Court File and Parties

COURT FILE NO.: CV-19-00624420 and CV-20-00651202 DATE: 20240430

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GS INTERNATIONAL HOLDINGS LTD. and YIN WU Plaintiffs – and – SMART VISION DIRECT INC., GALAXY SECURITY CORPORATION, AND LI FANG CHEN Defendants

Counsel: James J. Dunphy, for the Plaintiffs and Defendants by Counterclaim Albert S. Frank, Ronald S. Minken, and Tajpreet Sambi, for the Defendants and Respondents by Counterclaim

AND BETWEEN:

GALAXY SECURITY CORPORATION, SMARTEYES DIRECT INC., AND LI FANG CHEN Plaintiffs by Counterclaim – and – GS INTERNATIONAL HOLDINGS LTD., YIN WU, ZI PIN WANG a.k.a. PETER WANG, GS GLOBAL SECURITY INC., and JAEDEN WIENS Defendants by Counterclaim

AND BETWEEN:

2322932 ONTARIO INC. Plaintiffs – and – GS INTERNATIONAL HOLDINGS LTD., YIN WU, ZI PIN WANG a.k.a. PETER WANG, GS GLOBAL SECURITY INC., and JAEDEN WIENS Defendants

HEARD: March 18, 19, 20, 21, 22, 25, 26, 27, 28, April 2, 3, 4, and 5, 2024

AKAZAKI J.

REASONS FOR JUDGMENT

INTRODUCTION

[1] The plaintiffs’ $5,000,000 action and the $30,000,000 counterclaim entailed ambitious commercial tort claims for damages arising from a complicated division of corporate assets whose core goodwill was valued – optimistically – at $500,000. The contractual debt claims were mostly undisputed. During the thirteen-day trial, the parties rapidly set their sights at more modest amounts for the tort claims. Toward the end, a jeweler’s loupe could have proved handy to measure and track the tort losses attributed by each party to the other.

[2] All the parties appear to have proved was that wrecking a business into constituent parts can confuse customers and send them elsewhere.

[3] For many years, the two protagonists worked side by side to develop a successful business. However, the founder kept control and the key employee remained a junior partner. The latter proposed the creation of a second company to be capitalized by new investors and participants, to even out their respective influence and to expand the business into new markets. The founder was reluctant to do that, but she was also not averse to realizing money out of the deal. When they went ahead with the corporate expansion, the founder thought the two companies would be complementary and occupy stratified positions in the market. The new people thought the new company would succeed the original one. The right-hand man, who caused this misunderstanding at some level, at least initially had to straddle both positions.

[4] The combined business failed to work out as expected. They performed a share swap and tried to divide the business. The swap was mostly successful, apart from the fact that the founder failed to fund it as required. The agreement for the division of the business laid down not so much a path to coexistence but a minefield. It is from one or more mine explosions in the immediate steps after the breakup that this litigation arose.

[5] After sifting through the issues and the evidence, the court can conclude that there was some money owed from the last transaction, the calculation of which was mostly admitted. Apart from that calculation, the court can find that the founder mildly slandered her former colleague and interfered with business of the spun-off second company using unlawful means. The court could not accept her claim that the colleague and a salesperson in his camp had breached fiduciary duties owed to her companies by using the spun-off entity to conduct business that overlapped with hers.

[6] If the above abstract of the lawsuit reads like the Coles Notes prolegomenon of a lesser-known and far-too complicated play, the reader may appreciate its simplicity if not its absence of an audience-friendly wrap-up scene. Everything hereafter entails training the eyeballs independently to follow the cast of characters and the similarly named corporate names. Ultimately, the court’s role is not to comment on the business efficacy of the parties’ conduct but to see whether, and to what extent, one party has wronged the other. If the lawsuit is destined for disappointment for both parties, it is not for the court invent a more dramatic conclusion to the argument.

[7] On June 1, 2006, Annie Chen opened Smarteyes Direct Inc. to carry on business selling security surveillance equipment in Markham. Gabriel Wu was a colleague of Ms. Chen from a previous company, Canada Computers, and agreed to be a SmartEyes employee.

[8] On May 12, 2009, Ms. Chen incorporated Smart Vision Direct Inc. as a real estate holding company. It is the landlord of the Markham location of Smarteyes.

[9] On December 3, 2009, Smart Vision Direct Inc. filed an application for registration of the trademark GALAXY & Design for Video surveillance systems and related equipment. Remarkably, the Canadian Intellectual Property Office granted registration on April 27, 2011.

[10] On April 3, 2012, Ms. Chen incorporated 2322932 Ontario Inc. (“932”) to operate a Smarteyes branch in Mississauga.

[11] All the while, the parties agreed Ms. Chen and Mr. Wu enjoyed an excellent working relationship. He worked very hard to grow the business. She appreciated his efforts and wanted to ensure he and his family were looked after.

[12] On April 1, 2014, Mr. Wu purchased a 20% interest in both of Smarteyes and 932 for total consideration of $321,277.12. The purchase price consisted of total value of the two businesses at $1,606,385.58. This figure was calculated from $956,385.58 on account of inventory plus accounts receivable less accounts payable, $500,000 on account of business goodwill (described as “business sell”), and $150,000 on account of leasehold improvements.

[13] Ms. Chen and Mr. Wu continued to work together as majority and minority stakeholders in Smarteyes and 932 until late 2017. According to Mr. Wu, he began to object to Ms. Chen’s dictatorial style and to business practices involving the hiring of unqualified foreign workers for immigration purposes. Ms. Chen denied he ever raised these objections. She testified that he had international ambitions for the business and proposed a new company to exploit the Galaxy trademark and to build a distribution network competing with Smarteyes’ own suppliers. She testified that she was reluctant to introduce new shareholders and to relinquish majority control. Mr. Wu, she stated, promised her that the two of them would always combine to maintain control.

[14] On December 6, 2017, Ms. Chen and Mr. Wu incorporated Galaxy Security Inc. and invited investors. They met with a lawyer. The lawyer suggested they have the Galaxy trademark be valued by a professional if they were going to leverage its transfer in exchange for shares in the company, so that new investors could not later accuse them of conflict of interest. The company accountant valued it as between $390,879 and $424,870. The share capital in the company consisted of 1,000,000 shares valued at $1 per share. The original allocation among seven investors, as follows, as of February 16, 2018:

1. Annie Chen: 370,000
2. Gabriel Wu: 250,000
3. Jie Guan: 100,000
4. Peter Wang: 30,000
5. Wenjun Zhou: 100,000
6. Yu Quiao: 100,000
7. Piyush R. Ukani: 50,000

[15] All investors except for Annie Chen and Gabriel Wu were to invest cash. Annie Chen and Gabriel Wu were to transfer the trademark valued at $500,000, with Annie being compensated $30,000 and Gabriel adding $150,000 in cash because his stake in the trademark was $100,000. There was no explanatory evidence connecting the $500,000 figure with Mr. Wu’s 2014 valuation of Smarteyes’ business goodwill. One could not ignore the coincidence and the fact that Chen and Wu received shares based on that figure and not the basis of a lower figure in the range of $400,000.

