COURT FILE NO.: CV-23-92172 DATE: 2023-09-11 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

SEAL IT UP INC. and 111100098 CANADA INC. Plaintiffs/Moving Parties – and – CORY ROBERT IRWIN and ABE CONSTRUCTION GROUP Defendants/Responding Parties

Counsel: Sean P. Bawden & Drew McArthur, for the Plaintiffs/Moving Parties Matthew Kim, for the Defendants/Responding Parties

HEARD: June 16, 2023

Before: Hooper J.

Endorsement

[1] The plaintiffs move for a temporary injunction to enforce a non-solicitation and confidentiality agreement signed by a previous owner of the plaintiff, Seal It Up Inc., when he sold his shares. The plaintiffs claim that the defendants are in breach of those agreements and argue that they should be restrained from activities that will damage the plaintiffs until the matters in dispute can be adjudicated.

[2] The defendants deny any breach of contract, improper solicitation, or use of confidential information but also attack the agreement as unenforceable. They deny that the evidence marshalled by the plaintiffs is sufficient to meet the stringent test for an interim injunction that may prevent the defendant from pursuing his livelihood.

[3] The question before the court is whether or not an injunction is appropriate and necessary to prevent irreparable harm to the plaintiffs in all of the circumstances. For the reasons that follow, the injunction motion is dismissed.

Background Facts

[4] Seal It Up Inc. is a company involved in the installation, service, and repair of industrial doors, loading docks, and related construction services. It was co-founded in 2013 by the defendant Irwin who played a key role in the success and expansion of the business. Irwin was signatory to a unanimous shareholder agreement which included a provision for a forced sale of shares (a shotgun clause). In 2022 the shotgun clause was triggered by Jason Scherbluk, another shareholder, and subsequently the parties entered into an Agreement of Purchase and Sale for Irwin to sell his shares of the company on December 22, 2022.

[5] Under the APS, Irwin received $300,000 in cash, was relieved of substantial personal guarantees, and received title to a Honda Odyssey van. Irwin also signed a Non-Solicitation Agreement (“NSA”) and was required to deliver all property in his possession relating to the business of the plaintiffs (with certain listed exceptions). He was to return his cellular telephone, the cellular telephone’s SIM card, and his laptop computer. He was also to relinquish the phone number he had been using while with Seal It Up.

[6] The negotiations that lead to the APS and NSA took considerable time. Both sides were represented by counsel. When Irwin realized that the plaintiffs were demanding the return of his laptop, SIM card, and cellphone number, he took steps to preserve the data, stating that he had used both his laptop and phone for a mixture of personal and business use. For the laptop, he purchased an external hard drive and copied the laptop’s hard drive to it. For the phone, he backed up the phone’s data, purchased a new phone with a new number, and downloaded the data on the new device. The new cellphone was secured by October 2022, prior to the completion of the purchase agreement.

[7] Irwin states that he backed up the data on these devices because he had used them for both business and personal reasons. With respect to the phone, Irwin has had his phone number for approximately fourteen years, prior to starting Seal It Up. His contact list does not differentiate between work contacts and personal contacts. Some of the work contacts are people he met within the overhead door industry before Seal It Up was founded.

[8] A person who has had a cellphone number for over fourteen years has very likely had to update their phone over that time; probably on multiple occasions. Often data is transferred from the old device to the new device. There is no evidence before me that anyone made inquiries of Irwin as to his phone’s backup, how often it was backed up, where the backup data was stored, or if it was deleted. Irwin was not required to delete his phone’s backed up data as part of the agreement. It appears that Seal It Up assumed if they took the phone’s SIM card, they would take Irwin’s contact list. They were incorrect in this assumption.

[9] Irwin acknowledged that he has accessed the external hard drive since leaving Seal It Up, although he indicates that this access was “rare”. The phone is a different story. He has used his new phone continually since its purchase. Irwin admits that he does not recall telephone numbers without the help of his contact list. However, despite Seal It Up having the SIM card and, therefore, access to Irwin’s contact list as it existed in December 2022, it did not provide the court with that list so the court could understand how extensive this might be and whether the information on that list would truly be confidential.

The Non-Solicitation Agreement

[10] Although I am not making any finding with respect to the enforceability of the NSA, its clauses do provide context to why this motion has been brought.

[11] The NSA between Seal It Up, Scherbluk, and Irwin was executed on December 22, 2022. The preamble confirms that the purchaser (Seal It Up) wishes to “obtain certain assurances that the vendor (Irwin) will not solicit employees, customers and suppliers of the business and will maintain in confidence Seal It Up’s confidential information. Within the non-solicitation provision, Irwin shall not:

2.1 (b) induce or attempt to induce any Person, including any supplier or Customer of the Corporation in connection with the Business, to cease doing business with the Corporation, or in any way interfere with the relationship between any such Person and the Corporation in connection with the Business.

