng and Mr. Xu declined to renew their contracts with S.I. and went to work under the Zylog contract instead.

28Under the new TBIPs contract with Zylog, they both received higher daily rates than had been the case under the S.I. / ADGA sub-contract. More importantly for them, under the TBIPS contract they knew they had a stable contractual vehicle to work as a team on an RCMP project (CJIMS) they felt was important and with Mr. Geng as the team leader.

29Mr. Geng explained that on a previous occasion he had encouraged Mr. Beaupré (who was by that time his Account Manager at S.I.) to have S.I. bid on a TBIPS RFP but S.I. had failed to do so. That particular TBIPS – which was also for CJIMS - was not awarded because there was no qualified bidder but if it had been, the work that Mr. Geng was doing under the S.I. contract would have ended and been carried out by the successful TBIPS bidder. Mr. Geng testified that he lost faith in S.I. or at least in Mr. Beaupré at that point and concluded that S.I. lacked the interest or the skill to put together a TBIPS bid. Whether or not that is a justification for bidding through another service provider, it appears that Mr. Geng surreptitiously took this step while still under contract with S.I. and encouraged Mr. Xu to do likewise.

30Working on the TBIPS bid while under contract to S.I. and without disclosing it might be viewed as devious and disloyal. Mr. Beaupré testified that he was very hurt when he found out because he thought they had a solid relationship. But there is no legal remedy unless the defendants had a legal duty not to work on a bid with another company and unless they were contractually prohibited from taking the steps that they did.

31The defendants were independent contractors working under fixed term contracts. No one is suggesting that they were employees. No one is suggesting any kind of fiduciary duty. The only question before the court is whether these actions constituted breach of contract.

32At this point it is necessary to turn to the contract documents.

Mr. Geng and his non-competition agreement

Mr. Geng and his non-competition agreement

33Mr. Geng had done work for the RCMP before he signed a contract with S.I. Systems. Prior to contracting with S.I., Mr. Geng had been working for the RCMP through his own corporation, Quarksys Consulting Inc (Quarksys) under contract to Veritaaq Technology House Inc. (Veritaaq). Veritaaq had a Supply Arrangement with the RCMP. The contract between Quarksys and Veritaaq had contained a detailed non-competition and non-solicitation agreement binding Quarksys and included a schedule signed by Mr. Geng in which he acknowledged the restriction was also binding on him in his personal capacity.

34In 2009 Veritaaq had been unsuccessful in bidding on a continuation of the work and Mr. Geng discovered that his Veritaaq contract would have prohibited him from continuing to work for the RCMP through another service provider. The Veritaaq contract purported to prohibit the consultant from working for any of Veritaaq’s clients or prospective clients for a period of six months after the end of the contract. Had this been enforced, Mr. Geng would have had to cease working for the RCMP and look for other work.

35It was Mr. Geng’s evidence that Veritaaq agreed to release him from this obligation because at that time Veritaaq no longer had a contract to provide I.T. services to the RCMP and both he and Veritaaq wanted to preserve a good working relationship. Mr. Geng was referred to S.I. in order to use the S.I. sub contract as the vehicle for him to continue the work he was doing on the RCMP project. At that time, the Account Executive Mr. Geng dealt with at S.I. was Carl Robillard. Mr. Geng testified that he had learned his lesson from the Veritaaq situation and he told Mr. Robillard he did not want a non-competition agreement.

36S.I. entered into a contract with Quarksys Consulting Inc. on January 1st, 2009. The contract was to provide the services of Mr. Geng to the Application Development Branch of the RCMP for up to 60 days between January 1, 2009 and March 31, 2009. It is common ground that the agreement signed by Mr. Geng on behalf of Quarksys and by Carl Robillard on behalf of S.I. Systems did not contain a non-competition agreement. In fact, there is nothing in the language of the agreement other than the commitment to provide what amounts to full time work which would prohibit Quarksys or Mr. Geng from providing services to anyone else.

37Two reasons were given for the absence of a non-competition clause. The first was Mr. Geng’s reluctance to sign such an agreement and the second was the fact that this was a “flow through” contract. The plaintiff’s witnesses testified they did not normally seek a “non comp” in a “flow through” agreement. A flow through contract is one in which the service provider does not locate and source the consultant but rather is asked to host the contract by the client (the client in this case being the RCMP). Originally Mr. Geng had been referred to ADGA by the RCMP and to S.I. by ADGA. He was not a consultant who had been developed by S.I. These explanations are not inconsistent. I find that Mr. Geng told S.I. that he did not want a non-competition agreement and I find that S.I. accepted that because it was a flow through contract.