[16] The share structure was changed on March 15, 2018, to the following:

1. Annie Chen: 330,000
2. Gabriel Wu: 250,000
3. Jie Guan: 100,000
4. Peter Wang: 100,000
5. Wenjun Zhou: 100,000
6. Yu Qiao: 100,000
7. Ruoxi Wang: 20,000

[17] Annie Chen reduced her shares and received $70,000 out of the capitalization, on March 26, 2018. This was funded by Peter Wang increasing his stake by the same amount.

[18] On September 15, 2018, Ms. Chen sold 70,000 shares in Galaxy Security Inc. to Feng Shen (“Frankie”) at $2 a share, for a total of $140,000. This changed the share structure as follows:

1. Annie Chen: 260,000
2. Gabriel Wu: 250,000
3. Jie Guan: 100,000
4. Peter Wang: 100,000
5. Wenjun Zhou: 100,000
6. Yu Qiao: 100,000
7. Ruoxi Wang: 20,000
8. Feng Shen: 70,000

[19] At some point in 2018, Ms. Chen provided shareholder loans to Galaxy Security Inc. in the total amount of $208,000.

[20] It was not long before the parties were to split up. According to Mr. Wu, Ms. Chen tried to run the combined organization as if she were still the owner. Ms. Chen testified that Mr. Wu and Mr. Shen came to her home to announce their decision to have Galaxy Security Inc. invest in a Québec sheet metal business and incur $2,000,000 in debt and leasehold liability. She was upset and decided the two entities could no longer coexist as a common business.

[21] On December 13, 2018, Ms. Chen and Mr. Wu entered into a “Transnaction [sic] Agreement”

1. “Galaxy brand transaction has been cancelled,” i.e., trademark not to be assigned. This meant Ms. Chen and Mr. Wu had to replace the $500,000 value of the trademark with cash.
2. Mr. Wu paid $100,000 to Galaxy Security Inc.
3. The $330,000 owed by Ms. Chen was offset by $208,000, resulting in a net amount owed by Ms. Chen to Galaxy Security Inc. of $122,000.
4. Ms. Chen sold her remaining 260,000 shares in Galaxy Security Inc. to Mr. Wu at $1 per share ($260,000).
5. Mr. Wu sold his 20% share in Smarteyes and 932 to Ms. Chen for $350,511.29.
6. The share swap resulted in net $90,511.29 owed by Ms. Chen to Mr. Wu.
7. Smarteyes refunded $70,000 “deposit” to Galaxy Security Inc. for the remaining value of the trademark not assigned by Smart Vision.
8. Ms. Chen returned her share certificate in Galaxy Security Inc.
9. Mr. Wu returned his share certificates in Smarteyes and 932.

[22] The net amount paid and owed after the $90,511.29 balance from the share swap described in item #6 above led to divergent accounting, depending on the parties’ positions:

Gabriel Wu: He received $60,000 from Ms. Chen and waived $511.29. She owed him $30,000.

Annie Chen: She had lent Mr. Wu $50,000 in April 2015 to enable him to repay his uncle for having enabled Mr. Wu’s 20% investment in Smarteyes. In the swap transaction, she paid Mr. Wu $60,500, consisting of $40,500 and a loan of $20,000. He owed her $19,988.71.

[23] Mr. Wu’s position benefited from the elegant simplicity that the arithmetic lined up with Ms. Chen’s version was consistent with Ms. Chen lack of ready funds to pay $122,000 to Galaxy. Ms. Chen’s position involved two loans of $50,000 (to be repaid on his existing Smarteyes) and $20,000 separated by about four years.

[24] In para. 45 of her statement of defence and counterclaim, Ms. Chen pleaded that this was a $60,000 loan, not a management bonus or dividend. The Smarteyes accounting entries and the actual cheque showed that Mr. Wu had received $60,000 in April 2015, labelled “Investment return.” Neither side called the bookkeeper who entered the amount and the characterization in the books. Ms. Chen, as the only signing officer at Smarteyes with authority above $2,000, did not contradict the note on the cheque. Apart from the $10,000 difference in amount, it did not make sense for him to receive a loan as income, since he would owe the full amount but would need to declare it as income. Business records are prima facie proof of facts stated therein, and that anyone challenging their accuracy is free to call witnesses to do so: Ares v. Venner, [1970] SCR 608, at 626. The company’s records therefore corroborated Mr. Wu’s version, namely that he never received a $50,000 loan from Ms. Chen in April 2015.

[25] I found the claim for the $20,000 loan also problematic. Despite the exchange of written agreements, there was not even a promissory note or an I.O.U. If Ms. Chen owed Galaxy Security Inc. $122,000, of which Mr. Wu was to become the majority shareholder, Mr. Wu owed it to his minority shareholders to collect that amount and not be further indebted to her by asking for a separate handout of $20,000. Finally, if the term of the $50,000 loan was that it would be due when Mr. Wu exited as a shareholder of Smarteyes, Ms. Chen would only leave them financially entangled if she were to lend him a further $20,000.

[26] The contractual indebtedness portion of the lawsuit is therefore easy to resolve. Ms. Chen admittedly owes $122,000 to Galaxy Security Inc., and she owes Gabriel Wu $30,000. The accrual date for the purposes of prejudgment interest is December 13, 2018.

[27] On January 25, 2019, Galaxy Security Inc. changed its name to GS International Holdings Ltd.

[28] On February 16, 2019, Peter Wang incorporated GS Global Security Inc. as a federal company based in Edmonton, Alberta. As of April 1, 2019, it was a wholly owned subsidiary of GS International Holdings Ltd. holding all 10,000 shares. As of October 31, 2019, the share structure changed to:

1. GS International Holdings Ltd.: 4,500
2. York Spring Group Ltd. (Feng Shen): 3,000
3. Peter Wang: 2,500

[29] The parties have not asserted any corporate oppression remedy claims, and none leap from the page as being congruent with such a cause of action. However, before describing the post-separation conduct and the legal issues arising from them, I will set out my understanding of the economic and corporate interests that were bought and sold by the parties and non-parties.

[30] I start with the trademark, if for no other reason than its prominence in the plaintiffs’ claim. The trademark registration was and remains in the name of Smart Vision Direct Inc., the real property holding company. There was no dispute that this entity never sold, manufactured, or serviced CCTV or security equipment or similar wares.

[31] The foundation of the Canadian trademark registration regime, including the administrative process of the Canadian Intellectual Property Office, is the definition of “trademark” in the Trademarks Act, R.S.C., 1985, c. T-13, s. 2. The relevant definition reads, with my italics added:

(a) a sign or combination of signs that is used or proposed to be used by a person for the purpose of distinguishing or so as to distinguish their goods or services from those of others.