[12] The agreement defines “customer” as the customers listed in Schedule “A” attached to the agreement. Schedule A has hundreds of entities listed.

[13] Article 3 of the Non-Solicitation Agreement concerns confidential information:

3.1 Confidential Information. Subject to the provisions of this section 3.1, the Vendor acknowledges that the Vendor has occupied a position of trust and confidence with respect to the Business, and has become familiar with confidential and proprietary information and material relating to the Business (the “Confidential Information”), including the following with respect the Corporation and the Business:

(c) marketing information, including current and planned marketing activities’ methods and processors, customer lists, current and anticipated customer requirements, price lists and methodologies, marketing research methodologies, market studies, sales and marketing plans and information concerning customers.

[14] The plaintiffs allege that Irwin breached the NSA in relation to four companies:

a) Tonlu Holdings b) Orlando Corporation c) Superpufft d) PCL

[15] As this is a niche industry, with business often generated through referrals, the plaintiffs argue that breaches with these four companies may have resulted in an unknown number of other jobs being lost.

Tonlu Holdings

[16] The moving party alleges that Irwin performed work privately for Tonlu Holdings between May 2022 and October 2022. They learned of this side-job in November 2022, when a Seal It Up clerk noticed an invoice from Tonlu that did not relate to any Seal It Up job number.

[17] I agree with the defendants that the alleged work performed by Irwin for Tonlu Holdings predated the execution of the NSA. Therefore, that work cannot be said to be in breach of that agreement. It was also a singular job that is quantifiable. There is no evidence that the work performed by Tonlu resulted in subsequent work being taken away from the plaintiffs.

Orlando Corporation, Superpufft and PCL

[18] With respect to Orlando, Superpufft, and PCL, the evidence before me, at its highest, is that there has been contact and potentially concerning statements made by Irwin, but nothing more. The plaintiffs concede that they continue to work with these three customers.

[19] The largest of the three customers is Orlando Corporation. Within the affidavit evidence is an email string confirming Irwin’s new company has been approved as a contractor for Orlando. Seal It Up learned of this because the Orlando representative sent the confirmation email to Irwin’s Seal-it Up email address in error. The plaintiffs rely upon this as clear evidence of Irwin’s breach of the NSA. I do not agree. There is no evidence before me that contact between this Orlando representative and Irwin was initiated by Irwin. In fact, Irwin’s evidence is that the representative sought him out. Irwin is allowed to compete with Seal It Up. If a Seal-it Up customer approaches him, that is fair game.

[20] With respect to Super-Pufft and PCL Construction, the affidavit evidence contains layers of hearsay evidence that do not support any actual breach of the agreement, only suspicions and assumptions.

Relief sought on this injunction motion

[21] The plaintiffs seek the following with their notice of motion:

a) An order directing that the Defendants preserve all electronic and hard copy records, data, and documentation relevant to the matters in dispute in this action until the hearing of this action;

b) An Order indefinitely restraining the Defendants from accessing, possessing, and disclosing proprietary confidential information or documentation of Seal It Up, or using that proprietary and/or confidential information or documentation for the benefit of themselves until the hearing of this action;

c) An Interim and/or interlocutory injunction, for the period of one year from the making of this Order, restraining the Defendants from:

i. Soliciting those customers of Seal It Up who were enumerated on Schedule “A” of the Non-Solicitation Agreement executed by Irwin; and

ii. Inducing customers of Seal It Up who were enumerated on Schedule “A” of the Non-Solicitation Agreement executed by Irwin to take their business elsewhere or otherwise interfere with the business relationship of Seal It Up.

d) Its costs of this motion; and

e) Such further and other relief as this Honourable Court may deem just.

[22] When the original motion was brought, the plaintiffs were unaware that Irwin had downloaded the laptop’s hard drive or backed up his phone prior to their return. Upon learning of these events, a draft order was prepared and provided to the court that goes beyond the original notice of motion, including the relinquishment of the external hard drive, new phone’s SIM card, and phone number.

[23] When faced with this motion, Irwin gave the external hard drive to his lawyer to be preserved during this litigation. It is agreed that counsel will hold that hard drive during this litigation and will make it accessible for inspection to the moving party. As such, orders with respect to the hard drive are unnecessary. With respect to the phone, Irwin denies that he has accessed Seal It Up’s confidential information or that he has solicited or interfered with Seal It Up’s customers in any way.