38Mr. Geng operated under that same contract with S.I. from January 1, 2009 until August 31, 2010. At regular intervals, S.I. and Quarksys signed one page amending agreements which extended the term of the original contract and in some cases adjusted the daily rate to be paid for Mr. Geng’s services. None of those amendments contained non-competition agreements. During this whole period of time, S.I. was operating under its sub-contract with ADGA and ADGA was receiving TAs from the RCMP and issuing Purchase Orders to S.I. Mr. Geng continued to work on the same project at the RCMP throughout that time and on more than one occasion, the contract extensions and other paperwork were signed or issued after the fact.

39Mr. Geng worked elsewhere between August 31, 2010 and December 1, 2011. On November 22, 2011 he signed a new agreement between Quarksys and S.I. for the period December 1, 2011 to March 31, 2012. The rates were higher but the terms were otherwise the same. There was no non-competition clause in this new agreement. The contract was essentially identical to that signed two years earlier.

40In 2012, S.I. changed its method of offering work to consultants and tracking time. It introduced an electronic portal. Consultants wishing to work with S.I. obtained an account and log in credentials on the S.I. portal. The consultant would receive an e-mail indicating there was an offer of work and was required to log on to the portal. On the portal there was a summary of the proposed contract showing the nature of the work, the start date, end date, number of days or hours and the rate. There was also a window with the heading “Please review the contract in its entirety” and in that window was a proposed contract which could be read on line by scrolling down in the window but could also be downloaded. There was a check box indicating “I accept” or “I do not accept”. If accepted electronically, the accepted contract would remain available to the consultant in the portal but could also be downloaded or printed.

41On March 23, 2012, Mr. Geng logged onto the portal in response to an e-mail and accepted a contract with S.I. to provide consulting services to the RCMP from April 1, 2012 to March 31, 2013. This was a continuation of the work he was already doing. The rate as disclosed to him was the same as in the previous contract as was the work itself. This time, however, the contract did contain a non-competition provision. Paragraph 12 of the agreement read as follows:

“12. During the Term and for the six months following termination of this Agreement, the Consultant agrees not to solicit, or accept, employment or consulting from the Client, either directly or indirectly, on its own account or on behalf of another, in respect of Services similar to those provided. The Consultant represents, warrants and covenants that its Personnel will similarly agree not to solicit, or accept, employment or consulting from the Client, either directly or indirectly, on its own account or on behalf of another, in respect of Services similar to those provided or contemplated.”

42It is Mr. Geng’s evidence that he had no idea this provision was in the contract. The contracts he had signed on January 6th, 2009 and November 23, 2011 had been identical and had not contained non competition provisions. S.I.s practice had always been to amend and extend existing contracts. It was his evidence that he clicked “accept” on the portal but did not read the new contract. The S.I. portal tracks the interaction of the consultant with the portal. It is evident from the tracking report attached to the document that it was opened at 9:57 a.m. and electronically accepted at 9:59.

43The following year, the same sequence of events took place. Mr. Geng was advised on March 8, 2013 of the availability of a new contract. On March 23, 2013 he logged onto the portal and accepted the contract. This contract was for a higher daily rate and ran from April 1, 2013 to March 31, 2014. Mr. Geng opened the contract on the portal at 7.03 a.m. and accepted it within seconds. Again, the contract contained the non-competition agreement at paragraph 12 and again Mr. Geng says that he did not read it and was not aware that S.I. had inserted a non competition provision into its contract with Quarksys.

44On March 31, 2014, Mr. Geng was offered a new contract on the portal. This time he declined. He advised S.I. through Mr. Beaupré that he would be working under a Zylog contract because at that time Zylog had successfully bid on the TBIPS. Subsequently, the RCMP cancelled the TA which had been issued to ADGA / S.I. because the work contemplated by that TA had been subsumed by the new TBIPS.

45It is evident that if paragraph 12 of the new agreement was binding on Mr. Geng and Quarksys then working to assist Zylog to bid on the TBIPs would have been soliciting work from the “client” in respect of services similar to those provided by S.I.. Entering into a contract with Zylog to provide those services would have been accepting employment or consulting in respect of such services. The plaintiff asks the court to find that Quarksys and Mr. Geng were in breach of contract by so doing and hence liable in damages.