[32] The origin of this law is s. 3 of the United Kingdom Trade Marks Act of 1905. It defined a trademark as “a mark used or proposed to be used upon or in connection with goods for the purpose of indicating that they are the goods of the proprietor of such trademark by virtue of manufacture, selection, certification, dealing with, or offering for sale.” The seminal case interpreting it was Bowden Wire Ld. v. Bowden Brake Company Ld. (1914), 31 RPC 385 (Eng. H.L.). The House of Lords, at 392 RPC, stated that “The object of the law is to preserve for a trader the reputation he has made for himself, not to help him in disposing of that reputation as of itself a marketable commodity, independent of his goodwill, to some other trader.” The Bowden Wire case is useful historically because it articulated the state of the law at a time when it did not permit the assignment or the licensing of a trademark apart from its goodwill. As it so stood, the law in that decision was the purest expression of the source theory of trademarks. The core principle, preserved in the Canadian statute, is that the registrant must use or represent that it will use the trademark.

[33] Since that time, Anglo-American trademark statutes have evolved by allowing assignment of trademarks. This reform did not derogate significantly from the original principle that a trademark must associate the registrant with the user. The assignee must then use the trademark. If a trademark ceased to be distinctive of the registrant, its value also ceased and jeopardized the registration itself. The current provision in the Trademarks Act, s. 48, captures this policy:

48(1) A trademark, whether registered or unregistered, is transferable, and deemed always to have been transferable, either in connection with or separately from the goodwill of the business and in respect of either all or some of the goods or services in association with which it has been used.

(2) Nothing in subsection (1) prevents a trademark from being held not to be distinctive if as a result of a transfer thereof there subsisted rights in two or more persons to the use of confusing trademarks and the rights were exercised by those persons.

[34] Earlier in the statute, s. 18 contains the jeopardy of a trademark registration that is not distinctive of the registrant as a user of the mark:

18 (1) The registration of a trademark is invalid if

(b) the trademark is not distinctive at the time proceedings bringing the validity of the registration into question are commenced;

[35] The reason why the trademark registration was significant was that Annie Chen and Gabriel Wu capitalized Galaxy Security Inc. with money from external shareholders and from Mr. Wu himself, based on the value of the Galaxy trademark being set at $500,000. They brought the trademark to Galaxy Security Inc. for all of Ms. Chen’s shareholding and part of Mr. Wu’s. Ms. Chen also received a rebate from the capital funded by the other shareholders because her share of the trademark represented $400,000 of value. Since a trademark is so closely tied to the goodwill of the company using it, at least with respect to the wares or services in respect of which it was used and registered, an investor in the new company could not be faulted for believing that the transfer of the trademark represented a transfer of the registrant’s goodwill. Neither Mr. Wu nor the investors seemed to know the registrant was not Smarteyes, but another company set up by Ms. Chen. Ms. Chen therefore misrepresented the trademark as being an asset of Smarteyes.

[36] A second source of value of the capitalization of Galaxy Security Inc. was the efforts made by that company to become an exclusive Canadian distributor of Todaair access points. That Galaxy company entered an exclusive contract with Jiangmen Todaair Electronic Co. Ltd., on July 26, 2018. The signing officer was Annie Chen. At that time, the shareholders of Galaxy Security Inc. would have known that the exclusive distribution contract had considerable value. Later, when Ms. Chen sold a stake in Galaxy Security Inc. to Feng Shen at double the share price, this would have been an asset of the company. Mr. Shen testified that the ability to sell the Todaair product pursuant to the agreement was an important asset of the company.

[37] The trademark and the Todaair contract were important elements in the chronology.

[38] When Ms. Chen and Mr. Wu parted ways, Smarteyes agreed to compensate Galaxy Security Inc. for not having assigned the trademark. That essentially accounted for the fact that Smarteyes had agreed to contribute an asset it never owned and which, in the hands of Smart Vision, had questionable value. Along the way, however, Ms. Chen had profited by the phantom trademark transaction by personally raising $140,000 from Mr. Shen. Mr. Shen’s understanding was that Smarteyes’ clients would all become Galaxy Security Inc. clients, and that the trademark was essentially a symbolic component of Smarteyes’ goodwill. In other words, Galaxy Security Inc. was to be a recapitalization of Smarteyes through a new corporate vessel.

[39] The Todaair contract was Galaxy Security Inc.’s most valuable asset if it were to have a future in the distribution market higher up in the supply chain. Ms. Chen, as will be seen, diverted the Todaair distribution to her own company by falsely informing Todaair that the name of Galaxy Security Inc. had changed to Smarteyes Direct Inc. There was some question about the economic impact of this interference with the contract, because GS International was able to obtain the products from Todaair despite the exclusivity now accorded to Smarteyes.

[40] The parties and non-parties’ expectations and understandings of the values of the corporations and the exchange represented by the trademark assignment and the acquisition of the exclusive Todaair distribution must therefore inform any consideration of the issues between and among the parties in this case. Although he proved not to be a good witness, objectively the court is inclined to view the corporate dealings through from the perspective of Mr. Shen (Frankie), who paid Ms. Chen to buy into Galaxy Security Inc. at double the price the others paid.

[41] Mr. Shen’s evidence was essentially that Galaxy Security Inc. represented a vehicle for injecting capital into the Smarteyes business. This seemed to have made sense, given that Ms. Chen and Mr. Wu had represented that Smarteyes had transferred the Galaxy trademark to the new company and Galaxy was entering contracts for supply of security products such as Todaair. Mr. Shen, a relative outsider in that he was brought in three months prior to the breakup of the organization, might not be entirely faulted for thinking that Smarteyes was now irrelevant to the business.

[42] Then, in 2019, Galaxy Security Inc. no longer had the trademark and, it turned out, no longer had the Todaair contract. In Ms. Chen’s mind, it no longer had access to Smarteyes’ customer base, either. The parties evidently had divergent ideas of what the two businesses were or possessed after they split them up. It had not occurred to the members of either side to consult business lawyers to negotiate a detailed exit deal. Instead, Mr. Wu put together a “Business Trading Agreement,” along with handwritten addendums negotiated with Ms. Chen.

[43] The Business Trading Agreement of January 3, 2019, contained two parts. The first part, entitled “Background,” was a preamble setting out the parties’ understanding of the two companies’ shared business. It recognized both as distributors of security equipment. Smarteyes stocked products at Galaxy’s warehouse and shared staff. Describing Smarteyes as “SVD” (by equating it with the trademark owner, Smart Vision), it contained the following cryptic statement:

SVD rotates products to Galaxy for sales efforts. Galaxy rotates products to SVD as marketing effort and storage efforts.