Law and Analysis

Injunctive relief

[24] Section 101 of the Courts of Justice Act, R.S.O. 1990, c.C.43 confirms the Superior Court’s jurisdiction to grant injunctive relief including mandatory orders.

[25] The established test requires the party seeking the injunction to establish:

a) A serious issue to be tried or that a strong prima facie case exists; b) Irreparable harm will result if the injunction is not granted c) The balance of convenience between the party favours the granting of an injunction pending a decision on the merits: R.J.R.-MacDonald Inc. v. Canada (A.G.), [1995] 3 S.C.R. 199.

[26] The parties differ over the standard to be applied in this case. The moving parties take the position that they are seeking an order to enforce the terms of a contract. For this type of order, the court need only be satisfied there is a serious issue to be tried. The respondents argue that when the injunction will restrict an individual’s right to earn an income, the standard is strong prima facie case.

[27] The distinction makes no difference because even if I find that the moving parties have met the test of a strong prima facie case, they have not met their burden on the other two prongs of the test for an injunction at this preliminary stage.

[28] An injunction is an extraordinary remedy. An injunction before any harm is suffered, even more extraordinary. The authorities on quia timet injunctions are helpfully collected together and discussed in XY, Inc. v. IND Lifetech, Inc., 2008 BCSC 1215, 61 C.P.C. (6th) 148 at para. 66:

In an application for a quia timet injunction, the requirement for proof of irreparable harm is refined to account for the fact that the applicant, seeking an injunction in anticipation of future harm, has not yet suffered any harm. The applicant must lead clear evidence showing how much harm will occur and establishing a high probability that, without the injunction, the harm will occur imminently or in the near future.

[29] Not only is the evidentiary record before me unclear as to how much harm may occur, there is also insufficient evidence to demonstrate the extent of any breach. I say this for the following reasons:

a) The NSA, at its highest, prohibits Irwin from inducing or attempting to induce a customer to cease doing business with Seal It Up. It also prohibits Irwin from interfering with the relationship between Seal It Up and its customers. There is no evidence before me that Irwin has or intends to do this. Seal It Up suspects Irwin has taken these steps but the granting of an injunction cannot be based on suspicion.

b) There is no evidence before me that Irwin has initiated contact with any of Seal It Up’s customers. Where there has been contact between Irwin and a few customers, the evidence is either unclear on who called who, or suggests it was the customer who sought out Irwin.

c) Irwin has had the same cellphone number for over fourteen years and gave evidence that some of the contacts on his phone were entered well before he started with Seal It Up. It is therefore unclear what, if any, confidential information is on the new cellphone and what he has accessed.

d) The contract is clear – Irwin was to hand over his phone’s SIM card and relinquish the phone number he has used for fourteen years. He did so. This was a long negotiation. I have no idea why no one thought of including provisions for the deletion of the cellphone’s back up, but Irwin was not required to do so.

[30] I therefore find that there is insufficient evidence to support a finding the plaintiffs will suffer irreparable harm if the injunction is not granted.

[31] Moreover, the moving parties have also failed to persuade me that the balance of convenience in granting this injunction tips in their favour. Much of this motion seeks orders to remind the defendants of their responsibilities in this litigation and under the NSA; an NSA that is now being challenged. An injunction should not be used to remind parties about the obligations they may owe: Boehmer Box L.P. v. Ellis Packaging Ltd., [2007] O.J. No. 1694 (S.C.J.) at para. 74.

[32] The draft order is also a complete overreach. For instance, it seeks an order that Irwin “shall not add any contact information associated with any of the Plaintiffs' customers to any new cellular phone absent the consent of Plaintiffs”. This would, in effect, allow Seal It Up to monitor Irwin’s interactions as he tries to build his business. This is well beyond what Seal It Up is entitled to under the NSA.

[33] On the other hand, granting the orders sought would set back Irwin’s current business. Irwin is the sole breadwinner for his family and supports three young children. Granting an injunction that negatively impacts his new company absent evidence he has harmed or will harm the plaintiffs would be grossly unfair.

Conclusion

[34] The motion for a temporary injunction is therefore dismissed.

[35] The parties uploaded cost submissions to Caselines which I accessed after completing the above decision. While the defendants were completely successful, I do not believe that an award beyond partial indemnity costs is appropriate. There was no offer to settle served that would trigger this higher level of costs.

[36] I do accept the time spent by the defendants’ counsel as reasonable as are the hourly rates. I also find that all disbursements for the cross-examinations should be awarded. I therefore grant costs to the defendants in the amount of $20,442.83 in fees and $4,681.03 in disbursement for a total cost award of 25,123.86 inclusive of HST.

Justice J. Hooper Date: September 11, 2023