Mr. Xu and the non-competition agreement

Mr. Xu and the non-competition agreement

46Similar to Mr. Geng, Mr. Xu started providing services to the RCMP under an S.I. contract in 2009. A contract was signed between S.I. and C & C Hi-Tech Inc. on January 23, 2009. It was for the provision of Mr. Xu’s I.T. services to the RCMP Violent Crime Linkage Analysis System (ViCLAS) between January 26, 2009 and September 30, 2009.

47Unlike the situation with Mr. Geng, however, S.I. was not a subcontractor of ADGA on the ViCLAS project but was a prime contractor. Also unlike the situation with Mr. Geng, the contract with C & C did contain a non solicitation and non competition provision as follows:

“13. During the term of this agreement and for six months following its termination, the Consultant and any of their agents, employees, independent contractors and other representatives, agrees not to solicit the Client, either directly or indirectly, on their own account or on behalf of another, in respect of services similar to those as provided hereunder.”

“14. During the term of this agreement and for six months following its termination, the Consultant or any of their agents, employees, independent contractors and other representatives, agrees not to accept, either directly or indirectly, on their own account or on behalf of another, employment or consulting assignments from the Client.”

48The original contract was amended and extended approximately six times and Mr. Xu worked for the RCMP under contract to S.I. until March 31, 2012. Each of these extensions continued under the original contract with S.I. On March 23, 2012 the parties signed a new contract. This was for work between April 1, 2012 and May 31, 2012. This time the agreement was the same contract accepted through the portal by Mr. Geng. It contained the non-competition provision in paragraph 12 which effectively combines the language of paragraphs 13 & 14 in the original contract. The electronic tracking shows that Mr. Xu opened the “contract acceptance flow” at 11:32 a.m. on March 23rd, 2012 and accepted it at 11:36.

49Once the portal was in operation, S.I. no longer issued contract amendments and renewals. The new procedure was to issue a new contract electronically and to have the consultant accept it by checking the box on the portal. A copy of the accepted contract was kept in the consultant’s account on the portal and could be read or downloaded.

50On May 16, 2012, Mr. Xu accepted a contract for 42 days of work, taking him from June 1 to July 31, 2012. It contained the non-competition provision. This was repeated on July 10, 2012, October 24, 2012, January 17, 2013, March 6, 2013, July 29, 2013, and July 30, 2013. The latter contract was in effect from August 12, 2013 to March 31, 2014. All of these contracts accepted on the portal had the same wording except that the account executive changed from Mr. Robillard to Mr. Beaupré. All of these contracts contained the non-competition wording in paragraph 12.

51On March 31, 2014, Mr. Xu refused to accept a new contract with S.I. and advised Mr. Beaupré he had accepted work under the TBIPS with Zylog. Mr. Xu had been involved with Mr. Geng and other consultants in preparing the Zylog bid and clearly the bid and the resulting contract with Zylog was for services identical or similar to the services that had been provided through S.I. As Mr. Xu explained, the day he reported for work under the Zylog contract, it was to the same desk, doing the same work and even using the same computer.

52Mr. Xu was aware that there was a non-competition clause in his agreement. It was his evidence that when he first discussed working with S.I. with Carl Robillard of S.I. Systems, he had indicated that he did not want to sign a non-competition agreement. It is his evidence that Mr. Robillard said he could not change the contract which was a standardized form but he testified that Mr. Robillard told him S.I. would not enforce the provision. It was his evidence that when his account manager changed to Mr. Beaupré, Mr. Beaupré repeated this assurance and also told him that he, Mr. Beaupré had the discretion to enforce the clause or not and would not do so.

53According to Mr. Xu, it was only because of these assurances that he signed the contract. No one called Mr. Robillard as a witness. Mr. Beaupré denies that he ever told Mr. Xu the provision would not be enforced. To the contrary, it is Mr. Beaupré’s evidence that he always advised consultants that S.I. does enforce the contract.

Mr Archdeacon, non-competition and TBIPS

Mr Archdeacon, non-competition and TBIPS

54Mr. Archdeacon is also an I.T. consultant and was a witness for the defence. It was his evidence that in 2013 he was providing consulting services to the RCMP through Zylog but for a period of time Zylog did not have a contract with the RCMP. He needed a contractual vehicle to continue working on the project pending an upcoming TBIPS on which he expected Zylog would bid. He was referred to ADGA and to S.I. The RCMP then issued a specific TA requesting Mr. Archdeacon’s services on the project. ADGA then issued a Purchase Order to S.I. for Mr. Archdeacon and he in turn signed a contract with S.I. through his personal services corporation.