[44] Whatever the preamble meant, the remainder of the agreement provided an outline of the parties’ expectations going forward. It did not read like a separation agreement at all. I will paraphrase the eleven paragraphs as follows:

1. Smarteyes could deal in products supplied by Petawise and LTS without having to buy them from Galaxy. Smarteyes would have to continue buying from Galaxy products sourced during Galaxy’s 2018 business, except for Todaair. (More on this exception later.)
2. Galaxy will change its corporate name and cease using the Galaxy trademark.
3. The parties will continue to provide each other preferential margins on flow-through sales.
4. All Galaxy clients such as Provo, Sentry and Vmedia will stay Galaxy clients. Also, a provision regarding the Galaxy European company which defies interpretation.
5. Galaxy will charge Smarteyes warehousing fee of $3,000 a month.
6. Employee Qing Wang to be transferred from Galaxy to Smarteyes.
7. Item crossed out.
8. Galaxy to refer customers to Smarteyes for technical support.
9. Project referrals between the parties will earn the referrer a 30% finder fee.
10. Referrals generated through everyday client interactions will be subject to a 14% commission.
11. The two companies’ employees and shareholders will “keep company trade information and customer information in confidence” and will not leak them.

[45] In addition to the eleven typewritten provisions, the parties apparently included the following handwritten paragraphs, which are as follows, subject to correction of spelling:

12. Amy Weng will only handle Smarteyes Direct accounting job after January 20th, 2019.
13. Galaxy Security Inc. will not solicit Smarteyes direct’s current customers (dealers or projects).
14. Galaxy Security Inc. will not purchase Galaxy branded products from Smarteyes direct’s suppliers.

[46] It would be unfair to embark on a legal exegesis of this combined document to point out all the contradictions. Nevertheless, there was an inherent tension between the expectation in the first eleven points and the last three, in that the businesses had been integrated to a large extent and now Ms. Chen wanted to extract Smarteyes as it existed prior to the formation of Galaxy. In hindsight, one should not be surprised to see how this agreement became each party’s talisman for prevalence over the other, once litigation broke out.

[47] Before concluding this section, I observe that on December 22, 2020, Smarteyes filed a name change to Galaxy Security Corporation. I therefore granted a motion at the opening of trial under rule 11 to amend the name of Smarteyes Direct Inc. to Galaxy Security Corporation. In case this final corporate maneuver adds to the confusion over nomenclature, I will refrain from adopting it except in the title of proceeding to this judgment.

POST-SEPARATION ISSUES BETWEEN THE PARTIES

[48] Within seven months after the January 2019 Business Trading Agreement, the plaintiffs issued their statement of claim. Unlike the transaction history above, there was no substantial consensus about the course of events during those months. In two days in October 2019, they were in court before Perell J. arguing competing motions for injunctive relief. In a decision reported at 2019 ONSC 6338, the court dismissed both motions with costs in the cause, except for two orders related to the hacking into or interference with GS International’s computer system and websites and a third order restraining the defendants from defaming the plaintiffs.

[49] Despite the success of neither party, the limited injunction had the effect of limiting the facts of claim and counterclaim, aside from the contractual debt claims I have already resolved in the plaintiffs’ favour, to events during those months and to the alleged consequences arising from them.

[50] The plaintiffs’ claim originally sought proprietary rights to the Galaxy trademark, on the theory that Ms. Chen had not compensated GS International for the cancellation of the assignment. This claim was discontinued. What remained of the plaintiffs’ claim was for business defamation and for interference with contractual relations. In particular, the plaintiffs consisted of three principal allegations:

1. Ms. Chen and her employees at Smarteyes made it known in the common customer and supplier base that Gabriel Wu was experiencing financial difficulties.
2. Ms. Chen went behind GS International’s back to renegotiate the exclusive distribution agreement with Todaair on the basis that Galaxy Security Inc. had changed its name to Smarteyes Direct Inc. (and not to GS International).
3. Ms. Chen informed customers to buy products such as Todaair access points from Smarteyes because Galaxy Security Inc. was no longer able to supply them.

[51] The counterclaim is that Gabriel Wu and Peter Wang breached their fiduciary duties as former key employees of Smarteyes in setting up GS Global in direct competition with Smarteyes and by soliciting Smarteyes’ customers’ business. The counterclaim against the two GS entities also incorporates those fiduciary breaches as well as alleged contractual breaches. The contractual breaches arise from the undertakings in the Business Trading Agreement.

[52] During the final submissions, the plaintiffs by counterclaim discontinued the counterclaim against Jaeden Wiens.

PLAINTIFFS’ CLAIMS

[53] The plaintiffs’ claims arising from the accounting of the misspelled “Transnaction Agreement” were straightforward. I have already found that Annie Chen owes GS International $122,000 and owes Gabriel Wu $30,000, both as a matter of contractual debt.

[54] The plaintiffs both claim damages in defamation. GS International claim damages against the defendants for intentional interference with economic or contractual relations.

[55] The plaintiffs sought to amend the statement of claim to plead that GS Global had assigned in writing its tort claims to GS International. The assignment was not tendered into evidence at the trial. Nor was there notice under s. 53 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34. The plaintiffs argued that s. 53 applied only to legal assignments and did not affect equitable assignments. I did not see how a written assignment could be anything other than a legal assignment, since equitable assignments were legal assignments that were missing the formality of a written instrument. In any event, I need not decide that issue because an assigned claim is barred after the expiry of two years and cannot be brought, for the same reason why I could not grant leave to add GS Global as a party plaintiff.

[56] In the alternative to the assignment argument, the plaintiffs sought to add GS Global as a plaintiff to claim damages attributable to its loss of income arising from the tort claims. The plaintiffs argued that the essential facts of that entity’s claim were already pleaded. I did not agree with that characterization, because all the tort claims were described in terms of harm to GS International. I dismissed the motion. I appreciate that rule 26.01 requires the court to grant amendments to pleadings at any stage of the action unless prejudice would result that could not be compensated for by costs or an adjournment. The ability to compensate for prejudice becomes more difficult in a motion to amend pleadings at trial, because it puts the defendant in the position of requiring an adjournment or lose the ten-day window for responding to an amended pleading under rule 26.05. Nevertheless, if the moving party is prepared to incur the enormous costs consequences, the court is usually bound to grant the amendment.

[57] As I mentioned during the trial, I had a hard time understanding the argument that GS Global should be added as a party if it had assigned the claim to GS International. It could have been avoided if GS Global had sued at the same time as GS International. However, GS Global seeks to introduce this new claim, it is ultimately barred by prescription.

[58] One ground of non-compensable prejudice has long been the effect of an expired prescription period. The Ontario Limitations Act, 2002, S.O. 2002, c. 24, Sch. B., s. 21, prohibits the adding of a party where the two-year limitation period has expired, except to substitute names of parties in the event of misnomer. In the case of misnomer, the number of parties remains unchanged. Rule 26.01 and the “special circumstances” doctrine was superseded by s. 21. A party cannot be added to assert an additional claim, where the limitation period has expired.

[59] The plaintiffs then argued GS Global could direct GS International to bring a derivative action under the Business Corporations Act, R.S.O. 1990, c. B.16 s. 246, in its name or in the name of its subsidiary. Since GS International was already prosecuting its action, there was no need for an order allowing GS Global to take over carriage of it. GS Global was not a subsidiary of GS International because GS International only held a 45% share. Under s. 1(2), a parent must have a controlling interest in a subsidiary. GS Global did not fall into the definition of “complainant” under s. 245, except perhaps if the court were to consider it an appropriate complainant. In my view the remedy under s. 246 was too square a peg for the round hole, and it did not overcome the fact that GS Global’s claim, even if it were a subsidiary, was still barred by s. 21 of the Limitations Act, 2002.

