COURT FILE NO.: 981/21
DATE: 20220113
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AM GROUP OF COMPANIES LTD.
Plaintiff/Defendant by Counterclaim
– and –
JOSIAH GOUIN, COURTNEY BECKER and 12724332 CANADA CORPORATION
Defendants/Plaintiffs by Counterclaim
Timothy J. McGurrin, Emily C. Durst, for the Plaintiff, Defendant by Counterclaim
Anne Marie Frauts, Adrien P. Cameron for the Defendants, Plaintiffs by Counterclaim
HEARD: October 20, 2021
TRANQUILLI J.
[1] The plaintiff AM Group of Companies Ltd. is a family-owned renovation company providing roofing and other exterior services throughout Central and Southern Ontario. AM Group applies for an interim and interlocutory injunction to enforce the restrictive covenants of a consulting contract with its former sales consultant, the defendant Josiah Gouin. The restrictive covenants prohibit the use of confidential information and restrains the plaintiff from competition with the plaintiff and solicitation of plaintiff customers and employees for a period of 12 months from the termination of the contract.
[2] The plaintiff claims Mr. Gouin is in breach of the consulting contract. The plaintiff alleges Mr. Gouin unlawfully used the plaintiff’s proprietary and confidential information and customers to set up the defendant business, “Dream Exteriors”, in direct competition with the plaintiff.
[3] An interim injunction has been in place since August 2021 pending the hearing of this application. The interim order enjoins the defendants from using or disclosing confidential information as defined in the consulting contract and from soliciting any known existing or known prospective customers of the plaintiff and any of the plaintiff’s current employees or contractors. The defendants deny actionable wrongdoing; however, consent to the continuation of the interim order pending further court order.
[4] At issue is whether the interim injunction should be replaced with an interlocutory injunction. The plaintiff seeks enforcement of the non-disclosure, non-solicitation and non-competition provisions of Mr. Gouin’s contract, with additional provisions detailing the extent and scope of the restrictive covenants. The plaintiff also seeks to extend the period of non-competition and non-solicitation to 12 months from the date of this application, as opposed to one year from the termination of the contract. Crucially, the plaintiff seeks an interlocutory order requiring Dream Exteriors to cease and desist operations.
[5] For the reasons that follow, I find that the plaintiff has failed to justify the imposition of an interlocutory injunction with the additional terms sought. The interim injunction shall continue, pending further order of the court, agreement of the parties, or motion of a party to this action.
Positions of the Parties
[6] The plaintiff submits the injunction is necessary and justified on the evidence. The terms of the interim order are too narrow and do not enforce the contractual terms for non-competition. Further, the record demonstrates the defendant Gouin engaged in appalling conduct through his use of the plaintiff’s proprietary and confidential information. In fact, the defendants continued to access the plaintiff’s confidential information in disregard of the interim order. The plaintiff also contends the defendants have not been transparent and that there is good reason to believe they continue to conceal the extent of their possession of the plaintiff’s confidential and proprietary information.
[7] The defendants oppose the motion. An interim injunction is already in place. The defendants consent to its continuation at this time. The defendants submit the plaintiffs failed to justify the expansion of the terms of the injunction at this stage. The defendants have been transparent in their efforts to identify any arguably confidential or proprietary information that may be in their possession. The plaintiff is incorrect in its contention the defendants have accessed the plaintiff’s confidential information in breach of the court order.
[8] Although the defendants consent to the continuation of the consent order, they challenge the enforceability of the restrictive covenants in Mr. Gouin’s contract. They contend he was in substance an employee of the plaintiff and not an independent contractor, as represented by the sales consultant contract. The defendants submit that a determination of this issue in Mr. Gouin’s favour would mean the restrictive covenants are not enforceable. A motion for partial summary judgment on this issue is returnable in February 2022.
Background
[9] The defendant Mr. Gouin is a former sales consultant employed with the plaintiff. He worked for AM Group between June 2014 and August 2017, and again from May 15, 2018 until his resignation on February 12, 2021.
[10] Mr. Gouin signed a “Consulting Agreement” with the plaintiff on May 15, 2018. In the agreement Mr. Gouin acknowledged he was not an employee and that he was subject to restrictive covenants on the non-disclosure and use of AM Group’s confidential information, non-solicitation of AM Group’s clients, potential clients and employees and contractors for a period of 12 months and no direct or indirect competition with AM Group with a 50 km radius of any AM Roofing location for a period of 12 months.
[11] The defendant Dream Exteriors was incorporated on February 9, 2021, by either the defendant Mr. Gouin or his spouse, the defendant Courtney Becker. Ms. Becker is the sole officer and director of the defendant Dream Exteriors however, there appears to be no dispute that Mr. Gouin is the outward operator of the company.