55The Archdeacon contract with S.I. was a paper contract that did not contain a non-competition agreement. According to the plaintiff this was because it was a flow through contract and according to the plaintiff, S.I. never tried to get Mr. Archdeacon to sign a non-competition agreement because it was always understood that S.I. was only servicing the contract until the upcoming TBIPS.

56Mr. Archdeacon’s evidence contradicted this. He testified that he was originally presented with a contract with a non-competition clause in it on the portal. He testified that he declined to sign it even though he also says he was told by the representative of S.I. that it would not be enforced. Ultimately, he was provided with a hard copy agreement which did not have a non-competition agreement.

57Mr. Archdeacon’s evidence is problematic. First and foremost, it does not meet the test for similar fact evidence. The defendants cannot prove that a misrepresentation was made to Mr. Xu by showing that a misrepresentation was made to Mr. Archdeacon. In any event, it would be necessary for the defendants to prove that Mr. Archdeacon’s memory of events is accurate and that is difficult to do. Mr. Archdeacon conceded that he was working from memory several years after the fact.

58There is no evidence of any draft agreement containing a non-competition agreement. The only agreement that was before the court was a signed contract which does not contain such a provision. This is consistent with the plaintiff’s evidence that this was a flow through agreement. Both S.I. and Mr. Archdeacon were clear that everyone understood the relationship was short term and he would be returning to another service provider. S.I. attempted to introduce evidence to refute that of Mr. Archdeacon by showing that there is no record in its portal of Mr. Archdeacon ever being offered a standard contract or declining to accept it. I did not admit that evidence as a business record because notice had not been given and it had not been previously disclosed. In any event it could hardly have been probative of a negative. The fact remains, however that on this point the defendant has the onus of proof and there is no documentary evidence to back up Mr. Archdeacon’s recollection that he was asked to sign a non-competition agreement which S.I. promised not to enforce.

59On the evidence before me, I cannot conclude that S.I. ever attempted to negotiate a non-competition agreement with Mr. Archdeacon. To the contrary, I accept the evidence that “flow through agreements” were treated differently than other contracts.

60What S.I. did know was that Mr. Archdeacon was assembling a team to bid on a TBIPS. In fact when the RFP came out for the TBIPS, S.I. assumed that it was Mr. Archdeacon’s “cologne” that was imprinted on the TBIPS. Mr. Beaupré assumed the TBIPS was written for Mr. Archdeacon and a team he was putting together. With that knowledge, Mr. Beaupré sent an email to Mr. Archdeacon proposing that he bring his team to S.I. and S.I. would then bid on the TBIPS. He offered to give Mr. Archdeacon a “great deal” and to only charge 5% of the value of the TBIPS. It never occurred to him that Mr. Geng was part of the team and the TBIPS may have been written with Mr. Geng in mind even though Mr. Beaupré knew that Mr. Geng filled a leadership role on the project.

61I mentioned earlier that the procurement process for TAs was different than for TBIPS. What occurred in March was that a TA was issued for additional work and it was this TA which formed the basis for the contract renewal offered to Mr. Geng and Mr. Xu. When the TBIPS was granted to Zylog, the work under the TBIPS superseded the work which had been authorized under the TA. The TA was then cancelled. This appears to have been the result of two different procurement processes operating at the same time. The TA was issued because the RCMP did not know when or if the TBIPS bid would be approved. As discussed above, an earlier TBIPS had been unsuccessful because there was no qualified bidder. The work had to continue under TAs until a TBIPS was in place.

Mr. Chahal and his contract

Mr. Chahal and his contract

62Mr. Chahal was an I.T. consultant who was under contract with S.I. between July 22, 2013 and March 31, 2014. His evidence was that he was originally offered a contract on the on-line portal but it had mistakes in it including a non-competition agreement which he was not willing to sign – or at least he assumes it did because there is an e-mail in which he asked that the non-competition clause be deleted. In any event, he received a revised contract to sign by email and the contract did not have a non-competition agreement. This sequence of events is confirmed by the email chain put to Mr. Chahal in cross-examination.

63What the evidence of Mr. Chahal and Mr. Archdeacon both show is that S.I. did have the capacity to enter into agreements without using the portal and that S.I. was prepared to remove the non-competition provision. This however is not inconsistent with S.I.’s own evidence that it considered it inappropriate to ask for a non-competition clause in a flow through agreement. Mr. Chahal’s contract was always a flow through contract.