[60] This effectively left GS International as the only corporate plaintiff. There is some doubt whether GS Global an actionable claim against the defendants had, but I need not delve into that issue.

(a) Defamation

[61] The claim in defamation was really slander because there was no evidence of written defamation. The alleged slander arose from a rumour that Gabriel Wu was encountering financial difficulties in 2019. This started from a comment by Annie Chen to Dexter Liu, a representative of Petawise, one of Smarteyes’ suppliers, that one of the Mississauga employees had lent Mr. Wu $100,000 which remained unpaid. She also told others that Mr. Wu was no longer in the security and surveillance camera business because she understood Mr. Wu was principally involved in the sheet metal company. This latter category of utterance was more appropriate for consideration in the interference claim, since it was not defamatory per se.

[62] The defendants sought to amend their statement of defence to plead justification of the allegation that Mr. Wu had been having financial problems. I did not allow the amendment because the disruption to the trial to delve into Mr. Wu’s finances in 2019, or the alleged $100,000 loan, as a branch issue. Moreover, the statement that Mr. Wu had financial issues was marginally defamatory in that most people apart from the very rich have or have had financial difficulties from time to time. It is not a characterization that inherently lowers the subject of the statement in the esteem of ordinary people.

[63] The statement that Mr. Wu had borrowed $100,000 from an employee and had not repaid it also fell into this grey area. On the evidence, it was likely untrue, and the defendants had not pleaded the justification defence. A loan is subject to different considerations if one draws attention to in a point in time. Most homeowners owe money to lenders, for example. The implication that the employee had mentioned the loan to Ms. Chen suggests that employee was upset that it had not been repaid. Ms. Chen would not have mentioned it to a third party, if it were not to affect Mr. Wu and GS International.

[64] The slander against Mr. Wu’s financial status being marginal in defamatory impact and lessened in the jungle telephone of industry rumours, it falls into the lower range of defamation cases, which in turn tend to attract modest damages awards even in the clearest of cases: Hill v. Church of Scientology of Toronto, [1995] 2 SCR 1130, at para. 169. I therefore assess the damages suffered by Mr. Wu arising from the defamation to be in the order of $2,000. The amount reflects the fact that Mr. Wu likely suffered little or no reputational harm but is significant enough that he can dispel any lingering rumours by telling people the court ordered damages against Ms. Chen for having spread a false rumour.

[65] The case in slander cannot extend to any commercial disadvantage alleged by GS International, because the falsehood uttered against Mr. Wu does not implicitly suggest to an ordinary person that his financial woes or inability to repay a loan made GS International less financially reliable.

(b) Intentional Interference

[66] The cause of action known as intentional interference with economic relations or contractual relations is often pleaded but rarely successful. The elements of the tort were described in Joshi v National Bank of Canada, 2016 ONSC 3510, at paras. 10-11, as follows:

1. The defendant intended to injure the plaintiff’s economic interest.
2. The interference must have been illegal or effected by unlawful means committed against a third party.
3. The plaintiff suffered actual economic harm as a result.

[67] It is the wrong done to the third party that usually obstructs the success of the pleading. In the commercial context, the illegal or unlawful conduct occurs when a trader induces a third party to terminate a contract with the plaintiff. This is usually based on misrepresentation or fraud. It used to be argued that defamation of the plaintiff in that context was not a candidate for this tort because defamation was sufficient to find a claim. However, the Supreme Court held that a party can advance a claim both in defamation and in intentional interference: A.I. Enterprises Ltd. v. Bram Enterprises Ltd., [2014] 1 SCR 177, 2014 SCC 12, at paras. 77-82.

[68] GS International’s case against the defendants was that, after the corporate split, Annie Chen and her employees at Smarteyes and 932 let it be known to customers and suppliers that Gabriel Wu and Galaxy were no longer in the business of selling security and surveillance equipment. Ms. Chen alleged that she and her employees were speaking the truth, citing her understanding of the Business Trading Agreement. This interpretation of the agreement stretched credulity, since it expressly reserved certain suppliers and clients to Galaxy.

[69] There were specific examples of misrepresenting to industry partners of Galaxy’s exit from the business. For example, she told Mitch Perlman, a buyer at Prestige and Rostech, that Smarteyes had the exclusive distribution agreement with Todaair. This led him to purchase about $64,800 of Todaair access point units from Smarteyes from January to July of 2019. As I will set out momentarily, this was a misrepresentation directed at Prestige and Rostech based on a fraud committed against Todaair. In August 2019, Mr. Perlman started purchasing the units from GS International after finding out that he had access to the units.

[70] $64,800 represented sales that Smarteyes diverted from GS International in an unlawful manner. In order to calculate the damages, however, one has to factor in the input costs. The agreement with Todaair did provide for supplier price management, but beyond this there was no evidence of the actual margin. Based on the defence accounting expert’s estimate of approximately 30% margins, I calculate the gross profit loss or damages suffered by GS International to be $19,440.

[71] The interference with Todaair’s exclusive distribution agreement with GS International involved a fraud. Annie Chen, who had negotiated the July 26, 2018, agreement on behalf of Galaxy Security Inc., approached the Todaair representative in China and secured an amendment to the agreement stating that Galaxy Security Inc. had changed its name to Smarteyes Direct Inc. The amendment also changed the mailing address to Smarteyes’ address.

[72] On January 20, 2020, Ms. Chen executed a termination of the agreement in the name of “Galaxy Security.” This led one to wonder whether the above name change was ever implemented and whether the only change was the mailing address. Neither she nor anyone else offered an explanation for the early termination of a lucrative arrangement that was not to expire until July 31, 2021.

[73] The defendants offered several explanations for these documents, including Annie Chen’s ability to understand a document that was written in English and Mandarin. She pointed to the Business Trading Agreement in which Todaair’s name was crossed out, from which she inferred that the agreement would be transferred to Smarteyes. Even if this construction of that provision was valid, it did not account for the fact that the amendment to the Todaair agreement did not reflect an assignment.

[74] At one point, she suggested that Smarteyes had already registered a business name registration for “Galaxy Security” on January 9, 2019, and her intended change of the corporate name of Smarteyes to Galaxy Security Corporation. This did not account for the amending the Galaxy name on the agreement to Smarteyes, i.e., the other way round.

[75] None of these explanations rebutted the plain acts of Ms. Chen, to deceive Todaair into believing that Galaxy Security Inc. changed its name to Smarteyes Direct Inc. for the purposes of diverting the exclusive distribution of the access point hardware to Smarteyes and making it hard for Galaxy, or GS International, to continue to supply the products to its customers. The experience of Mr. Perlman corroborated this. All the elements of the interference tort have been established, including the usually elusive element of the actionable wrongs committed against third parties. Both the supplier, Todaair, and the customers, Mr. Perlman’s companies, were misled and induced to change the supply and purchasing behaviour as a result of the deceptions.