[12] Mr. Gouin resigned from AM Group on February 12, 2021, three days after the incorporation of Dream Exteriors.
[13] AM Group was suspicious and reviewed Mr. Gouin’s corporate email account after his departure. The plaintiff found Mr. Gouin had wiped all emails from his inbox, sent, deleted and trash bin folders. The plaintiff recovered some emails from the defendant’s corporate account. These showed that between December 2020 and February 2021 Mr. Gouin forwarded various plaintiff documents to his private email account. This included details of AM Group’s existing and prospective customer contracts, various template contracts, pricing lists, estimate worksheets and sales presentations. AM Group claims these items are confidential and proprietary information. The plaintiff invested significant time and money in working with a consultant to develop the sales process, which makes the information unique in the marketplace.
[14] In early May 2021, AM Group confirmed Dream Exteriors was using a contract that was a replica of the AM Group standard form customer contract. The plaintiff also identified communications which appeared to show Mr. Gouin redirected contracts or potential clients from AM Group to Dream Exteriors and that he either induced or attempted to induce AM Group employees or contractors to leave and work for Dream Exteriors.
[15] By statement of claim issued May 28, 2021, AM Group commenced this action against the defendants. The plaintiff claims damages of $1,000,000 for breach of contract, unlawful interference with economic relations, misappropriation and misuse of confidential information and breach of fiduciary duty. The claim also seeks the injunctive relief largely sought on this motion.
[16] The injunction application came before Justice McArthur on August 27, 2021 for scheduling. The defendants sought to defer the scheduling of the injunction in anticipation of their newly filed motion for partial summary judgment. Justice McArthur refused to delay the hearing of the injunction application.
[17] Justice McArthur was satisfied there was evidence to support granting a limited interim injunction in favour of the plaintiff until such time as the motion was heard. While some aspects of the plaintiff’s claimed damages were likely quantifiable, there was a question as to the defendant’s ability to pay given Mr. Gouin’s assignment into bankruptcy. Justice McArthur found the more pressing and obvious feature was the defendants’ apparent use of customer lists, pricing and other materials belonging to and developed by the plaintiff.
[18] On an interim basis, Justice McArthur ordered the defendants:
Not use or disclose confidential information as defined in the consulting contract;
Not solicit any known existing or known prospective customers of the plaintiff; and
Not solicit any of the plaintiff’s current employees or contractors.
The Application
[19] The parties filed extensive and voluminous affidavits and documentation in respect of the injunction application. Several witnesses were cross-examined on their affidavits.
[20] On his cross-examination on his affidavit, Mr. Gouin conceded that he used the AM Group contract template approximately five times in connection with his work with Dream Exteriors. He used a new template beginning in March 2021. The defendants deny the templates, pricing lists and other data are either confidential or proprietary.
[21] The defendants also deny that Mr. Gouin solicited key customers such as Belfor away from the plaintiff. They acknowledge Belfor began doing work with Dream Exteriors but point out there is no evidence from either Belfor or the plaintiff that the defendant influenced Belfor’s decision. In any event, the defendants stopped doing any further work with Belfor after the interim order.
[22] The defendants retained Harold Burt-Gerrans, of Epiq Forensic Analysis to purge the defendants’ electronic devices of any potential AM Group materials. The defendants submit they did this on a proactive basis to mitigate any concerns that the plaintiff’s alleged confidential information is in their possession. The files were identified through a selection of keywords designed to capture data that may relate to AM Group. Mr. Burt-Gerrans reports that approximately 8,000 pieces of data were identified and deleted. The file contents themselves had not been examined as of the time of this hearing. Therefore, there is no information as to whether any of this data is, in fact, from the plaintiff’s confidential information.
[23] The plaintiff submits the forensic examination is incomplete and raises more concerns. The expert’s search terms omitted other possible keyword searches that would reasonably identify possible AM Group data. Of greater concern is the list of the file names generated by the search thus far indicates the defendants were in possession of more AM Group proprietary and confidential information than previously known. The defendant’s expert also acknowledged on cross-examination that Mr. Gouin had not provided him with all the electronic devices for the forensic search. There is a second laptop which was still to be examined at the time of the hearing.
[24] The plaintiff states it was more concerned rather than satisfied by the forensic report. The report prompted it to conduct an audit of its cloud storage network in September 2021. The plaintiff concluded the audit demonstrates the plaintiffs are in possession of another computer laptop that continued to access the plaintiff’s cloud storage on several occasions since Mr. Gouin’s departure. This laptop most synced with the plaintiff’s cloud storage recently as September 15, 2021, over two weeks after the interim injunction forbidding such activity. The results of that audit were summarized by a plaintiff employee in an affidavit served on the defendants after cross-examination of Mr. Gouin. I shall address that issue further in these reasons.
