Every week, Bell Temple LLP selects and reports on interesting and relevant decisions from the Ontario Superior Court of Justice, Ontario Court of Appeal, and Supreme Court of Canada.
This week’s case reports are written by Liam Mackrell
Home Coffee Solutions Ltd. v. Amarshi, 2023 ONSC 6772 (CanLII),
https://canlii.ca/t/k1gjn
The parties to this action are in the business of providing “home coffee solutions”, which the Court summarizes as selling coffee makers and packaged coffee through Amazon or their own website. The Plaintiffs accuse the Defendants, who are formerly associated with the Plaintiffs business, of copying their work product. The Plaintiffs seek a wide range of injunctive relief which would have the effect of shutting down the Defendants now competing business.
The parties started doing business in 2017. The Plaintiffs provided the funding, and the Defendants ran the business. The Defendants believed their efforts were their investment in a business to which they were a 50% partner. The Plaintiffs believed the relationship was that of owner and subcontractor. No contract was ever signed over the parties’ relationship. The evidence suggests that the Defendants were never paid for their efforts and that the profits were shared 50/50, the parties were equal guarantors on the lease, the parties shared equally in paying the salaries of employees, and generally, in the opinion of the Court, acted as though they were partners. This was further evidenced by the fact that the parties were at one point in the process of negotiating a dissolution agreement for the business, which the Court suggests is something only done between equity partners.
Two weeks after the business was eventually dissolved in April 2023, the Defendants contacted the re-sellers with whom they were already doing business and started doing business under a new company. The Court determined that the Plaintiffs suffered no significant loss from the Defendant’s selling goods to the re-sellers. The Court also determined that there was nothing wrong with the Defendants continuing to sell products through their Amazon store, as there was no evidence presented which suggested that the Plaintiffs had sole proprietorship over the Amazon account.
The Court is of the opinion that the injunction request is truly about the Plaintiffs considering the Defendants to be unfairly competing with them. However, there was never any non-competition or non-solicitation agreement between the parties, and without the same there is no obligation on the Defendants not to compete or solicit. Further, nothing in law prohibits former contractors from using the knowledge of business gained from their employment.
The Plaintiffs also suggested that the Defendants were using the Plaintiffs’ customer list, and wanted that list returned and deleted from the Defendants possession. Plaintiffs’ counsel argued that the Defendants were fiduciaries of the business and as such had a duty not to appropriate for themselves confidential information, such as a customer list. There are two problems with these submissions from the Plaintiffs. First, the Defendants would only be fiduciaries of the business if they were partners, as the Defendants contend. If the Defendants were partners, any customer list from the former business would also be the property of the Defendants. Second, there is no actual customer list. There are customers who used the business’ website and their contact information is ascertainable from a digital search of the former business. The Defendants have this information because they ran the former business. The Plaintiffs also have access to this information.
The Plaintiffs have also produced no financial information indicating that they have lost any revenue at all from the web business since the original business dissolved. Plaintiff counsel admitted that there was no evidence of financial loss or that the above noted digital list was even in use. However, the Plaintiffs expressed a fear that the Defendants could, in future, use the former client information. The Court determines that an anticipatory remedy, known as a “quia timet injunction”, is not available against former contractors or business associates who had access to confidential information, where the moving parties have provided no evidence that the information was actually used or is going to imminently be used.
To support an injunction, plaintiffs must show that i) they have a strong prima facie case or that there is a serious question to be tried, ii) it will suffer irreparable harm in the absence of an injunction, iii) the balance of convenience favours the moving party. The Court determines that the Plaintiffs fail on all three aspects of the test. The evidence does not support that the Defendants misappropriated anything from the Plaintiffs. The Plaintiffs have provided no evidence of any harm suffered. The Defendants business would be effectively shut down with an injunction, whereas the Plaintiffs have not shown that they would suffer at all in the absence of an injunction. The Court, in dismissing the Plaintiffs’ motion, opined that “an interlocutory injunction would add cream and, perhaps, a sweetener to the plaintiff’s business, but its absence will make little difference to them.”