[76] The plaintiffs led evidence of various shareholder loans in the hundreds of thousands of dollars that they maintained represented the overall economic impact of the defendants’ torts. They maintained that the refusal of suppliers to offer products on payment terms meant the shareholders had to bankroll the business of GS International as a cash operation. This, in turn, made it hard to stock the products and serve customers.

[77] The problem with this approach to the economic damages is that the actionable harm is hard to tie in with an undercapitalized business that was, as the defendants argued, essentially a new venture. Ms. Chen owed the company $122,000, traceable to her initial purchase of shares with her stake in a trademark of dubious value and held by Smart Vision Direct Inc., a stranger to all the transactions. Galaxy had taken on a $2,000,000 financial liability to start the sheet metal business. There was a great amount of confusion over which customers were Galaxy’s and which were Smarteyes’. Whatever immediate impact the deception had on Todaair, it seemed Todaair was prepared to breach the exclusive distribution agreement and supply GS International with the access points. Finally, GS International did not submit its 2018 financial data as a basis for comparison with the 2019 figures.

[78] The fact that GS International decided to establish GS Global to compete in the Smarteyes business space further muddied the waters. This, the counterclaimants argued, was intended to circumvent GS International, Gabriel Wu, and Peter Wang’s legal and fiduciary duties to Smarteyes and 932. I will deal with that issue separately in dealing with the counterclaim. However, the vague and sparse evidence of the economic impact of Ms. Chen and Smarteyes’ interference meant that it was hard to see any lasting effect beyond 2019. It was therefore not surprising that the plaintiffs argued the intentional torts of the defendants warranted an award of damages at large, as set out in Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, at paras. 84-85. They put forward the amount of $75,000 as satisfying the compensatory and exemplary nature of this head of damage.

[79] I appreciate that the interference cause of action entails loss that cannot be readily quantified as special or pecuniary damages. The other side of the equation in this case is that this aspect of the claim relate to a narrow area of GS International’s operations. It should have been within that plaintiff’s means to produce data from 2018 showing how many units of Todaair access points it sold, to compare them to 2019 figures, and to apply any drop or increase in margins. Damages at large cannot be a substitute for the best evidence of damages arising from a tort. Since Mr. Perlman evidently represented a major buyer of the access points, I am prepared to consider that the sum of all other buyers of the product from GS International were equivalent to his purchases. Therefore, I will assess damages in the total amount of $40,000, inclusive of the $19,440 attributable to Mr. Perlman’s companies.

COUNTERCLAIM

[80] The counterclaimants allege that Gabriel Wu and Peter Wang breached fiduciary duties owed to Smarteyes and 932 arising from their status as senior employees and, in the case of Mr. Wu, a shareholder and director, by competing with their former companies and taking part in the solicitation of former companies’ business.

[81] The counterclaim against GS International is based in contract, principally the Business Trading Agreement.

[82] Finally, the counterclaim against GS Global is based on its status as the instrument of breach of fiduciary and contractual duties of the other defendants to counterclaim.

(a) Fiduciary Duty Claim

[83] The counterclaim against Gabriel Wu is based on his role as the “right-hand man” of Annie Chen, his roles as shareholder, director, and general manager of Smarteyes and 932. He had direct and privileged access to all suppliers and customers. The counterclaimants contended that he breached his fiduciary duties to those entities after GS International founded GS Global as a subsidiary to compete with Smarteyes and solicit its customers.

[84] The counterclaim relied on the key-employee category of fiduciary duty stated in the seminal case of Canadian Aero Service Ltd. v. O'Malley, [1974] SCR 592. That decision stands for the proposition that senior employees owe a duty of loyalty beyond their termination of employment, because the business opportunities they acquired during the course of employee is subject to a form of trust. Those opportunities, at least for a reasonable time, still belong to the company and not to the departing employee.

[85] Mr. Wu defended the allegation on the basis that Ms. Chen had an overwhelming majority share and operational control over the entities. His discretionary decision-making authority was limited. He only had cheque signing authority of up to $2,000.

[86] The counterclaim against Peter Wang is based on his role as branch manager of the Mississauga outlet of Smarteyes, operated through 932. In the event he is not a fiduciary of that company, the counterclaimants rely on a broad net of fiduciary duty cast over senior employees and over any lower-rung employees that join the senior employees in a new venture competing with their former employer: Alberts et al. v. Mountjoy et al. (1977), 16 O.R. (2d) 682

As well, where a defendant of lower rank such as the defendant Butt might have claimed immunity from the duties attaching to a fiduciary, he lost that advantage in joining with Mountjoy in the new business venture which successfully diverted the business opportunity of his former employer and fixed him with the same fiduciary duty as Mountjoy.

[87] The Alberts rationale for capturing the non-critical employees in the fiduciary category has been rejected as departing too far from Supreme Court of Canada decisions on the subject: Imperial Sheet Metal Ltd. et al. v. Landry and Gray Metal Products Inc., 2007 NBCA 51, at para. 5, recently adopted in Mann Engineering Ltd. v. Desai, 2021 ONSC 7580, at para. 114.

[88] Before analyzing the existence of a fiduciary duty, I observe that the evidence of actual solicitation was underwhelming. After the promise in the pleadings and opening statement of a campaign to go after Smarteyes’ customers, this aspect of the case might be described as so much bathos.

[89] Mark Cox, of Candoo Security Products Inc., testified that Peter Wang telephoned him to inform him he had left Smarteyes. The only instance where he purchased equipment from GS Global was a $1,683.70 order for motorized cameras after Smarteyes told him they were out of stock.

[90] Gary Streisel also received a similar call from Mr. Wang, and he received numerous calls until January 2020. However, he only bought products from Smarteyes because he preferred its website.

[91] Edmund Lucas operated a security camera installation service called RTS Security. After he received a call from Mr. Wu, he did start to purchase Galaxy cameras from GS Global because they had them in stock. After the stock ran out, he stopped purchasing from GS Global because the product was not as good, and the support was not as good as Smarteyes.

[92] Filip Kunsten had a good relationship with Jaeden Wiens because their offices were near each other. He sought advice from Jaeden. Nevertheless, he only purchased about $3,000 from GS Global. Similarly, Floyd Edison of Edison Security Services Inc. contacted Jaeden Wiens and not the other way round, and Anthony Fanelli kept in contact with Peter Wang and purchased Uniview cameras from GS Global for a while. His only concerns were the availability of product and price.

[93] None of this testimony showed that either Gabriel Wu or Peter Wang had seized upon their previous privileged access to the counterclaimants’ clients to remove a measurable portion of the business. Assuming, for the sake of argument, that these former employees of Smarteyes and/or 932 did these things and were fiduciaries of those entities, I am unable to conclude that the events following the breakup engage the fiduciary duty principle. The reason is that Smarteyes, 932, and Galaxy were all incorporated by Annie Chen to run three businesses with a significant amount of integration. They attempted to untangle them in the two agreements distributing the securities and allocating the business opportunities. The first was relatively clear, if complicated. The second was not clear at all.