The Hearing
[25] The injunction application came before me to be argued on October 20, 2021.
[26] A preliminary issue arose under r. 39.02 regarding further affidavit evidence sought to be filed by the defendants after the cross-examinations.
[27] Mr. Gouin was cross-examined on his affidavit on September 21, 2021. He was questioned about his possession and use of a MacBook. The next day, the plaintiff served a supplementary affidavit by a plaintiff employee. This supplementary evidence claimed the defendant had two MacBooks that synchronized with the plaintiff’s computer network on several occasions and most recently on September 15, 2021. On September 23, 2021, the plaintiff cross-examined the defendant’s expert Mr. Burt-Gerrans. The expert did not accept that the plaintiff’s evidence showed the defendant had continued access to AM Group’s confidential information.
[28] The defendants sought to file supplementary affidavits from Mr. Gouin and the expert Mr. Burt-Gerrans to refute the plaintiff’s accusation. The plaintiff opposed admission of this evidence pursuant to r. 39.02.
[29] I ruled that as a matter of fairness and justice that leave should be granted for the filing of these affidavits. The mischief originated with the plaintiff’s service of an affidavit after cross-examination of the defendant, contrary to r. 39.01 and where he was not confronted with the plaintiff’s information and belief. The information in that subsequent affidavit appeared to have been withheld from the defendant during his cross-examination. In any event, it was information that was relevant and raised for the first time by the plaintiff after the defendant’s cross-examination. The plaintiff was arguably entitled to file this affidavit on the basis of it being newly-acquired information. The defendant and his expert were similarly entitled to respond.
[30] The defendant Gouin’s bankruptcy has been raised as a possible bar to these proceedings. Although it was addressed in the plaintiff’s written submissions, it was not argued by either party at the hearing. I accordingly leave that issue to be addressed by the parties in the future, if necessary.
Analysis
[31] The three-part test for granting an interlocutory injunction as established in RJR MacDonald v Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311 is well-recognized. The moving party must establish:
There is a serious question to be tried;
The moving party will suffer irreparable harm if the injunction is not granted;
The balance of convenience favours granting the injunction.
[32] As it relates to the first branch of this test, I agree that a higher standard than “serious question” must be satisfied in cases where the moving party seeks to enforce a restrictive covenant that is intended to place restrictions on a person’s ability to engage in their chosen vocation and to earn a livelihood. The moving party must show that it has a strong “prima facie” case: Camino Modular Systems Inc. v. Kranidis, 2019 ONSC 7437 at para. 15.
[33] The general rule is that non-competition clauses will only be enforced in exceptional circumstances: Camino Modular, supra at para. 17. When determining whether a restrictive covenant is reasonable, the court considers a variety of factors, including whether there is a proprietary interest entitled to protection, whether the temporal or spatial features of the clause are too broad and whether the covenant is unenforceable as being against competition generally. The court must also determine whether the restrictive covenant is ambiguous: Camino Modular, supra at paras. 18-19. Courts should read restrictive terms into an employment contract when the parties have not bargained for them: PointOne Graphics Inc. v. Roszkowski et al. 2021 ONSC 629 at para. 25.
[34] The defendants challenge the enforceability of the restrictive covenants; however, are prepared to continue to abide by the interim injunction of McArthur J. pending further order of the court and the defendants’ partial summary judgment motion returnable in February.
[35] The defendants’ willingness to continue to abide by the interim order on consent raises the question as to the necessity for this interlocutory injunction. The plaintiff submits that the balance of the relief sought, including an order that the defendants cease and desist business, is justified on an interlocutory basis because of the defendants’ appalling conduct in clear contravention of the contract, the breach of the interim order and the late disclosure of the existence of a second laptop computer.
[36] I find the evidence falls short of demonstrating a prima facie case for relief beyond the interim terms currently in place. The relief sought is extraordinary and would put the defendants out of business without the benefit of a trial.
[37] These are my primary reasons for dismissing the application:
The interim order of McArthur J. enforces the substance of the restrictive covenants in the contract. The order enjoins the defendants from using confidential information as defined in the consulting contract and prohibits the defendants from soliciting either known or prospective plaintiff clients or the plaintiff’s current employees or contractors.
A number of the terms proposed for the interlocutory relief go beyond the express terms of the restrictive covenants in the consulting contract. For example, various aspects of the plaintiff’s business enterprise are identified. This was not expressly delineated in the consulting contract, which only expressly refers to the plaintiff’s roofing business. I am not prepared to read additional restrictions into the contract on this record.