64Mr Chahal explained that the reason he did not wish to sign a non-competition agreement was exactly the scenario described by Mr. Geng in regard to his Veritaaq contract. Mr. Chahal testified that he had heard of situations in which a service provider had lost a contract and had used the non-compete provision to make it difficult for the new service provider to make a smooth transition. For this reason, it was his practice never to sign a non-competition agreement.

Analysis

Analysis

65I accept Mr. Geng’s evidence that he did not realize that S.I. had inserted a non-competition agreement into his contract. In part this is because the change was not brought to his attention and in part it was because he did not take the time to read the contract when S.I. began to use the portal. There is an email to Mr. Beaupre in which Mr. Geng asserted that he did not have a non-competition agreement after he left S.I.. I accept that he was surprized when it was drawn to his attention. The question is whether failing to read the agreement under these circumstances means that it is not binding upon him.

66As noted, Mr. Xu is in a different situation because he knew all along that there was a non-competition clause in his agreement. He chose to sign it anyway. The question is whether he did so because S.I. promised not to enforce the provision. This was pleaded as a misrepresentation but I do not consider “misrepresentation” to be the correct principle. A promise made and broken would be breach of contract. A promise not to enforce a provision of a written contract may either constitute an amendment to the contract or a separate side-agreement or it could raise an estoppel. If Mr. Robillard and subsequently Mr. Beaupré encouraged Mr. Xu to sign their standard form contract containing the non-competition agreement by specifically agreeing that S.I. would not enforce the clause then it may be unenforceable.

67Dealing firstly with Mr. Geng, it is not normally a defence to have failed to read a contract before signing it. To the contrary, in the absence of fraud, a contracting party is bound by a contract to which it has put its signature whether it chose to read the agreement or not. The law is succinctly summarized in the Fraser Jewellers case which remains good law.² A party has a duty to review the document before signing it and it cannot use the failure to exercise reasonable prudence and diligence to avoid the contract. This principle is equally applicable to a printed contract or one which is presented electronically providing the contracting party could readily have discerned the term had it turned the page or scrolled down the screen or window.³

68The presumption that the written text is binding and reflects the intention of the parties is underscored by the “parol evidence rule” based on the policy grounds that commercial certainty is best achieved if clear and precise written contracts are enforced.⁴ There can be no doubt that if Mr. Geng had read the contract on the portal, he would readily have noticed that it contained a non-competition clause.

69It is not an absolute rule that signing a contract binds a party to all of the terms. This is because a contract requires a mutual intention by both parties to be bound by its terms. An obscure clause that is buried in “fine print” or complex language which could not be readily understood or a provision that is startling and would be unanticipated may engage a requirement to specifically draw the clause to the attention of the party.⁵

70In this case, Mr. Geng had been under contract with S.I. for much of the past five years. On the two occasions when written contracts had been provided, those contracts had been identical and had not contained a non-competition agreement. On every other previous occasion when contracts had been extended, the extension agreement had focused on the duration of the sub-contract and the rate to be billed by the consultant. Mr. Geng had no reason to suspect that just because the plaintiff had adopted an electronic portal, it was also changing the contract by inserting this non-competition provision. If the use of the portal was also intended to introduce new terms into the contractual relationship, S.I. should have clearly and unambiguously advised its consultants of that fact. On the evidence before me, it did not do so.

71I find that S.I. Systems had a duty to advise Mr. Geng that the new contract contained new terms even though there was no fiduciary relationship and even though the parties were at pains to create a series of term contracts rather than a continuing employment relationship. The plaintiff knew or ought to have known that Mr. Geng would not willingly bind himself to a non-competition agreement. Under these circumstances, I would hold that the non-competition agreement was not binding upon Quarksys or Mr. Geng.

72Mr. Xu’s situation is different. He knew there was a non-competition agreement and chose to sign it anyway. By doing so, he knew that the contract purported to bind both his corporation and himself not to solicit work for competitors of the plaintiff and not to work for clients of the plaintiff for six months after the end of the contract.

73Mr. Xu contends that Mr. Robillard told him that the non-competition clause would not be enforced. It would take very precise language to derogate from the written contract and Mr. Xu did not call Mr. Robillard as a witness. There is a heavy onus on a party which seeks to prove that the terms of a written contract are not enforceable because of an oral promise.⁶ A vague representation that a clause is not usually enforceable or even a personal promise not to do so, would not constitute an amendment to a written contract.