[94] Annie Chen relinquished her interest in Galaxy. She evidently felt she was left with full authority and legal ability to run Smarteyes and 932. Gabriel Wu and the other principals of Galaxy relinquished their interest in Smarteyes and 932, including the trademark and some poorly defined portion of the common business. Each continued separately to do much of what they had previously done under the same umbrella. The situation is therefore entirely different from the paradigm where a key employee leaves for a competitor. Annie Chen used to be the largest shareholder of Galaxy and had expected to control it with Gabriel Wu as the trusted proxy to make up the majority. If Gabriel Wu was a fiduciary of Ms. Chen’s first two companies, the same reasoning would apply to have made Ms. Chen a fiduciary of Galaxy in a manner that constrained her ability to compete with Galaxy. Instead, she proceeded to interfere directly with a major asset of Galaxy by deceiving Todaair into handing Smarteyes the exclusive distribution agreement.

[95] What appears to define the post-breakup relationship is the provision in the Business Trading Agreement making the two corporate groups joint custodians of the trade secrets and customer information. Had Ms. Chen wanted Mr. Wu, Mr. Wang, and the other Galaxy stakeholders to refrain from treating the customer base as exclusively the property of the Chen group, she could have negotiated a clearer deal. Indeed, they could have gone through the customer list and divided it up. Not having done so, she cannot adopt the position in a trial five years later that Messrs. Wu and Wang were fiduciaries prohibited from using the customer information to which she expressly agreed they could keep with them. To do so would run counter to the business reality of the agreement.

[96] For the above reasons, there was no breach of a fiduciary duty owed by Messrs. Wu and Wang to Ms. Chen or her companies.

(b) Restrictive Covenant Claim

[97] The common law of contracts recognizes a tension between two public policy norms in agreements that restrain trade. On the one hand, parties enjoy freedom of contract only limited by statute and by public policy. On the other hand, the restraint of trade is considered contrary to public policy: Shafron v. KRG Insurance Brokers (Western) Inc., [2009] 1 SCR 157, 2009 SCC 6, at para. 16. Where the issue regarding a restrictive covenant is scope or ambiguity, the court may in limited circumstances resort to notional severance or blue-pencil severance: Shafron, at para. 2. Notional severance involves reading down a contractual provision to make it enforceable. Blue-pencil severance entails the removal of trivial or non-material words to clarify the intended meaning of a contractual provision.

[98] The Supreme Court has described the above balance has been different, based on the nature of the contract. It will be harder to enforce a restrictive covenant in the employment context than in a sale of a business, if the sale includes payment for the vendor’s business goodwill: Shafron, at para. 21. The Business Trading Agreement seemed to be a type of business sale agreement, because Mr. Wu and Ms. Chen were divesting from each other’s brainchild companies. The surrounding circumstances, including the historical genesis of the transaction, inform the construction of contracts: Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53, at para. 47.

[99] One of many challenges in applying this case law to the Business Trading Agreement, particularly the handwritten portions against the soliciting of “current customers” and against purchasing Galaxy-branded products from Smarteyes’ suppliers, is the conflicting meaning between those portions and the preceding typewritten paragraphs. The background provisions or preamble describe the two entities as integrated both vertically and horizontally, in that they were both part of the distribution chain to the customers and and in that they shared facilities and personnel. The first eleven operative provisions, apart from the words struck out by pen and initialed, evidenced an intention to continue such integration in some respects and to separate the links in other respects. The further backdrop to the entire transaction is the fact that Wu and Chen both made representations to the investors in Galaxy Security Inc. regarding the assets being brought to the company connected with the goodwill, consisting of customer relations and trademark.

[100] Thus, when construing the Business Trading Agreement, I read no provisions expressly allocating the goodwill that Smarteyes brought to Galaxy being extracted back to Smarteyes, apart from the cancellation of the trademark transfer in the “Trasnaction Agreement.” As stated above in the discussion of the fiduciary claim, paragraph 11 of the Business Trading Agreement clearly contemplated that the companies’ employees and shareholders keep their “trade information and customer information in confidence.”

[101] This last point is material to the evidence that one or more of the departing employees took with them customer and product lists of Smarteyes. Ms. Chen testified that the exporting or downloading of such computer files was not part of their functions. This seemed to be less than credible, because it conflicted with her evidence that the sales personnel contacted dozens of customers every day. One of the offending employees was said to be the bookkeeper. The subject was not explored in sufficient depth to determine why such lists would not be relevant to her job function.

[102] The court did not hear or review any evidence from an information technology audit showing the files had been removed from the office computers or sent to departing employees’ personal email accounts. Given the computers remained in the possession of Smarteyes and 932 and given Ms. Chen’s remaining employees were technologically savvy enough to infiltrate Galaxy’s computer system, it would not have been hard to obtain that evidence either through in-house efforts or bringing in a forensic consultant.

[103] The testimony on behalf of the defendants to counterclaim was that the former employees denied having used Smarteyes customer lists or having intentionally solicited those customers. Their evidence of denial was rather short, but they were not seriously cross-examined on the issue either. The counterclaimants asserted that the common customers of the two groups post-separation was strong evidence from which one could draw an inference of improper solicitation. I agree there appears to be a ring of truth to this assertion. There were two pieces of evidence eroding its validity. First, as will be discussed in the section on damages, the lists of common customers included names of examples of business connections reserved for Galaxy. This meant the lists themselves only provided evidence of common customers and did not of wrongful solicitation or competition by either side of the divide. Second, there were repeated instances in the oral testimony, including the counterclaimants’ witnesses, that the security camera installation community was self-contained and relatively small.

[104] The contractual breach claim must fail because the contract itself is far too vague to establish a clear allocation of the business that would have been off-limits for Galaxy to pursue, and because the evidence was unclear about the customers that did business with the two sides’ businesses. For the reasons stated in the discussion of the fiduciary duty claim, the business reality of the situation indicated a virtual free-for-all in 2019 in which the two groups hurt themselves in the market by failing to define better the terms of their business disentanglement. The breach of contract claim must therefore fail.

(c) GS Global

[105] The claim against GS Global appears somehow to be linked with the claims against Messrs. Wu and Wang and against GS International. In other circumstances, I would consider lifting the corporate veil if it were simply a device to circumvent legal obligations owed by GS International and its principals. Given my determination regarding the fiduciary and contractual claims, I will not embark on an analysis of GS Global’s potential liability.

(d) Damages Claim - Counterclaim

[106] Although my rulings above will result in the dismissal of the counterclaim, my vantage point as trial judge allows me to consider the confusing evidence for assessment of damages, in the event my decision is successfully appealed. The case for assessment of damages arising from the fiduciary and contract claim consisted of two elements.