The interim order already curtails the defendants’ business operations. The evidence on this motion does not justify an order requiring them to cease operations short of a trial. I was not taken to any authority to support the plaintiff’s request. Evidence which ostensibly shows that the defendants accessed the plaintiff’s network after Mr. Gouin’s departure and in breach of the interim order may justify consideration of such an interlocutory order. However, the plaintiff’s theory has been soundly rejected by the defendants’ forensic expert and fails to raise a prima facie concern meriting interim protection. I accept the expert’s conclusion it is unlikely that either of the MacBooks identified by the plaintiff as syncing to the plaintiff’s network belong to the defendants. The defendants have now identified there is another MacBook in their possession and advise that this has been provided to the forensic expert for review. The court understands the plaintiff’s suspicion; however, this information was volunteered by the defendants, who elected to retain this expert to assist them in mitigating any issues arising from use or possession of the plaintiff’s information.
The application record on this hearing highlighted the defendant’s conduct as justifying the injunctive relief. In my view, the applicant is still required to demonstrate the reasonableness of the restrictive covenants on solicitation and competition. In particular, I note the plaintiff principal has stated that Mr. Gouin was free to work with any company, so long as he did not use any confidential or proprietary information. The authorities filed by both parties indicates there may still be an issue as to the enforceability of the restrictive covenants in any event of the proper characterization of Mr. Gouin’s employment relationship. A plaintiff who sues upon an express negative covenant will not be awarded interlocutory injunctive relief automatically: Carecor Health Services v. Health Trans, 2006 CanLII 21049 (ON SC) at para. 18. Restrictive covenants are restraints of trade and are prima facie presumptively unenforceable. The onus is on the party seeking to enforce the covenant to show the reasonableness of its terms. The reasonableness of a restrictive covenant is examined through review of the geographic coverage of the covenant, the period of time in which it is effective and the extent of the activity sought to be prohibited: K.R.G. Insurance Brokers (Western) Inc. v. Shafron, 2009 SCC 6 at paras. 13, 17 and 26. It should go no more than is reasonably required to protect the employer’s proprietary interests: 2158124 Ontario Inc. v. Pitton, 2017 ONSC 411 at para. 36. The general rule is that non-competition clauses in employment contracts will only be enforced in exceptional circumstances: PointOne Graphics Inc. v. Roszkowski et. al., 2021 ONSC 629 at para. 24. A valid non-solicitation clause must clearly advise the former employee which customers are off limits. Omission of such information can make the covenant ambiguous and therefore unenforceable: Camino Modular, supra at para. 37.
I am not satisfied the plaintiff has demonstrated irreparable harm that justifies the additional terms sought on this interlocutory order. Cases involving the use of confidential information or restrictive covenants can raise a presumption of irreparable harm. However, the court, in exercising its discretion with respect to the remedy sought, is to have regard to the presumption raised by the contract and whether the responding party has discharged the presumption: Ontario Graphite Ltd. v Janik, 2016 ONSC 716 at para. 62. Assuming without deciding that the defendants are or were in possession of the plaintiff’s confidential proprietary information and that the covenants are enforceable, I am not satisfied that there is irreparable harm warranting the further injunctive relief sought. The interim injunction has been in place since August 2021 and the defendants ceased doing any business with identified clients of the plaintiff. The impugned conduct took place between February and August 2021. The defendants have raised evidence through their accountant to show that damages from the alleged breaches can be identified.
The plaintiff seeks orders directing the defendants to disclose the identities of all past and potential customers of the plaintiff who have been contacted by the defendants, with the substance of the communication and any proposals to the customers or agreements entered into with the customer. The plaintiff also seeks a return of all of the plaintiff’s confidential information that is in the defendants’ possession. Neither of these requests were substantively addressed in argument and are better left to address in the discovery process.
[38] The plaintiff’s application is therefore dismissed. Justice McArthur’s order of August 27, 2021 continues, subject to the discretion of the judge hearing the partial summary judgment motion, further order of the court or on further motion of either party.
[39] I encourage the parties to resolve the costs of this application. If costs are not resolved, the defendants shall deliver their written submissions within 30 days of the release of this decision. The plaintiff shall deliver its written submissions within 14 days thereafter. No reply may be delivered without leave. Written submissions are limited to two pages excluding a costs outline and any offer(s) to settle.
Justice K. Tranquilli
Released: January 13, 2022
COURT FILE NO.: 981/21
DATE: 20220113
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AM GROUP OF COMPANIES LTD.
Plaintiff/Defendant by Counterclaim
– and –
JOSIAH GOUIN, COURTNEY BECKER and 12724332 CANADA CORPORATION
Defendants/Plaintiffs by Counterclaim
REASONS FOR JUDGMENT
Tranquilli J.
Released: January 13, 2022