74Much would depend on the precise words used and the context in which they were uttered but we will never know exactly because the defendant did not call Mr. Robillard as a witness. As I said above, there is a powerful presumption that parties signing written contracts understand that they are enforceable even if they believe the risk of enforcement may be low. Mr. Archdeacon understood this because he refused to sign the contract and insisted on a contract without a non-competition clause. Had Mr. Xu done likewise, it is likely S.I. would also have amended his contract as well.

75Mr. Xu testified that Mr. Beaupré made the same promise as Mr. Robillard but Mr. Beaupré denied that. If asked, he stated that he always told consultants that S.I. took the non-competition clause seriously and would enforce it. There was no reason for Mr. Beaupré to mislead Mr. Xu on this point. As was apparent from the dealings with Mr. Archdeacon and Mr. Chahal, Mr. Beaupré and S.I. were prepared to provide an agreement without a non-competition agreement if they considered it appropriate. On the issue of a promise not to enforce the non-competition agreement, I prefer Mr. Beaupré’s evidence to that of Mr. Xu and I draw a negative inference from the failure to call Mr. Robillard.

76I find that Mr. Xu knew that he had a non-competition agreement in his contract and while he may have hoped it would not be enforced, he had no binding promise not to do so. He and Mr. Beaupré may have discussed the matter but the defendant has the onus of proving the allegation that there was a clear promise not to enforce the contract. I find that onus has not been met.

77The above analysis would lead to the conclusion that Mr. Geng was free to compete with S.I. Systems but Mr. Xu was not. But that is not the end of the analysis. For there to be liability, the non-competition provision must be reasonable in scope and otherwise legally enforceable. As I will discuss, I find this not to be the case.

78I fully understand why the plaintiff wishes to bind its consultants not to do what was done in this case, to secretly bid against it and then to work for a competitor. In this case, however, I do not consider the wording of the agreement to be sufficiently precise and restrained.

79Covenants which restrict a contractor from dealing with other service providers are presumptively a restraint on trade and are unenforceable. The courts have been prepared to enforce such contracts only in circumstances in which the restraint is justifiable and in the broader public interest. Amongst the requirements for enforceability are a proprietary interest such as a trade secret or a customer list or specific vulnerability to unfair competition.⁷ The onus is on the party seeking to enforce a restrictive covenant to show that the restriction is unambiguous and reasonable under all the circumstances.⁸

80S.I. Systems does not have a proprietary interest in I.T. expertise. To the contrary, it is a conduit for supplying consultants with the knowledge, background and training requested by the client. I note as well that all parties in this sector have structured their affairs as a series of term contracts. This is not a situation in which the plaintiff has sought to bind a consultant to an exclusive representation agreement and it is not an agency model such as is often found in sports or entertainment. There is no additional payment or consideration other than entering into the requested contract which makes it fair or reasonable to extract a non-competition agreement in the form that exists here.

81This is not to say that S.I. has no proprietary interest which could be protected by a properly constructed non-solicitation and non-competition agreement. I agree that inside knowledge of bid preparation, customer lists, pricing and lists of consultants could be proprietary information worthy of protection. In this case, however, there can be no proprietary interest in the identity of clients. The sole client involved in these events was the RCMP. The RFPs are by their nature publicly available and cannot be proprietary information.⁹

82In my view the prohibition on providing service to the “client” for six months after the termination of a fixed term sub-contract for the provision of I.T. services is far too broad. A perfect example of this was the situation described by Mr. Geng and Mr. Archdeacon in which Veritaaq ceased to have a contract with the RCMP for a period of time. In those circumstances, it would be unreasonable for the consultant to be required to stop providing service to the RCMP simply because the particular contractual vehicle under which those services were previously provided no longer existed.

83The only purpose in enforcing the agreement under those circumstances would be, as Mr. Chahal testified, to make it difficult for the new service provider to make a smooth transition. In circumstances in which a service provider is unsuccessful in bidding on a renewal of its service contract, it is simply unreasonable to prevent consultants who are providing a valuable and important service from then signing on with the new service provider. That is a restraint of trade which serves no purpose other than to disrupt the service to the client and make it difficult for the new service provider who at that point has already won the bid.