[107] First, the two sides’ customer lists were submitted in confidence to a neutral lawyer, Barry Fisher. Mr. Fisher is a respected Toronto mediator-arbitrator practicing mainly in the employment law field. His task was to compare the customer lists and identify those he considered common.

[108] Second, the counterclaimants’ lawyers submitted the list of common customers to an accounting expert, John Douglas. Mr. Douglas tracked the gross profits earned by Smarteyes and 932 during the 2017-2022 period on sales attributable to the common customers. He then took the overall annual rate of decline of such profits and multiplied the figures by a factor of four. Four, in his experience, represented the years of customer loyalty attributable to a business’ goodwill once it secured that customer’s custom.

[109] There were at least three lists of common customers over time, depending on discovery and disclosure, including a disclosure I ordered from the plaintiffs at the outset of trial. Several of the names on the list were on the Business Trading Agreement as allocated to Galaxy Security Inc. There was no means of determining whether there were other names falling into the category of business contacts allocated to Galaxy Security Inc. Perhaps Mr. Fisher should have been provided more instructions. The result of this is that the court had no real evidence from which to determine whether any given name fell into the category of “current customers (dealers or projects)” of Smarteyes and 932, as provided in the handwritten portion of the Business Trading Agreement.

[110] The accounting evidence suffered from a similar lack of forensic rigor. Both sides’ counsel, in chief and in cross-examination, encountered difficulty deriving an accounting opinion that explained Mr. Douglas’ methodology and the connection to a measure of damages. The expert evidence consisted almost entirely of spreadsheets with explanatory notes without an in-depth narrative.

[111] Unfortunately, to prevent my being completely confused by the evidence, I asked him whether his calculation boiled down to using the quantitative difference between the 2017 and 2022 sales and applying yearly costs figures to obtain an average change in gross profits. To this, fortunately, he readily agreed. He also agreed that: (1) the final figures derived from this method was not necessarily a faithful measure of Smarteyes and 932’s actual loss during the intervening years; and (2) the 2017 reference point might better have been set at 2019 when the cause of action asserted by the counterclaimants likely started.

[112] In addition to the questionable method of comparing the final year in a five-year set of intervals to the first year, I did not find that Mr. Douglas grasped or was fully instructed about the basis for his four-year multiplier. He testified that every lost customer represented a customer who would have remained loyal to Ms. Chen’s companies for at least four years. The evidence from the third-party dealers and installers was that some were loyal to Messrs. Wu and Wang and would stay that way, some to Ms. Chen’s companies and would remain with them, and others were interested in a supply of products for use in their installations and shopped widely. This evidence undermined the expert’s theory that all the subject customers would have continue to buy from Smarteyes and 932 for at least four years, were it not for unfair or unlawful competition by the GS companies.

[113] Between the court’s inability to discriminate among the lists of common customers an allocation between the two separating parties and the expert’s figures not really measuring a loss attributable to the allegedly unlawful competitive acts of the GS defendants to counterclaim, it was difficult to discern a clear measure of damages. The counterclaimants asked the court to assume or surmise that the common customers did not materialize out of nowhere and that they must have been lured away from Smarteyes and 932. The evidence from the dealers and installers called as the counterclaimants’ witnesses, however, did not prove a great deal of business being diverted from the counterclaimants to the defendants to counterclaim. Had there been a more substantial shift of business in that direction, the counterclaimants could have tendered evidence from those entities’ representatives instead.

[114] There were any number of intangible factors in the apparent decline in Smarteyes and 932’s business from the common list of customers for the subject period. A significant amount of business traceable to the list could have been entities allocated to Galaxy Security Inc. in the Business Trading Agreement. The business could have suffered overall from the disruption of the breakup and the loss of the most experienced salespeople. There is no purpose in speculating further.

[115] I appreciate that litigation budgets constrain the ability of parties to connect damages to the alleged tort or breach of contract with scientific precision. However, the evidence here did not rise to the level of reliability from which one might presume or infer loss, or a particular measure of it, resulting from the alleged wrongs: Clements v. Clements, [2012] 2 SCR 181, 2012 SCC 32, at paras. 9-13. I appreciate that future damages and consequential damages may be measured on a “reasonable chance” standard (Moretto v Nicolini-Femia, 2017 ONSC 3945, at para. 76, applying Schrump et al. v. Koot et al. (1977), 18 O.R. (2d) 337 (ON CA)). However, the damages alleged to have been incurred in the aftermath of the 2018-2019 breakup must be considered special damages which must be proven to have been suffered as a result of the impugned conduct.

[116] After having heard the expert’s evidence and considering his calculations of the counterclaimants’ loss, it is my view that any damages for custom drawn away by GS International and/or GS Global’s competition (without regard to the legality of such competition) would have been limited to the year after the break-up. There was simply no cogent evidence tracking a causal connection beyond the immediate term. This would also account for a number of factors making the measurement extremely difficult for any longer period:

a. Some of custom that would have followed Messrs. Wu, Wang, and Wiens in any event. b. The loss of senior salesforce would have caused some loss to Ms. Chen’s companies independent of any wrongful cause. c. Some of the customers could well have diverted some of their buying elsewhere. d. Revenues were declining year after year from 2017 to 2021. e. In 2021, the gross margin reached the pre-2019 levels.

[117] Therefore, contrary to Mr. Douglas’ methodology using 2017, I would use the 2018 year as a base and compare it to 2019, subject further to the caution that he used fiscal years ending on July 31 instead of tracking the alleged cause of action starting early January. The raw number for the difference in gross margin is $212,924. Assuming there was something to Mr. Douglas’ theory of customer retention and countervailing reasons for further discounting, the best estimate of the loss attributable to competition by the GS entities would be $200,000.

SUMMARY OF LIABILITY

[118] Annie Chen is liable to GS International Inc. in contractual damages for $122,000, and $40,000 in damages for intentional interference with contractual or economic relations.

[119] Annie Chen is liable to Gabriel Wu for $30,000 in contractual damages and $2,000 for having initiated the rumor that he was suffering from financial difficulties and that he had borrowed $100,000 from an employee.

[120] The date for accrual and calculation of prejudgment interest on the $122,000 and $30,000 awards is December 13, 2018. The total prejudgment interest at 2.0 percent amounts to $8,178.

[121] Given the difficulty in setting a precise date for accrual of the tort claims, I will set the date of August 1, 2019, as the date for calculation of the prejudgment interest, at 2.0 percent, on the $40,000 and $2,000, for a total of $1,944.

COSTS

[122] Unless there are material rule 49 offers, the plaintiffs are presumptively entitled to costs of the action. I encourage the parties to settle the costs with a view to the proportionality principle. If they cannot agree within 20 days hereof, the parties shall exchange bills of costs and costs submissions within a further 20 days, followed by any responding submissions within 10 days. In no circumstances shall the submissions exceed three pages.

[123] The bills of costs and costs submissions shall be filed with the court and copied to my judicial assistant.

Akazaki, J.

Released: April 30, 2024