Cheema v. Dhaliwal, 2023 ONSC 6693 (CanLII),
The parties to this action are in a dispute over one corporation in their family business, which contains 16 companies. The Respondent is brothers with one Applicant and brother-in-law to the other two Applicants. The Respondent is the president of the corporation subject to this dispute, and the Applicants are the corporation’s treasurer, secretary and general manager respectively. In June 2023 the Applicants began to question the Respondent’s fiscal management of the corporation, and the Respondent accused the Applicants of financial impropriety in return. At this time the Applicants also learned that the corporation’s records were inaccurate in that they did not reflect that all parties were equal shareholders. The Applicants demanded that the corporate records be rectified to reflect the same.
On August 18, 2023, the Respondent sent the Applicants a notice of special meeting to restructure the corporation, removing the Applicants from their offices and their roles as directors of the corporation. The Applicants had held these roles from 2015 until this time. The Respondent now remains as the sole shareholder and director of the corporation. The Applicants further submit that when the Respondent was notified of this hearing, he informed all the employees of the corporation that he removed the Applicants from their roles in the corporation and warned them from acting as witnesses for the Applicants.
The Applicants motion is for an interim and/or interlocutory order:
- Restraining the Respondent or the corporation from exercising his powers as a director of the corporation, including acting in a way that is prejudicial to the rights and interests of the Applicants
- Prohibiting the Respondent or the corporation from exercising his powers as a director outside the ordinary course of business or which is not in the corporation’s best interests
- Stating that all corporate governance actions or measures taken on August 18, 2023, are of no force or effect
The first two requested orders are deemed to be interlocutory, in that they restrain the Respondent from acting in a way that is prejudicial to the Applicants and/or the corporation. The third requested order is deemed to be a mandatory interlocutory order, in that it would require the Respondent to take positive steps to rectify the actions/measures taken on August 18, 2023.
To support the requested interlocutory injunctions, the Applicants must show that i) that there is a serious question to be tried, ii) they will suffer irreparable harm in the absence of an injunction, iii) the balance of convenience favours the moving parties. The standard the Applicants must satisfy the first part of the test is greater for a mandatory interlocutory injunction. The Applicants must show not only that there is a serious question to be tried, but that there is a strong prima facie case for their underlying claim.
The Applicants submit that although the minute book of the corporation states that the Respondent is the sole shareholder, witnesses, including the third-party accountant used by corporation, refer to all the parties as shareholders, which is evidence that there was an understanding that all parties were equal shareholders. The Court determines that this is sufficient to show that whether the Applicants are shareholders of the corporation is a serious issue to be tried. If the Applicants are shareholders, then the Respondent was not acting within his rights to remove the Applicants from their positions within the corporation. However, the evidence presented does not present a “strong prima facie case” that they are shareholders of the corporation because there is a “very strong presumption that information recorded in a minute book is proof of the facts stated therein”.
The Court determines that there is a real risk of damage to the corporation that the parties allegedly spent almost two decades building if the Respondent is not restrained to act in the best interests of the corporation and without prejudice to the Applicants. The Court opines that “there is no amount of money that could compensate the Applicants for loss of their ownership, control, and oversight of the family business”. However, the Respondent has been the president of the business since its incorporation, and he has agreed to allow the Applicants continued access and engagement in the corporation. Therefore, the Applicants will not suffer irreparable harm if the August 18, 2023, actions/measures remain in place until the Application is determined.
Finally, the court determines that the Applicants would suffer greater harm if the interlocutory injunction to restrain the Respondent is refused. However, if the mandatory interlocutory injunction is granted the Applicants would effectively gain control of the corporation and the Respondent’s rights as a shareholder would be restricted. Therefore, the balance of convenience favours granting the requested interlocutory injunctions but not the mandatory interlocutory injunction.
For the above reasons, the Applicants satisfied the Court that the interlocutory injunction should be granted but failed to satisfy the Court that the mandatory interlocutory injunction be granted.