84Even if there is some justification for preventing the consultant providing the exact same service as the consultant was providing under its previous contract with a service provider, there is no basis for enforcing a term that the consultant cannot provide any such service to the entire RCMP anywhere in the world. The clause in question is not limited to the division, section or project to which S.I. was already providing service but purports to prohibit any work for the national police force and does not contain any geographical limit.

85I can readily see the importance to the plaintiff of requiring its consultants not to secretly assist a competitor to put in a competing bid for the very same work. A specific non-solicitation agreement in those circumstances might have been justified. Here, however, the non-solicition and non-competition provisions are rolled together. The jurisprudence is clear that in such circumstances, the contractual restriction must generally be read as a whole and must stand or fall together.¹⁰

86There is also a complication because of the TBIPS. It was apparent to S.I. that if a TBIPS was issued, it would overlap with the work S.I. was supporting under the ADGA sub-contract. Despite this, S.I. did not bid on either the previous TBIPS or the TBIPS that Zylog obtained in 2014. It is unreasonable by means of a non-competition agreement to restrain freelance consultants from involvement in an RFP on which the plaintiff had no intention of bidding.

87I acknowledge that had Mr. Geng revealed to S.I. that he was working with Mr. Archdeacon on the TBIPS bid and the TBIPS was expected to be tailored to the work Mr. Geng and his team were doing under the S.I. contract, things might have unfolded differently. The court however is not involved in operating a crystal ball and evaluating what might have been. My concern is one of determining if the clause as worded is enforceable. I conclude that it is not.

88The plaintiff also advanced claims for inducing breach of contract. Under this theory, even if Mr. Geng was not bound by a non-competition agreement, he might have been found liable for inducing Mr. Xu to breach his contract. Since I find that Mr. Xu did not breach his contract, this claim fails as well.

Damages

Damages

89The TBIPS also has an impact on the question of damages. Had Mr. Xu continued working for S.I. under the ADGA subcontract, and had the TBIPS bid by Zylog been successful, S.I. would still have found the TA for the work after March 31 being rescinded. On the other hand, had S.I. bid on the TBIPS with Mr. Archdeacon, S.I. would have been prepared to treat it as a flow through and only charge 5% of the consultant’s daily rate as an administration fee. So it seems as if the decision to issue a TBIPS would have had an impact on S.I.s contract no matter how it had unfolded.

90In those circumstances, the damages would have been nominal. Even had I concluded that the non-competition clause should be enforced, I am not persuaded the plaintiff has proven any significant damages. I have already discussed the impact of the TBIPS but even if I assume that the TBIPS would have failed without Mr. Geng and Mr. Xu, there is no evidence to show that S.I.’s revenues took a significant hit from the departure of these consultants.

91S.I. has continued to bid on Supply Arrangements and has been successful in obtaining contracts for “all five streams” of a subsequent RFP. In this case, it is the prime contractor and no longer a sub-contractor to ADGA. The evidence does not persuade me that there were significant damages for breach of contract and no such damages that could not be mitigated.

92All of S.I.’s term contracts under Supply Arrangements carry a certain risk. The RCMP might not have funding to issue TAs for the work. There are periodic requirement to requalify and to rebid on the work. As events demonstrate, the work done under the Supply Arrangement may be displaced by a different procurement vehicle. As well there is always the risk that a consultant will find other work and not be available to S.I. and in such circumstances the plaintiff could either not answer the TA or would be required to find an alternate consultant.

Conclusion

Conclusion

93In conclusion, I would have found that Mr. Geng was not bound by the non-competition clause slipped into his contract when the portal was introduced but that Mr. Xu was bound by the term in his contract. He signed the contract knowing what it contained.

94For the reasons enunciated above, however, I conclude that the clause as worded is unreasonably broad and is unenforceable. Finally, I conclude that the plaintiff has failed to prove its damages.

95Under these circumstances, the plaintiff’s claim against these defendants is dismissed.

Costs

Costs

96The defendants are presumptively entitled to costs on a partial indemnity scale. It remains to be determined if there were offers to settle or other factors that should result in a different outcome.

97I may be spoken to if the parties are unable to resolve the question of costs. In that case, counsel should contact my office within the next 30 days for further direction.

Mr. Justice C. MacLeod

Date: December 23, 2020

COURT FILE NO.: 16-67606

DATE: 2020/12/23

ONTARIO

SUPERIOR COURT OF JUSTICE

RE: S.I. Systems Partnership, Plaintiff

AND:

Li Geng, Xin Xu a.k.a. Jimmy Xu, Quarksys Consulting Inc. and X & C Hi-Tech Inc., Defendants

BEFORE: Mr. Justice C. MacLeod

COUNSEL: Jason M. Berall & Andrew Sahai, for the Plaintiff

Melinda Layton, for the Defendants

Reasons for judgment

Mr. Justice C. MacLeod

Released: December 23, 2020

Schedule A – Method of Conducting the Virtual Trial

Schedule A – Method of Conducting the Virtual Trial

A. As virtual trials are still relatively novel, it is worthwhile to briefly describe the key features of this method of proceeding:

a. The parties and their counsel received a link to the videoconference hosted on one of the Court’s Zoom accounts which was designated as Virtual Court Room 206.

b. Members of the public and other interested observers were also provided with the Zoom coordinates so that they might observe the trial in accordance with the open court principle (but subject to an order excluding witnesses).

c. A court room Registrar and court reporter were present throughout the trial. The Registrar was the host and controlled the waiting room and break out room functions. The judge was the “co-host”. The Registrar was on-screen while the reporter was not. The Registrar and Reporter were in a physical court room (CR 52) separated by plexiglass and appropriate PPE. All other participants were in their offices or other appropriate space.

d. Prior to the opening of trial, counsel were provided with a link to “Sync.com”. The plaintiff uploaded a copy of the trial record and an indexed brief of documents. Each document was provided with a number (Tab number) and identified as to its origin in the pre-trial productions of each party. During the trial, counsel, the judge and the Registrar all had access to the Sync folders.

e. When a document was referred to in evidence and made an exhibit, a copy of the document was emailed to the Registrar. The Registrar kept an Exhibit folder on her computer along with an electronic Exhibit list. She also uploaded this to the shared document drive and updated it each day.

f. Witnesses were sworn in by video. All witnesses were affirmed rather than sworn. Each witness was asked to confirm under oath whether anyone else was present and that they had no documents other than the exhibits.

g. Documents were presented to each witness using the share screen function on Zoom but in instances where that proved cumbersome or it was necessary for the witness to read entire documents in context, a copy of the exhibit was emailed to the witness.

h. During objections or other matters that were to be discussed in the absence of the witness, the witness was placed in a “breakout room” by the Registrar. Similarly, if there was a necessity for counsel to confer privately with her or his client, they could be placed in a break out room.

i. Counsel were not required to gown for the trial but all participants were advised that business attire was expected. The Registrar and the judge were robed as usual.

B. With these modifications, the trial proceeded largely without incident. The plaintiff called two witnesses and the defendants called four. With the benefit of hindsight, there is no reason that the evidence in chief could not have gone in by affidavit and this action would have been ideally suited to the procedure set out in Rule 76. In the event, the trial involved four days of evidence and a day for oral submissions.

Footnotes

1. 1Rules of Civil Procedure, R.R.O. 1990, Reg. 194
2. 2Fraser Jewellers (1982) Ltd. V. Dominion Electric Protection Co., (1997) 1997 CanLII 4452 (ON CA), 34 O.R. (3d) 1; 148 DLR (4th) 496 (Ont.CA), recently relied upon in Suhaag Jewellers Ltd., v. Alarm Factory Inc., 2016 ONCA 33
3. 3See Rudder v. Microsoft Corp., (1999) 1999 CanLII 14923 (ON SC), 40 CPC (4th) 394 (Ont.SCJ)
4. 4Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53
5. 5See Tilden Rent-A-Car Co. v. Clendenning, (1978) 1978 CanLII 1446 (ON CA), 18 OR (2d) 601; 83 DLR (3d) 400 (Ont.CA)
6. 6See Honey Bee (Hong Kong) Limited v. VitaSound AudioInc., 2018 ONSC 5787
7. 7See Maguire v. Northern Drug Co., 1935 CanLII 35 (SCC), [1935] SCR 412 and J.G. Collins Insurance Agency v. Elsley, 1978 CanLII 7 (SCC), [1978] 2 SCR 916 @ para. 13 - 20
8. 8See KRG Insurance Brokers (Western) Inc. v. Shafron, 2009 SCC 6; [2009] 1 SCR 157 @ para. 27
9. 9See Violia ES Industrial Services inc. v. Brulé, 2012 ONCA 173
10. 10See Sheehan v. Rosie Ltd. v. Northwood, [2000] O.J. No. 716; (2000) 95 ACWS (3d) 552 (SCJ) and